On December 7, 2018, the Canadian Securities Administrators (CSA), the Investment Industry Regulatory Organization of Canada (IIROC), and the Mutual Fund Dealers Association of Canada (MFDA) (the regulators) jointly released CSA Staff Notice 31-351, IIROC Notice 17-0229, MFDA Bulletin #0736-M Complying with requirements regarding the Ombudsman for Banking Services and Investments (OBSI) (The Joint CSA/IIROC/MFDA Staff Notice).
The Joint CSA/IIROC/MFDA Staff Notice highlights concerns about some registered firms’ complaint handling systems and participation in OBSI’s services and sets out potential regulatory responses. The three regulators, which jointly oversee the OBSI through the Joint Regulators Committee (JRC), have outlined a number of concerns of regarding the practices of certain registered firms:
- not providing a client with appropriate notification of OBSI’s services within the required timeframes pursuant to subsections 13.16(2), 13.16(3), 13.16(4) and paragraph 14.2(2)(j) of NI 31-103 or the SRO rules;
- misrepresenting OBSI’s services in communications with a client (for example, by implying that OBSI’s services do not become immediately available to the client pursuant to the requirements through the placement and prominence given to OBSI as a complaint dispute resolution service, the language used to describe timelines to access the services of OBSI or the sequence of escalation options following receipt of the firm’s decision);
- exerting pressure on a client to not use OBSI’s services;
- failing to establish and implement complaint handling policies and procedures regarding notification to clients of when and how the complaint can be submitted to OBSI for investigation; and,
- not fully cooperating or assisting OBSI with its investigation of a complaint consistent with OBSI’s Terms of Reference or the SRO rules; and/or pressuring a client to accept any offer.
The regulators are also concerned regarding the use of an internal “ombudsman” by some firms as part of their complaint handling systems, which while not prohibited under Companion Policy 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (CP 31-303), they caution must be fully in compliance with CP 31-303. The regulators warn that an internal ombudsman must not be presented as an “alternative” to the OBSI, nor that it must not be portrayed as something that must be accessed before the OBSI process can be entered into. The regulators see a potential danger that if an internal ombudsman is used as part of the complaint resolution process that it could be used in an abusive manner to wear down an investor to accept a lesser settlement.
The Joint CSA/IIROC/MFDA Staff Notice also sets out regulatory remedies, including but not limited to:
- recommending terms and conditions on the registration of the firm or registered individuals to mitigate risks in the area of concern; and,
- initiating an enforcement investigation of the registered firm and/or registered individual relating to the issue.
The regulators stress their expectations that firms must participate in the OBSI’s dispute resolution process with their clients fairly, honestly, and expeditiously. They caution firms that they are also expected to respond in good faith to each customer complaint in a manner that a reasonable investor would consider fair and effective. They will continue to consider options for strengthening OBSI’s ability to secure redress for investors, a key recommendation made by the independent evaluator in its 2016 report.
CSA Staff Notice 31-351, IIROC Notice 17-0229, MFDA Bulletin #0736-M Complying with requirements regarding the Ombudsman for Banking Services and Investments (OBSI), is available for download from the websites of participating member jurisdictions.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
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