In late November, the Canadian Securities Administrators (the CSA) published a Request for Comment proposing amendments to certain complaint handling provisions of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), relating to the independent dispute resolution service for Canadian registered firms. The amendments would be part of a new framework, where an independent dispute resolution service that is a not-for-profit entity would have the authority to issue binding final decisions.
Current framework
Registered firms are required to follow a dispute resolution process that includes making an independent dispute resolution service available to retail clients free of charge. Other than in Québec, the Ombudsman for Banking Services and Investments (OBSI) is the dispute resolution service mandated for Canadian registered firms. However, OBSI does not have binding decision-making power. This has been identified as a significant design flaw in Canada’s investment dispute resolution system, both internationally and domestically. It is expected that OBSI would be the not-for-profit entity referenced in the new framework.
What stays the same?
For dissatisfied clients, the first step will continue to be advising the firm of the complaint using the firm’s internal complaint process. Once a complaint is made to the firm, a client may choose to have the complaint reviewed by OBSI (or the dispute resolution service in Québec) if it hasn’t been resolved to the client’s satisfaction within a prescribed period of time.
What will change?
Under the CSA proposal, an investigation by OBSI will have 2 stages. The Request for Comment provides an overview of the proposed dispute resolution process in the form of a clear and easy to understand flow chart. Key elements are summarized below:
- Stage 1 – Investigation and recommendation. During this stage, an OBSI investigator will investigate the complaint using an “inquisitorial process” and will provide the parties with a draft recommendation. In general terms, this approach involves an investigator, in an independent and impartial role, taking an active part in investigating the facts of the case before making a recommendation. The parties will have an opportunity to comment on the recommendation and reach a settlement. If a settlement is not reached, the investigator will finalize the recommendation.
Initially, the recommendation is non-binding. However, the recommendation would be deemed to be a final decision that is binding if:
- the client does not opt out of this process and there is no formal objection to the recommendation, and
- a set period of time elapses without either party taking specified action.
If a party makes a formal objection to the recommendation before it becomes a final decision, the investigation will proceed to stage 2.
- Stage 2 – Review and Decision. During this stage, a more senior OBSI decision maker becomes involved. The decision maker considers the objections to the recommendation applying the “fairness standard” and the “essential process test”. While in stage 1, the investigator would only follow an inquisitorial process, at this stage the decision maker would decide which elements of the dispute resolution process are essential to achieving as “efficient, quick and understandable” a process as possible in resolving the dispute in a fair manner. This could range from processes that are inquisitorial to those that are adversarial. Following the review, a final decision is issued. If a firm refuses to comply with a final decision, the decision may be filed as a court order.
How final is a final decision?
It’s a bit confusing. A client cannot reject a final recommendation (in stage 1) or a final decision (in stage 2) once either becomes binding. However, during stage 1, a client can:
- abandon the process or commence litigation; or
- take steps that would result in the recommendation not becoming binding and moving to the stage 2 review process.
A final decision in stage 2 is binding where a specified period of time has passed and if the complainant did not trigger the review, the complainant has not rejected the decision or otherwise withdrawn from the process. There is no statutory right of appeal, though judicial review would be available in appropriate circumstances.
What else is being considered?
The proposed amendments would prohibit firms from using terminology for internal services that implies independence, such as the title “ombudsman” or “ombudservice”. The CSA continues to develop an oversight regime for the identified ombudservice that balance independence with a need for robust monitoring and response by securities regulatory authorities.
So, what do you do?
As always, consider whether you agree with the proposals and engage with the regulators by providing comments if you do not. Comments are most effective if you not only point out where you disagree with the proposals but also suggest an alternate solution. If you don’t wish to submit a comment letter on your own, consider providing your views through your industry advocate (IIAC, PMAC or IFIC, as examples) which may have set up taskforces to discuss this consultation. Comments on the consultation are due by the end of February.
Having said that, it is important to note that the trend globally is for independent dispute resolution services to have binding authority. In our experience, it is thus important to focus on also reviewing and if needed, improving your own internal complaint handling processes.
- First, focus on making sure that your team is well versed on their KYC, KYP and suitability obligations. Perhaps additional training would be helpful, and a reminder that good documentation is critical.
- Second, review your internal dispute resolution process. Perhaps you can reduce the number of complaints that are referred to OBSI by reviewing and clarifying your internal processes.
AUM is here to help with reviewing your policies and procedures; reach out to an AUM lawyer for assistance.
December 21, 2023