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IIROC Internal Investigations and Client Complaints
Letter Summary:
IIROC has proposed changes to a variety of rules relating to client complaint handling processes, which are intended to clarify regulatory expectations and reduce duplicative reporting requirements. While the current ComSet reporting requirements are prescriptive, the amendments introduce a definition of “serious misconduct” that is more principles-based and that would require dealers to report on a specific list of activities (such as theft, material breaches of client personal information), but also other actions where there is either a reasonable risk of material harm to clients or the capital markets, or material non-compliance with IIROC requirements, securities laws or any other applicable laws. The amendments would focus the reporting on matters IIROC staff are most concerned about. Dealers would be required to conduct internal investigations and report to IIROC if they become aware that the dealer, an Approved Person or an employee may have engaged in serious misconduct, within the prescribed time frames. The amendments also codify some best practices with respect to client compliant handling procedures including removing the distinction between verbal and written complaints, setting time limits for internal dispute resolution, prohibiting the use of the term “ombudsman” for internal dispute resolution services, and requiring dealers to document and respond to each client complaint in a manner that a reasonable investor considers effective, fair and expeditious. In addition, IIROC is republishing amendments first published in 2019 to Rule 9500, which eliminates the restriction currently placed on OBSI from sharing information with IIROC staff.
Overview of the Council’s Comments:
The Council believes the Proposed Amendments provide a rigorous analysis of the existing reporting requirements and appropriately set out changes to eliminate duplicate reporting while focusing on potentially harmful matters.
Our key comments are summarized below:
- We particularly support the requirement to report (and investigate) serious misconduct through ComSet (Complaints and Settlement Reporting System).
- We think guidance will be particularly important for Dealers in helping to identify “serious misconduct”, given the subjective nature of the current definition.
- We do not believe a materiality qualifier is appropriate for breaches of securities or other laws. In our view, breaches of laws (securities or otherwise) should draw major conduct questions and will need to be reported and investigated in all cases.
- We believe the framework for Canada’s complaint handling system across financial services could and should be significantly simplified.
- We strongly support the requirements for gatekeeper reports to be made in ComSet.
- It would be helpful if any one particular regulator had the authority and ability to effectively shift a complaint to the right forum if it is initially made to the incorrect regulatory body or complaints resolution authority.
- We continue to urge IIROC and other regulatory bodies that deal with consumer complaints to look at additional ways to share and analyze data in order to identify systemic issues in the market and for investors.