Canada: Dispute Resolution And Mediation Requirements Effective For Registered Securities Dealers And Advisors In Canada –14 Things You Should Know!

Last Updated: May 6 2014
Article by Brian P. Koscak

New dispute resolution and mediation requirements recently came into effect for registered securities dealers and advisors in Canada, such as exempt market dealers and portfolio managers. This article discusses 14 things you should now about them and the appointment of the Ombudsman for Banking Services and Investments (OBSI) as the provider of those services.

  1. Effective date – Effective May 1, 2014, all new registered dealers and advisors across Canada, except in Quebec, must take reasonable steps to ensure that OBSI will be the independent dispute resolution or mediation service that is made available to a client that has an eligible complaint. For purposes of this article: (a) a registered firm is a registered dealer or advisor that is not a member of an SRO, such as IIROC, and does not include a registered investment fund manager; and (b) a complaint is the type of complaint involving trading or advising activity of a registered firm.
  2. Transition period for existing registrants – Existing registered firms, such as exempt market dealers, have a three-month transition period which expires August 1, 2014 when these requirements apply to them.
  3. Three key client contact points involving complaints- A registered firm must provide clients with written notice about the availability of independent dispute resolution or mediation services: (a) at account opening; (b) as soon as possible after a client makes a complaint (e.g., when a firm sends its acknowledgement); and (c) when the registered firm informs the client of its decision in respect of the complaint.
  4. Requirements at account opening – At account opening, a registered firm must provide its client with clear and meaningful written disclosure about the firm's obligations to them if a client has a complaint and the steps that the client must take in order for an independent dispute resolution or mediation service to be made available to the client at the firm's expense. A sample disclosure letter is provided here. A client must first file their complaint with the registered firm.
  5. Requirements at the time of the complaint - If a registered firm receives a complaint from a client, the registered firm must, as soon as possible, provide the client with a written acknowledgement of the complaint that includes: (a) a description of the registered firm's obligations (b) the steps that the client must take in order for an independent dispute resolution or mediation service to be made available to the client; and (c) the name of the independent dispute resolution or mediation service that will be made available to the client and contact information for the service . The registered firm must send a written acknowledgement letter to the client as soon as possible, typically within 5 business days of receipt of a complaint.
  6. Type of information to be sent to a client who has a complaint - A registered firm must send a client who has a complaint: (a) information about the registered firm's complaint process, including timelines for responding to client complaints and when and how to take their complaint to an independent dispute resolution or mediation service; (b) contact information for the independent dispute resolution or mediation service, and any other options available to the client to resolve their complaint; and (c) at the option of the registered firm, a request that the client provide any information that is reasonably required to investigate the complaint, if such information can be identified within the 5 business days of receipt of the complaint.
  7. Requirements at the time of the decision – If a registered firm decides to reject a complaint or to make an offer to resolve a complaint, a registered firm must, as soon as possible, provide the client with written notice of: (a) the decision on the complaint (preferably with the reasons for the registered firm's decision); and (b) information about dispute resolution services, including the timelines applicable for use of the dispute resolution services, the monetary limits associated with the dispute resolution services and the contact information for those services.
  8. Time a registered firm has to deal with a complaint – A registered firm is expected to provide a decision to a client complaint within 90 days of receipt of the complaint.
  9. When a registered firm needs OBSI – A registered firm must ensure that independent dispute resolution or mediation service is available to a client if either of the following apply:

    • after 90 days of the registered firm's receipt of the complaint, the registered firm has not given the client written notice of a decision, and the client has notified the independent dispute resolution or mediation service that it wants to use the service; and
    • within 180 days of the client's receipt of written notice of the registered firm's decision, the client has notified the independent dispute resolution or mediation services that it wants to use the service.
  10. Requirement to update relationship disclosure information - Registered firms are required to take reasonable steps to notify clients, in a timely manner, of significant changes in respect of the relationship disclosure information delivered to a client. Since the appointment of OBSI is considered a significant change to the relationship disclosure information, registered firms will be expected to take reasonable steps to notify clients, in a timely manner of the change to the relationship disclosure information.
  11. Membership in OBSI – The Canadian Securities Administrators expect registered firms to maintain ongoing membership in OBSI as a "Participating Firm" and participate in OBSI's services in a manner consistent with the firm's obligation to deal fairly, honestly and in good faith with its clients.
  12. Limits to OBSI's compensation recommendations – OBSI can recommend compensation of up to $350,000. If a client's claim is higher, the client will have to agree to that limit on any compensation a client seeks through OBSI. If a client wants to recover more than $350,000, the client may want to consider another option, such as legal action, to resolve the complaint.
  13. Quebec dispute resolution requirements - In Québec, the Autorité des marchés financiers (the AMF) already provides a mediation service to clients residing in Québec of all registered dealers and registered advisers. The Québec regime will remain unchanged and firms registered in Québec should continue to inform clients residing in Québec of the availability of the AMF mediation services.
  14. How much do registered firms have to pay OBSI - OBSI has established a fee model of $165 per registered dealing or advising representative. The existing fee models for SRO members will remain in place. Scholarship plan dealers that are already voluntary members of OBSI will have a two-year transition from their existing fee structure to the new model.

For a prior article about OBSI written on this blog click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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