On October 10, 2019, the Investment Industry Regulatory Organization of Canada ( IIROC) issued what it called a Guidance Note regarding exclusion of liability clauses in retail client account agreements that it sees as inconsistent with investment dealers' regulatory obligations.
IIROC published this guidance after noticing objectionable clauses in its review of investment dealers' agreements that either purport to exclude dealers' liability for client losses completely, arbitrarily limit damages from breaches by the dealer, or attempt to relieve dealers from securities law obligations, such as suitability. Examples of objectionable clauses are cited in the Note, including the following:
- "Customer agrees not to hold Dealer responsible for losses incurred through following Dealer's trading recommendations or suggestions or those of its employees, agents or representatives."
- "We shall not be liable to you
or any third party for loss or revenue or profits, failure to
realize expected profits or savings, missed investment
opportunities or other items of economic loss, of any nature
whatsoever, or any special, indirect, consequential,
exemplary, or incidental damages arising out of the services, however caused, and whether arising under contract, tort (including negligence) or any other theories of liability, even if we have been advised of the possibility of such damages."
- "Broker's total liability under the terms of this agreement will not exceed an amount equal to the fees paid by the customer to the broker for the one calendar month in which such damages first occurred."
Similar concerns are also raised by IIROC regarding clauses that purport to limit liability due to software malfunctions, "where the event is within the dealer's control."
While published as "guidance", the Note makes it clear that IIROC views some of the problematic limitations on liability to be a violation of dealers' suitability requirements under Dealer Member Rule 1300.1(p) and (q). As with other forms of guidance on how IIROC interprets existing rules, IIROC dealer members should understand that IIROC could very well try to pursue dealers for offending clauses in retail account agreements that existed before this Notice was released. As such, dealers should waste no time in reviewing their client account agreements and ensuring that any problematic clauses are removed.
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.