The Canadian Securities Administrators (“CSA”) have proposed amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”) and changes to its companion policy to introduce a new regulatory framework (the “Proposed Framework”), under which an identified ombudservice would have authority to issue binding final decisions in response to retail client complaints. The Proposed Amendments were published for a 90-day comment period that ends on February 28, 2024.
Background
Part 13, Division 5, of NI 31-103 sets out requirements for registered firms, other than investment fund managers acting in that capacity, for handling and responding to client complaints. These generally include making an independent dispute resolution or mediation service available to clients and taking reasonable steps to ensure that the Ombudsman for Banking Services and Investments (“OBSI”) is the ombudservice made available to them. While OBSI may recommend monetary compensation up to C$350,000, it has no formal power or process to require a firm to pay a complainant. Some firms have therefore offered complainants less than the recommended amount.
As we noted in a previous post, since 2018 complainants have cumulatively received approximately C$1.6 million less than what OBSI recommended. The percentage of “low settlement” cases increases as the value of OBSI’s recommended compensation increases. At the same time, OBSI has low case withdrawal rates, which suggests that the existing dispute resolution process is one that complainants may generally find to be helpful or accessible.
Proposed Framework
The CSA have proposed a new regulatory framework, informed by their experience overseeing OBSI as well as international best practices. The Proposed Framework is intended to be fair, efficient and accessible for all parties while improving retail clients’ access to redress.
As contemplated, the Proposed Framework would consist of an “investigation and recommendation” stage and a “review and decision” stage, both of which would be overseen by an identified ombudservice. The first stage would preserve OBSI’s current investigative process. The new, second stage would be triggered by a written objection, of the complainant or the firm, and provide for a review of the objection and the issuance of a binding final decision. While the Proposed Framework does not include a statutory right of appeal, it contemplates the availability of judicial review in appropriate circumstances.
An “identified ombudservice” refers to an independent dispute resolution service that is incorporated as a not-for-profit entity and designated or recognized by the local securities regulator. If the Proposed Framework is implemented, the CSA anticipate that OBSI would be the ombudservice considered for designation or recognition by Canadian jurisdictions.
While the Proposed Framework has been published for comment by the CSA, the British Columbia Securities Commission (“BCSC”) and the Autorité des marchés financiers (“AMF”) are participating in the consultation to varying extents. The BCSC is interested in stakeholder comments but is not participating in the proposal as British Columbia is considering legislative changes that may achieve similar outcomes. The AMF is participating in the proposal but by proposing to maintain the exemption applicable to firms registered in Québec from the requirements of Part 13, Division 5, of NI 31-103.
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