On May 1, 2014, the independent dispute resolution amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations came into force [available here and here].
The rule amendments require registered firms to become members of the Ombudsman for Banking Services and Investments (OBSI) in order to provide independent dispute resolution services to clients who have a complaint about the firm. The rule amendments apply to registered dealers and advisers (not investment fund managers in that category of registration) that are not members of a self-regulatory organization (SRO)1. Registrants have until August 1, 2014 to comply with the requirements and the enhanced CSA expectations on complaint handling. The new regime will not apply to clients in Québec, given the existing complaint handling requirements in that province and the mediation service provided by the Autorité des marchés financiers (AMF). We describe the new regime in our Investment Management Bulletin Canadian Regulators Mandate Registrant Firms BecomeMembersofOBSItoResolveInvestorComplaints– August1,2014Deadline: It’s More Complicated Than It FirstAppears… Borden Ladner Gervais LLP January 2014 [available here].
The Canadian Securities Administrators recently issued guidance on compliance with the new regime – CSA Staff Notice 31-338 Guidance on Dispute Resolution ServiceClient Disclosure for Registered Dealers and Advisers that are not members of a Self-Regulatory Organization [available here].
This Staff Notice contains sample disclosure that the CSA suggest registrants use to prepare the required client notifications about the availability of the dispute resolution service and the firm’s complaint handling policies.
There are a number of action items that flow from the rule amendments:
- It will be important for firms to evaluate whether or not they must join OBSI and comply with the new requirements – this depends on the types of clients served by the firm. If any clients of the firm are individuals or are entities that do not fall within the list of “permitted clients” [specific institutional clients], then the firm must join OBSI and comply with the rule amendments.
- Contrary to what was previously reported by OBSI in its December 19, 2013 newsletter, we understand that OBSI will not be sending a “membership package” to registered firms. OBSI now states on its website that firms joining OBSI as a result of the rule amendments must proactively return the completed “company information form” and pay their OBSI membership fees no later than August 1, 2014. We would be pleased to assist you in this application process.
- The Memorandum of Understanding between the Canadian Securities Administrators and OBSI provides that OBSI must have a fair, transparent and appropriate process for setting fees and allocating costs across its membership. OBSI has set an annual fee of $165 per representative. We recommend that this fee be paid in respect of any representative who deals primarily with the category of client to whom the rule amendments apply.
- Firms should prepare the required client disclosure required by the rule amendments. The CSA indicate in the Staff Notice that they expect firms to send this information to clients before August 1, and that this can be done by including this information in the next client communication or before a transaction. We recommend that firms include this information in their relationship disclosure information (RDI), which should be then sent to clients. Website postings of this information would also be useful.
- Firms that were registered on September 28, 2009 will not be required to provide dispute resolution/ mediation services in respect of complaints received by the firm on or before August 1, 2014. Firms registered after September 28, 2009, but before April 30, 2014, will handle complaints and provide dispute resolution/mediation services as they do currently, for any complaints received by the firm on or before August 1, 2014. After this date, complaints must be handled as provided for under the new regime. Firms registering after April 30, 2014 will have to comply with the new regime immediately.
- It will be important for firms to review and update their compliance manuals to reflect the new procedures for complaint handling and dispute resolution.