Client Complaint Handling Rule and Guidance Note; and amendments to Dealer Member Rules 19, 37 and 2500 / Part A

09-0363
Type: Rules Notice> Approval/Implementation
Distribute internally to:
Legal and Compliance
Retail
Senior Management

Contact:

Jamie Bulnes
Director, Member Regulation Policy
Telephone:
Email:

This Rules Notice is comprised of two parts. Part A relates to the Notice of Approval/Implementation of the new client complaint handling requirements, and Part B consists of guidance relating to the new requirements. 

Part A – Notice of Approval/Implementation

Introduction

This Rules Notice provides notice of approval by the applicable securities regulatory authorities (the “Recognizing Regulators”) of amendments to the Dealer Member Rules concerning the handling of retail client complaints (the “amendments”). The amendments will take effect on February 1, 2010.

The amendments were previously published with IIROC Rules Notice 09-0242 on August 19, 2009 to provide Dealer Members with advance notice of the rule changes. At that time, the amendments were still subject to approval by the Recognizing Regulators. The Recognizing Regulators have now approved these rule changes.

Since the preview of the rule changes published on August 19, 2009, and in response comments received from the CSA, IIROC staff has added two lines to the Guidance Note associated with the new rule making it clear that all client complaints must be handled by qualified sales supervisors/compliance staff or the equivalent, and that under no circumstances should individuals who are the subject of a complaint handle complaints made against them.

The new rule will be known as Dealer Member Rule 2500B – Client Complaint Handling. A copy of Dealer Member Rule 2500B is attached as “Appendix A”.

Objectives of the amendments

The amendments to the complaint handling requirements seek to establish an effective framework for the client complaint handling process. The new rule sets out specific standards and timelines to be adhered to in acknowledging, investigating and responding to client complaints that allege misconduct relating to the handling of the client’s account(s). The rule also requires the Dealer Member to adequately inform the client of all the subsequent options available to them should the client be dissatisfied with the final response from the Dealer Member. In addition to the new rule regarding complaint handling, the proposed amendments will repeal the current complaint handling requirements set out in IIROC Dealer Member Rule 2500, Section VIII, and replaced them with a general requirement that Dealer Members establish policies and procedures to deal effectively with all client complaints and respond to all written complaints.

IIROC believes that the amendments will be effective in facilitating improvements to the complaint handling processes of Dealer Members by ensuring that clients are aware of the course they should follow if they have a complaint, and by promoting the fair and prompt handling of complaints. Further, it is believed that Dealer Member adherence to a common complaint handling framework will lead to greater complaint handling consistency from one Dealer Member to the next and, ultimately, enhanced client confidence in the integrity and fairness of the complaint resolution process within the industry.

Summary of the amendments

Scope of the complaint handling rule

The new rule is targeted to the handling of retail client complaints alleging misconduct in the handling of their account or accounts. As such, a complaint subject to this rule:

  • must be submitted by a client or a person authorized to act on behalf of a client;
  • may be either a recorded expression of dissatisfaction or a verbal expression of dissatisfaction; and
  • must allege misconduct relating to the handling of a client’s account(s) or dealings with a Dealer Member.

Alleged misconduct includes, but is not limited to, allegations of breach of confidentiality, theft, fraud, misappropriation or misuse of funds or securities, forgery, unsuitable investments, misrepresentation, unauthorized trading relating to the client’s account(s), other inappropriate financial dealings with clients and engaging in securities-related activities outside of the Dealer Member.

Designated Complaints Officer to oversee complaint handling process

The rule requires a Dealer Member to appoint a Designated Complaints Officer (DCO) with the knowledge, experience, and authority to manage the complaint handling process and to act as a liaison with IIROC. The DCO need not be a registered individual position. Dealer Members may choose to name the Chief Compliance Officer, the Ultimate Designated Person or an individual acting in a supervisory capacity over the complaints process to the DCO position.

Specific standards and procedures handling timeline

As part of the new rule, Dealer Members are required to establish procedures and standards. In addition to having written complaint handling procedures in place, Dealer Members must facilitate client access to their complaint handling process by making available a written summary of the firm’s complaint handling procedures (either on their website or by other means). The written summary must provide the contact information for complaint submission and the Designated Complaints Officer.

Both the acknowledgement letter and the substantive response letter have several requirements that all firms must include in the respective correspondence. The acknowledgement letter must be sent to a client within five (5) business days of receipt of a complaint. The initial response to the client must consist of the following: the contact information of the individual handling the complaint; a statement that a client may contact the above noted individual for a status update; an explanation of the internal complaint handling process; a reference to an attached copy of an IIROC-approved complaint handling process brochure and a reference to the statute of limitations contained in the document; a reference to the maximum 90 calendar days timeline to provide a substantive response; and a request for any information reasonably required to resolve the complaint.

The substantive response letter must be accompanied by the IIROC-approved complaint handling process brochure and be sent to a client as soon as possible, but no later than 90 calendar days from the date of receipt by the firm. A Dealer Member is obligated to advise a client if a final response will not be sent within the stated timeline in addition to contacting IIROC through ComSet with an explanation for the delay. The substantive response must comprise the following elements: a summary of the complaint; the results of the investigation; the final decision with an explanation; and a statement delineating the options available if a client is unsatisfied with the Dealer Member’s response.

There is also a duty to assist in client complaint resolution for both Approved Persons and Dealer Members. Approved Persons must co-operate after moving to a different firm and Dealer Members must do likewise if events relating to a complaint occurred at more than one Dealer Member or the Approved Person is an employee or agent of another firm.

Settlement agreements

Confidentiality restrictions in a settlement agreement must not restrict a client from initiating a complaint or continuing with any pending complaint in progress or participating in any further proceedings.

Complaint record retention

Record retention requirements stipulate the maintenance of files for a minimum of seven (7) years, and maintenance of an up-to-date record of complaints in a central, readily accessible place for two (2) years. Information to be retained includes the following: the complainant’s name; the date of the complaint; the nature of the compliant; the name of the individual who is the subject of the complaint; the security or services which are the subject of the complaint; the materials reviewed in the investigation; the name, title, and date individuals were interviewed for the investigation; and the date and conclusions of the decision.

Internal discipline

Procedures must be established to ensure appropriate internal disciplinary measures are applied for breaches of IIROC rules and applicable securities legislation.

Corollary amendments to IIROC Dealer Member Rules 19, 37 and 2500, Section VIII

As a result of the new rule, some corollary amendments have been made as follows:

  • The repeal of IIROC Dealer Member Rule 19.4 (formerly IDA By-law No. 19.4), a requirement to maintain for twenty-four (24) months an up-to-date record of all written complaints in a central, readily accessible place. This requirement is now contained within the new rule.
  • The repeal of IIROC Dealer Member Rule 37.3 (formerly IDA By-law No. 37.3), a requirement to provide the client with a copy of the IIROC-approved complaint handling process brochure at the time of account opening or when the client submits a complaint. This requirement is now contained within the new rule and has been expanded to also require that the client be provided with a copy of the IIROC-approved complaint handling process brochure when the substantive response is provided to a client regarding a complaint they have submitted.
  • The repeal and replacement of IIROC Dealer Member Rule 2500, Section VIII (formerly IDA Policy No. 2, Section VIII), which sets out the current complaint handling requirements, with a general requirement that Dealer Members establish policies and procedures to deal effectively with client complaints, including complaints falling outside the scope of the new rule (such as service complaints), and respond to all written complaints.

A copy of the corollary amendments is attached as “Appendix B”.

The new rule does not duplicate certain requirements that are currently set out in IIROC Dealer Member Rule 3100 (formerly IDA Policy No. 8) relating to the handling of complaints and therefore will be applied in conjunction with the requirements set out IIROC Dealer Member Rule 3100.

Publication for comment and summary of written comments

The amendments were published for comment with IIROC Rules Notice 09-0048 on February 13, 2009. IIROC staff has considered all of the comments received and thank all of the commenters. A summary of the comments received and IIROC staff’s response to the comments is attached as “Appendix D”.

IIROC has made some minor revisions to the complaint handling proposal in response to CSA and public comments received. The basic framework for the handling of complaints remains the same as the proposed amendments that were published for comment in February, 2009. There have been no changes to the general process and timelines for the handling of complaints, and none of the revisions are substantive in nature. Therefore, the revisions have not been republished for a further comment period.

Summary of changes

In response to CSA and public comments received, the amendments reflect some minor revisions IIROC has made to the complaint handling proposal. A black-lined copy of the revisions made since the publication for comment of proposed amendments in February, 2009 is attached as “Appendix C”.

Noteworthy changes made since the publication in February, 2009, are as follows:

Definition of a complaint

In section 2 of the Rule, we have revised the wording relating to verbal complaints in order to better express the types of verbal complaints captured by the definition. The wording relating to verbal complaints now captures verbal expressions of dissatisfaction alleging misconduct “where a preliminary investigation indicates that the allegation may have merit.” IIROC staff believe the revised wording simply clarifies the intent of the provision, and should address any concerns that the previous wording may have conferred too much discretion to Dealer Members in regards to verbal complaints. The section in the Guidance Note relating to verbal expressions of dissatisfaction has also been revised accordingly.

In addition, in order to further clarify the definition of a complaint, we have added a section which elaborates on the scope of alleged misconduct to the Guidance Note. Essentially, the guidance indicates that other matters not enumerated in the definition of alleged misconduct which may be captured by the phrase “includes, but is not limited to” should be matters that relate to client accounts or client dealings with firms which are of a serious nature and warrant being dealt with through the formal complaint handling process.

Policies and procedures

Section 4 of the Rule was revised by adding language that calls for Dealer Members to have policies and procedures addressing the investigation of complaints, the process by which assessments of complaints are made, the process for determining what offer should be made to a client where a complaint is determined to have merit, and the remedial actions which may be appropriate to be taken within the firm. Supplementary language was also included stating that policies and procedures must not allow for complaints to be dismissed without due consideration of the facts of each case, and that there must be a balanced approach to dealing with complaints that objectively considers the interests of the complainant, the Dealer Member, the registered representative, employee or agent of the Dealer Member, and/or any other relevant parties.

Substantive response letter

The Rule has been revised to underscore that the substantive response to the client must be presented in a manner that is fair, clear and not misleading.

Miscellaneous translation revisions

In some instances minor revisions were made to wording in order to facilitate a translation that will allow for equivalency of meaning between the English and French versions.

Complaint handling brochures

The IIROC-approved brochure entitled “An Investor’s Guide to Making a Complaint” replaces the brochure called “Investor Protection for Clients of IIROC Regulated Firms”.

The new brochure is available now, and can be ordered at Membership Disclosure, Brochures, and IIROC Logo 

Dealer Members must begin using the new brochure once the amendments are implemented.

Implementation plan

The amendments will be implemented on February 1, 2010.

The new rule will be known as Dealer Member Rule 2500B – Client Complaint Handling. A copy of Dealer Member Rule 2500B is attached as “Appendix A”. Guidance relating to the new rule is included as Part B of this Notice.

IIROC plans to monitor compliance with the new complaint handling framework and will determine at a later date if any changes are necessary to address practical issues or potential enhancements that become apparent.

Appendices

Appendix A – Dealer Member Rule 2500B – Client Complaint Handling

Appendix B – Corollary amendments to IIROC Dealer Member Rules 19, 37 and 2500, Section VIII

Appendix C – Black-lined copy of amendments compared to proposed amendments published for comment in February, 2009

Appendix D – Summary of comments received and IIROC staff response to comments

 

(Part B – Guidance Note)