Regulator provides complaint handling guidance

While most advisors were wrapping presents, the Investment Industry Regulatory Organization of Canada was putting finishing touches on some new complaint handling rules that will create new requirements for securities dealers and registered reps.

Among the changes is a requirement that firms appoint a designated complaints officer who has the experience and authority to oversee the complaint-handling process. Elsewhere, the guidance specifies complaints must be handled by sales supervisors or compliance staff, or the equivalent.

The rule also gives advisors guidance on what constitutes a complaint, including a recorded expression of dissatisfaction with an IIROC member dealer firm, employee or agent that alleges misconduct; or a similar verbal expression of dissatisfaction where a preliminary investigation by the firm indicates the allegation may have merit.

Potential areas of misconduct include, but aren’t limited to 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), and other inappropriate financial dealings with clients.

In keeping with the tone of recent enforcement and audit trends, the rules also specifically refer to concerns about misconduct that can take place when reps engage in business activity that takes place outside the purview of the member firm.

Cooperation counts

IIROC’s guidance specifies any approved persons must cooperate with their employers, or former employers, who are trying to get to the bottom of a client complaint. It also says firms must cooperate with one another in the event a complaint involves a rep who worked for more than one organization.

Further, it requires any releases entered into between a securities dealer and a client not impose confidentiality or create barriers that could prevent the client from initiating a complaint with securities regulatory authorities, self regulatory organizations or other enforcement authorities.

Firms also are barred from creating restrictions that would stop a client from continuing with a pending complaint or participating with authorities investigating the firm.

Complaint handling

If they don’t already have them, firms will be expected to gin up written policies and procedures detailing the processes they’ll use to determine if a complaint has merit; how they will proceed when they determine a complaint is, in fact, valid; and any remedial actions that may be taken on behalf of the client.

Firms are also required to inform reps, and their supervisors, of all cases where they’re involved in a complaint, and senior management must be told about serious misconduct complaints as well as any legal action.

Such requirements reflect the mood of investors, and the outcry for transparency in light of portfolio losses experienced last year. Enforcement and audit records have consistently shown regulators remain anxious that client concerns may get swept aside, and IIROC emphasized the procedures must prevent complaints from being dismissed out of hand.

“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,” the rule text states.

And it’s not just internal. IIROC expects firms to make information about their complaint handling policies available to clients when they open accounts. This includes copies of a plain English summary of the process, along with a complaint handling procedures brochure that’s been approved by the corporation.

That second brochure also has to be sent along to any clients who actually file formal complaints as part of a substantive response letter, IIROC says. The regulator calls on firms to respond to clients as soon as possible and expects written responses to be issued within 90 days unless there are serious extenuating circumstances.

For purposes of clarity, a dealer’s response letter must also include a summary of the complaint; results of the firm’s investigation; an explanation of its final decision on the complaint; and a statement describing to the client the options available if he or she is not satisfied. Those options include:

• Taking the matter to arbitration;
• Referring the matter to the Ombudsman for Banking Services and Investments;
• Submitting a regulatory complaint to the corporation for an assessment of whether disciplinary action is warranted; and
• Litigation or other civil action.

Save your files

The rules specify data related to client complaints be maintained for seven years, and be readily accessible to compliance and other staff for a period of two years following filing. Information IIROC expects to be on hand for that two-year period includes the:

• Complainant’s name;
• Date of the complaint;
• Nature of the complaint;
• Name of the person (registered or otherwise) who is the subject of the complaint;
• Security or services which are the subject of the complaint;
• Materials reviewed in the investigation;
• Names, titles, and dates that individuals were interviewed for the investigation; and
• Date and conclusions of the decision rendered in connection with the complaint.

Copies of any complaints must be filed with the firm’s compliance department, and any matters that proceed to civil courts or arbitration panels are not considered complaints for the purposes of IIROC’s new rule.