The purpose of this note is to provide an overview of the complaint mechanisms currently available to investors who have complaints relating to capital markets participants. By way of comparison, following this overview is a summary of the complaint and redress mechanisms available in respect of certain federally regulated financial institutions.
There are a number of mechanisms currently in place for investors who have complaints against capital markets participants. Depending on the purpose of the complaint (i.e., what the complainant is seeking), the complaint process can be classified into two separate streams: complaints for regulatory review and complaints seeking redress through financial compensation.
a) Complaints for Regulatory Review
If an investor believes that an individual or firm has violated securities laws and is seeking a review of their conduct, the complainant may contact the applicable self-regulatory organization or securities regulatory authority directly.48 While their powers differ, these bodies are generally vested with the authority to investigate and deal with alleged violations of relevant laws or rules, and have the power to impose reprimands, administrative fines, penalties, or other sanctions, such as suspensions and/or expulsions.
If the complaint is against a dealer or advisor that is a member of either the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA), the first avenue for redress is to make a complaint in accordance with the internal complaint process of the member itself.49 If the complainant is not satisfied with the outcome under the member firm’s internal complaint-handling process, he or she may also complain directly to IIROC or the MFDA.50
Complaints of wrongdoing pertaining to mutual fund dealers are to be directed to the MFDA. The MFDA is responsible for regulating all sales of mutual funds by its members, as well as the business conduct of its members. As such, the MFDA has the authority to investigate complaints against member organizations and take disciplinary action where required. Alternatively, IIROC oversees its member investment dealers and trading activity with respect to debt and equity exchanges in Canada. IIROC sets and enforces its own rules regarding the conduct of investment dealer firms and their employees, as well as market integrity rules pertaining to trading activity in the marketplace. Similar to the MFDA, IIROC also has the ability to investigate complaints and take disciplinary action.
Complaints against individuals or companies who are not members of IIROC or the MFDA may be made directly to the applicable securities regulatory authority. The Ontario Securities Commission, for example, has the power to investigate breaches of Ontario securities law, complaints involving public companies, complaints involving dealers and advisors that are not members of IIROC or the MFDA, as well as conduct against the public interest. These investigations can result in sanctions, including reprimands, fines, and suspensions, as well as restrictions from participation in the securities industry.51 Other provincial and territorial securities regulatory authorities have also instituted complaints processes similar to the process available in Ontario. These are summarized in Schedule A to this note.
b) Complaints for Financial Compensation
In general, where an investor is seeking redress by way of financial compensation, their first option is to seek redress under the complaint process of the particular investment dealer, bank or other deposit-taking organization, investment fund company, or mutual fund dealer.52 Where this yields an unsatisfactory outcome, the investor may bring the complaint to the Ombudsman for Banking Services and Investments (OBSI).53 As discussed in further detail below, OBSI provides for non-binding arbitration of claims of less than $350,000. If the complaint involves a member firm of IIROC, the investor may also opt for the dispute to be resolved by an independent arbitrator under IIROC’s binding arbitration program.54 In order to be eligible for the IIROC’s arbitration program, however, the investor must first have exhausted the individual firm’s complaint process and the claim cannot exceed $100,000.55
Securities regulation in the provinces of Quebec, Manitoba, New Brunswick, and Saskatchewan also gives the relevant securities regulatory authority the power to conduct a hearing and make an order for financial compensation in favour of a complainant. In the remaining jurisdictions, compensation for financial loss is only available through the courts.56
Pursuant to subsection 148.2(1) of the Securities Act (Manitoba), where the Manitoba Securities Commission (MSC) holds a hearing about a person or company, on application of a claimant, the Director may request that the Commission make an order for compensation in favour of the claimant. The Director’s decision to make such a request is not reviewable. The Commission may make such an order if, after a hearing, it determines that the person or company contravened or failed to comply with Manitoba securities laws (including decisions, orders, or rulings of the MSC), a written undertaking made by the person or company to the MSC or a term or condition of a person or company’s registration. The maximum amount of the financial loss that can be claimed is $100,000. As well, the MSC must be able to determine the amount of the financial loss on the evidence and must find that the person or company’s contravention or failure caused the financial loss in whole or in part.57 A similar provision for compensation for financial losses also exists under the securities legislation for the provinces of New Brunswick (s. 188.1(1)) and Saskatchewan (s. 135.6).
The Autorité des marchés financiers (AMF) provides for financial redress for consumer complaints in those situations that fall within the parameters of its protection and compensation programs. Investors who fall victim to fraud, fraudulent tactics, or embezzlement committed by firms or representatives registered with the AMF in the areas of insurance of persons, group insurance of persons, financial planning, damage insurance, claims adjustment, group savings plan brokerage, investment contract brokerage, or scholarship plan brokerage can submit a claim for monetary compensation. The maximum amount of a claim that may be made through this program is limited to $200,000.58
As part of an initiative to address the informational and power imbalance between institutions and consumers, the Financial Consumer Agency of Canada (the “Agency”) was established in 2001 under the federal Financial Consumer Agency of Canada Act(the “Act”). The Agency is an independent federal body and is funded by assessments paid by the financial institutions subject to its regulation (i.e., all banks and all federally incorporated or registered insurance, trust and loan companies, and co-operative retail associations). Pursuant to the authority given to it under the Act, the Agency has established various mechanisms to carry out its mandate of consumer protection through the oversight of federally regulated financial institutions and consumer education. The Agency has the following objectives as set out in subsection 3(2) of the Act:
The Government of Canada appoints an individual to serve as Commissioner of the Agency. The Commissioner is responsible for ensuring that the Agency carries out its mandate and achieves its objectives. The Commissioner is required to submit an annual report to Parliament through the federal Minister of Finance detailing the Agency’s activities and findings with respect to compliance by financial institutions with applicable consumer provisions. The Commissioner has the power to examine all matters connected with federal consumer protection laws, including matters respecting voluntary codes of conduct and public commitments of financial institutions.
The Agency has no mandate itself to resolve or provide redress on individual consumer complaints, working instead to promote awareness among consumers of the complaint-handling process. All federally regulated financial institutions must, by law, have a complaint-handling process in place for consumers. A consumer’s initial point of contact is with the particular financial institution’s complaint process. Should the complaint remain unresolved to the consumer’s satisfaction, it can be reviewed by one of the three industry ombudservices within the Financial Services OmbudsNetwork: the OBSI, the Canadian Life and Health Insurance OmbudService (CLHIO) or the General Insurance OmbudService (GIO). However, the financial institution in question must be a participating member of the applicable ombudservice in order for the review to occur.59 These independent dispute resolution services provide their services free of charge and render a non-binding recommendation to the consumer and the financial institution.
The OBSI resolves disputes involving consumers and banking services and investment firms. It is funded by the fees levied on all of the participating firms. A consumer must submit its complaint to the OBSI within six months of receiving the firm’s final response to such complaint. After reviewing the final decision of the firm, if OBSI finds that the consumer suffered a loss as a result of the firm’s unfair act, error, or bad consumer advice, the OBSI will recommend that the consumer be compensated to restore him to his original financial position. The maximum amount for such compensatory recommendation is $350,000. Although recommendations of the OBSI are non-binding, the names of firms that refuse the OBSI’s recommendation will be disclosed to the public.
The CLHIO resolves concerns and complaints in connection with life and health insurance products and services provided by life and health insurance companies who sponsor this dispute resolution service.
The GIO resolves disputes or concerns between consumers and insurance companies in connection with home, automobile, or business insurance. Following the issuance of the insurance company’s final position letter, and if the GIO Manager of Complaints determines that there is a basis on which the matter should be further pursued, the consumer may elect to have the matter go to formal mediation or directly referred to a Senior Adjudicative Officer. If mediation is selected, one of the GIO’s Consumer Service Officers will help select an independent mediator who will facilitate a two-hour mediation session between the consumer and a representative of the insurer. If mediation is not successful, the mediator will produce a report for both parties. Should the GIO Manager of Complaints believe there is a basis on which the matter may be further pursued, it will be referred to a Senior Adjudicative Officer who will issue a non-binding recommendation ten days after receiving the referral. Although the Senior Adjudicative Officer’s recommendation is non-binding, if the insurer refuses to accept the recommendation, the Manager of Complaints will publicize that the insurer declined the recommendation.
Summary of complaint processes instituted by various provincial and territorial regulators
While the New Brunswick Securities Commission directs complaints against MFDA and IIROC members to be made directly to those organizations, it also has an on-line system that allows investors to make complaints involving economic crimes.60 As stated on its website, with the increasing awareness of investment fraud, the regulators are particularly interested in receiving information regarding misrepresentations, fraudulent manipulation of stock exchange transactions, and insider trading.
The Nova Scotia Securities Commission also approaches consumer complaints in the same way as Ontario and New Brunswick, indicating on its website that complainants should speak to the relevant dealer, registered individual, or self-regulatory organization directly prior to filing a complaint. Furthermore, it is indicated that complaints alleging a breach of securities laws should be forwarded to enforcement staff at the Nova Scotia Securities Commission directly.61 The Saskatchewan Financial Services Commission indicates on its website that complaints against a broker should be directed first to the broker, then to the firm by which the broker is employed, and subsequently to IIROC, the MFDA, or OBSI. If the matter still remains unresolved after pursuing these other avenues, then the complaint can be brought forward to the Saskatchewan Financial Services Commission. In addition, any complaints that are not against a particular broker can be brought directly to the Saskatchewan Financial Services Commission.62 This is also the approach to consumer complaints that is taken in Manitoba63 and the Northwest Territories.64
In British Columbia, complaints may be made directly to the British Columbia Securities Commission where (i) the complaint is about advisors and dealers that are not members of the MFDA or IIROC (in which cases the complaint are to be made to those organizations), (ii) the complaint is about someone selling or advising without being registered under securities laws, or (iii) the complaint has not been satisfactorily resolved by another organization.65
The Prince Edward Island Securities Office directs consumers to make formal complaints directly to it regarding breaches of securities law, concerns about the manner in which investments have been handled, or concerns about a company in which a consumer has invested. Where the complaint relates to the consumer’s investment account, financial advisor, or investment company, the consumer is directed to IIROC or the MFDA with respect to the members of those organizations. Where the complaint surrounds the poor execution of a trade order, potential violation of the Universal Market Integrity Rules, trading violations by a regulated person, or concerns about timely disclosure of material information by a reporting issuer, the complaint should be forwarded to Market Regulation Services Inc. (now IIROC).66
The Alberta Securities Commission also takes this approach and indicates that only complaints regarding how investments have been handled, a particular company that the consumer has invested in, or any potential breaches of securities laws should be made directly to the Alberta Securities Commission.67
The AMF in Quebec requires consumers to file complaints with the relevant business or representative registered with the AMF. In the event that the consumer is not satisfied with the response provided by the business or representative, the consumer may ask the business or representative to send a copy of the file to the AMF, which will in turn assess the complaint and offer mediation services where appropriate.68
48 http://www.osc.gov.on.ca/Investor/Complaints/cpt_regulators-help.jsp, see also the brochure published by the Ontario Securities Commission entitled “Getting Help with Your Complaint: A Guide for Investors” available at http://www.osc.gov.on.ca/Investor/Resources/res_making-a-complaint_en.pdf.
52 The Bank Act, Insurance Companies Act, Trust and Loan Companies Act and Co-operative Credit Associations Act require that the financial institutions governed by those acts establish procedures to dealing with complaints made by persons who have requested or received products or services from the particular institution. The complaint-handling process for a particular financial institution can be accessed by means of the complaint-handling process search tool at: http://www.fcac-acfc.gc.ca/eng /consumers/Complaints/CHPSearch_e.asp. Although the complaint-handling process varies between institutions, it generally consists of three steps: (1) contacting a customer service representative where the product or service was requested or delivered; (2) contacting a managerial or separate department of the institution; and (3) contacting the financial institution’s own ombudsman.
53 See page 2 of the Getting Help with Your Complaint: A Guide for Investors brochure available at http://www.osc.gov.on.ca/Investor/Resources/res_making-a-complaint_en.pdf.
54 See the IIROC website at http://www.iiroc.ca/English/Investors/Arbitration/Pages/default.aspx.
55 See the IIROC website at http://www.iiroc.ca/English/Investors/Arbitration/Pages/default.aspx.
56 See, for example, subsections 122.1(1) of the Securities Act (Ontario), 194(6) of the Securities Act (Alberta), 155.1 of the Securities Act (British Columbia) and s.128.1(3) of the Securities Act (Newfoundland).
57 See subsection 148.2(2)-(3) of the Securities Act (Manitoba) and http://www.msc.gov.mb.ca/protecting_the_public/complaint.html.
58 See the AMF website at: http://www.lautorite.qc.ca/clientele/consommateur/demande-indemnisation.en.html and the information leaflet on compensation available at: http://www.lautorite.qc.ca/userfiles/File/consommateur/demande-indemnisation/Feuillet-Indemn-A.pdf.
59 The Insurance Companies Act, Trust and Loan Companies Act, and Co-operative Credit Associations Act require that the financial institutions governed by those acts be members of a complaints body designated by the federal Minister of Finance. No such designation has been made under the Bank Act.