The Aug. 24, 2010, notice from the Investment Industry Regulatory Organization of Canada that sets out a proposal to revive its largely moribund Arbitration Program raises an important issue for dealer members, their employees and agents, registered and otherwise.
Among other things, the IIROC Notice states that dealer members must offer to their clients its arbitration program and the services of the Ombudsman for Banking Services and Investments<\/b> as dispute-resolution mechanisms. IIROC proposes that the monetary jurisdiction of its Arbitration Program would be increased from $100,000 to $500,000.
In addition, at the option of the inves-tor-complainant, the ability of the arbitrator to grant costs of the arbitration in favour of the successful party would be curtailed. Both parties would remain responsible for the proceeding\u2019s filings and arbitrator\u2019s fees.
The issue, generally phrased, is the appropriate extent to which a self-regulatory organization, such as IIROC, dictates to those under its authority the means and process by which dealers carry out their obligations and responsibilities under Ontario\u2019s Securities Act. The analysis involves consideration of where the responsibility has been placed under our securities laws and policies.
Pursuant to registration reform, National Instrument 31-103 sets out certain registration requirements and exemptions that include specific provisions governing Securities Act registrants\u2019 dealings with their clients.
In particular, Section 13.16, entitled \u201cDispute Resolution Service,\u201d states: \u201cA registered firm must ensure that independent dispute resolution or mediation services are made available, at the firm\u2019s expense, to a client to resolve a complaint made by the client about any trading or advising activity of the firm or one or more of its representatives.\u201d
The responsibility under NI 31-103 is that of the registered firm, which includes a registered dealer; and the obligation is to make available to a client with a complaint an independent dispute resolution or mediation service for resolution purposes. The expense of the process is to be borne by the dealer.
Given NI 31-103, one might reasonably conclude that the firm would have to demonstrate to its regulators that the dispute resolution service made available by it to its clients satisfies the regulatory requirement in Sec. 13.16, and consequently that IIROC\u2019s role would be limited to reviewing, as part of its compliance reviews, dealer compliance with NI 31-103.
NI 31-103 does not mandate dealer submission to the authority of OBSI, a particular arbitration, mediation or other dispute-resolution process, or a specific service provider.
IIROC\u2019s recent notice states that compliance by dealer members with its Rule 37, which requires participation in both OBSI and the IIROC Arbitration Program, constitutes compliance with Sec. 13.16 of NI 31-103, and that Rule 37 and NI 31-103 are \u201cconsistent\u201d with each other.
It is clear that they are not, to the detriment of both dealers and clients.
Dealers are prejudiced by IIROC\u2019s position, in that the element of choice as to whether to offer to their clients a dispute-resolution or a mediation service has been eliminated by IIROC, as has the choice of a particular service provider.
Clients are disadvantaged, in that they will continue to share the fee responsibility for accessing IIROC\u2019s Arbitration Program. Given the criticisms of both current IIROC mandated dispute resolution service providers (the IIROC Arbitration Program and OBSI) by clients, investor advocates and dealers, all constituencies may benefit from such a change.
IIROC\u2019s view seems to be that the implementation of NI 31-103, notwithstanding its clear wording, must not be left in the hands of dealers; rather, members should be compelled by IIROC to participate and submit themselves to the jurisdiction of both OBSI and the arbitration program.
On this basis, it is difficult to understand how IIROC reconciles its existence as an SRO with its attitude of disdain for its dealer members. So much for principles-based regulation.
Another approach, consistent with NI 31-103, would be for IIROC to offer a modified Arbitration Program and OBSI as dispute resolution services to those dealers that opt, without compulsion, to provide to their clients with these particular dispute resolution services.\tIE<\/b>
Joel Wiesenfeld is a partner at Torys LLP. The views expressed in this article are strictly personal. <\/i><\/p>\n","protected":false},"excerpt":{"rendered":"
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