Investor advocates consider transparency and disclosure issues, as well as conflict- of-interest, while also taking into account retail client vulnerabilities. The Rule overlooks these vulnerabilities, which are clearly evident in a process in which there is, very often, a significant imbalance in power and an asymmetry in knowledge between the complainant and the firm. It is disappointing to find that these elements, which are essential in any consideration of investor protection, have not been adequately taken into account in the formulation of Rule 2500B.
Consider the original IIROC Staff response to the issue of conflict-of-interest and disclosure raised previously in a SIPA submission. The response acknowledged that the “submission of a complaint by a client usually results in the creation of opposing interests” and that “the proposed complaint handling rule will not eliminate this situation.” IIROC has not undertaken to provide a regulation that would serve to ‘manage’ this conflict-of-interest, especially where a client has a meritorious complaint that the firm might be inclined to deny, favouring its own financial interests and avoiding an offer of fair recompense.
Moreover, the effectiveness of the Rule in achieving the public interest objectives is entirely questionable from a further perspective. These objectives are typically the promotion of “just and equitable principles of trade, the duty to act fairly, honestly, and in good faith”, the fostering of “fair, equitable and ethical business standards and practices” and the promotion of “investor protection”. If these objectives were being “promoted” or “fostered” by means of the present Rule, this would entail, for one, that clients with meritorious complaints who have suffered financial loss should be offered fair compensation by IIROC Member firms. Our own detection of errors, omissions, bias and fallacies in the firm’s responses is confirmed based on years of assisting clients resolve their complaints and published OBSI data. Complainants have also been exposed to made up KYC forms, defective risk profiling and selective non- disclosure of important documents.
The IIROC rule contains no framing of Member conduct that “promotes” or “fosters” precisely the kind of conduct and outcome, that most people in our society would consider to be “just”, “equitable”, “ethical” and to reflect “fair dealing” in such circumstances. The mere provision that the Member firm should provide a summary of the complaint, the results of its investigation, and a final decision with an explanation is clearly inadequate to achieve these objectives.
One concern comes into play, where the client must be advised if he/she is not to receive a final response within the ninety (90) days time frame accompanied by reasons for the delay and the new estimated time of completion .The content of this communication with the client needs further specification. The firm should be required at this point to reiterate the 90-day timeline and indicate that the client now has the right to proceed directly to OBSI. As it stands, the way this communication is specified (above) in the current rule is inadequate. Clients need to be informed of their right to proceed to alternative dispute resolution once the allowable timeframe for a substantive response has been reached and not just be given reasons for further delay and a new estimated completion date. Furthermore, the Rule should make it clear that the timeframe is measured in calendar days.