CSA Proposes to Change Definition of “Complaint” to Include any “Expression of Dissatisfaction”
The Private Capital Markets Association of Canada (PCMA) supports fair and balanced regulation. This article is part of a PCMA series commenting on the Canadian Securities Administrators’ (CSA) proposal to give the Ombudsman for Banking Services and Investments (OBSI) binding decision-making powers of up to $350,000 under proposed amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
Proposed Change
The CSA proposes to expand the definition of a complaint to encompass any “expression of
dissatisfaction” that relates to a trading or advising activity, as set out below.
|
In sections 13.16 and 13.16.1, “complaint” means an expression of dissatisfaction by a client that (a) relates to a trading or advising activity of a registered firm or a representative of the firm, and (b) is received by the firm within 6 years of the day when the client first knew or reasonably ought to have known of an act or omission that is a cause of or contributed to the expression of dissatisfaction; [items italicized, bold and underlined for emphasis] |
Lack of Evidence to Substantiate Change
The PCMA believes this proposed change is arbitrary and is not aware of any published findings in OBSI evaluations, reports or reviews by the CSA that would indicate a change is necessary.
It is unclear why the CSA is changing the meaning of the word “complaint” by deleting it and, in its place, adding the phrase “expression of dissatisfaction”. We believe proposing such a change may be perceived as a change that is a ‘solution in search of a problem’ and may be considered overreaching the purpose of the regulation.
Proposed Definition Overly Broad
The PCMA believes the “expression of dissatisfaction” is overly broad, lacks an objective standard and potentially captures matters that are, or should be, outside of the definition of a complaint. Not all expressions of dissatisfaction should rise up to the level of being a reportable complaint.
For example, the fact that an investment has decreased in value or that an investor may have lost money does not necessarily mean that a registrant has engaged in misconduct. Investments in most securities involve risks. There is no guarantee that investments will always be profitable, and there is no fund to compensate investors for losses they may have suffered as a result of a particular investment.
A complaint should be distinguished from a “client service and/or administrative concern” which would be treated in the ordinary course and not trigger a registrant’s complaint review process, as required under securities law.
If the CSA proposes to give OBSI binding decision-making powers, then registrants and investors should have a clear definition of what a complaint means. Otherwise, it risks flooding the system with trivial or vexatious claims that do not allege misconduct which may harm a registrant’s reputation and put undue burden on a firm’s resources in responding to such complaints. Treating any expression of dissatisfaction risks treating casual comments the same as serious grievances which reduces incentives for investors to properly frame substantial issues as formal complaints deserving remediation.
The change in definition also fails to define the term “expression”. This could confuse investors who may believe words of disappointment or other informal feedback would be subject to a formal grievance process.
The lack of precision in a trigger event, of whether a client’s communications rises to a reportable complaint is critical to understand since it can drive firm resources to an investigation that is inappropriate. This is magnified when there are no disincentives or costs attributed to a complainant for making a frivolous or meritless claim or merely an expression of dissatisfaction such as with a failed investment.
Recommendations
If a change to the definition of complaint is to be made, then the PCMA recommends the proposed phrase “expression of dissatisfaction” be replaced with the word “grievance” for clarity.
The PCMA notes that FINRA uses the word ‘grievance’ in its definition of a complaint[1]
which the PCMA believes provides greater clarity. As applied, the term “grievance” within the definition would mean:
“a circumstance or condition that constitutes an injustice to the sufferer [complainant] and gives just ground for complaint”[2]
The PCMA believes that the FINRA concept of a grievance would provide greater certainty to investors and registrants on what is a reportable complaint which provides all stakeholders with fair and balanced regulation.
The Companion Policy to NI 31-103 sets out the subject matter of complaints and proposed additional language by the CSA is set out below (bold, underline and italics). The PCMA notes that this is helpful commentary for registrants.
|
All complaints relating to one of the following matters should be responded to by the firm by providing an initial and substantive response, both in writing and within a reasonable time:
Firms may determine that a complaint relating to matters other than the matters listed above is nevertheless of a sufficiently serious nature to be responded to in the manner described below. This determination should be made, in all cases, by considering if an investor, acting reasonably, would expect a written response to their complaint. |
What is Not a Complaint Should be Defined
In addition to the foregoing, the PCMA submits that the CSA should also define what is not a complaint and is merely an expression of dissatisfaction that does not rise up to a formal grievance, such as:
- general lamentations on the state of the economy and capital markets;
- client service items such as the response time of a registrant to items that are not time sensitive;
- the time and paperwork required to submit a redemption request to an issuer and time-frame for payment;
Adding the above and other examples to the Companion Policy of what is and what is not
a “complaint” would be helpful.
What Forms the Basis of a Complaint and the Proposed $350,000 Limit
It is not clear how the proposed $350,000 limit for a complaint is linked to trades. For example, if an investor complains about three separate investments that were completed on three different dates, is that one complaint subject to the $350,000 limit or is each investment subject to a $350,000 limit. This is unclear and will be discussed in a future PCMA article.
Proposed Change is Not Fair and Balanced Regulation
The PCMA supports fair and balanced regulation and believes that it is in the public interest for the CSA to find the right balance between investor protection and fair and efficient capital markets.
The PCMA does not believe the right balance has been struck with the CSA’s proposal to alter the definition of the word complaint in its proposal to give OBSI binding decision-making powers.
Other PCMA Articles on this Topic:
- For more information about this Article and similar articles, please see the PCMA’s dedicated website to this topic at: www.fairandbalancedregs.com
- Link to Full CSA Proposal to Give OBSI Binding Decision-Making Powers: https://www.osc.ca/sites/default/files/2023-11/csa_20231130_31-103_proposed-amendments.pdf
- Write a Comment Letter: Let the regulators know how the proposed changes will impact your business. The PCMA is working on a template letter for members and it will be made available on the PCMA’s dedicated website to this topic at: www.fairandbalancedregs.com.
