handshaking and exchanging contract documents

An industry trade group says proposals to allow more information sharing between the Ombusdman for Banking Services and Investments (OBSI) and the Investment Industry Regulatory Organization of Canada (IIROC) would make dispute resolutions more costly and legalistic.

In a letter to IIROC, the Investment Industry Association of Canada (IIAC) is seeking more information from the SRO about proposed rule changes involving its ability to communicate with OBSI.

IIROC proposed rule changes on Oct. 17 that would eliminate restrictions on the information that IIROC can receive from OBSI.

“The IIAC would like to obtain clarifications on how IIROC intends on using this new power to compel disclosure, as the practical effect of the proposed amendments will be to allow IIROC to access all of the information in the ombudsman’s possession, regardless of the circumstances,” the trade group says in its letter.

Among other things, the group is asking the SRO to detail the type of information it would be seeking, how that information will be used by IIROC, and whether it can form the basis of an enforcement action.

It also warns that the change to IIROC rules could impact OBSI’s operations.

“We are concerned that the proposed amendments may have unintended consequences affecting the objective that OBSI provide an accessible, low cost and non-legalistic process to investors and firms,” it says.

For instance, IIAC says that when OBSI interviews an advisor to investigate a complaint under the current process, these interviews are usually informal and don’t involve lawyers. However, if the information obtained in these interviews is going to be used by IIROC, that may change how firms approach OBSI’s inquiries, it suggests.

“If the content of the interviews could now form the basis for regulatory action, the proposed amendments could be construed as OBSI effectively undertaking an interview for the IIROC enforcement department. This would change the tone of relations between advisors, firms and OBSI, as OBSI will be in a position where it may be viewed as having a regulatory function,” it says.

Additionally, materials provided to IIROC “may be discoverable in civil litigation,” IIAC says, which will likely push firms, or advisors, to involve legal counsel in OBSI interviews. That would increase costs for firms and advisors, as well as for OBSI, IIAC says.

Moreover, IIAC says that firms and advisors should have access to any materials that OBSI provides to IIROC; that the rules should include an exception for claims of privilege; and that IIROC should develop guidance on how information obtained from OBSI can be used by the SRO’s staff.

It also suggests that OBSI’s terms of reference will have to be revised to “ensure these new quasi-regulatory functions do not detract from its role as an independent dispute resolution body.”