The Portfolio Management Association of Canada (PMAC) is pleased to have the opportunity to submit the following comments on the Canadian Securities Administrators’ (CSA) Notice and Request for Comment – Registered Firm Requirements Pertaining to an Independent Dispute Resolution Service – Proposed Amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and Proposed Changes to Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations (31-103CP); collectively, the Consultation.
General Comments
PMAC is supportive of fair dispute resolution mechanisms and effective and trusted avenues for the redress of investor losses. As such, PMAC generally agrees with the CSA’s goal of strengthening the dispute resolution framework for the Ombudsman for Banking Services and Investments (OBSI) or other identified ombudservice(s).
As is discussed further below, we believe that due to the unique nature of PM clients and the fiduciary relationship between PMs and their clients, the services offered through OBSI are not as essential for these clients as they are for retail investors. Sophisticated individual and institutional clients may prefer to use a different provider to resolve disputes, and PM firms should not be required to use OBSI for dispute resolution.
We understand that the Consultation is focused on concerns with respect to registrants paying less than the OBSI recommended settlement amount. The proposed solution to this issue is to make these recommendations binding. We agree that a framework to make binding decisions is one possible solution to this issue. However, we have serious substantive and procedural concerns with the framework set out in the Consultation. These concerns are described in our response below, along with our accompanying recommendations. Specifically, a system that produces binding decisions requires: (i) a clear process for the determination of settlement amounts; (ii) extensive expertise of decision makers to ensure that loss calculations and recommendations are fair and consistent; and (iii) additional procedural and administrative fairness measures. 2 Our recommendations are submitted with a view to aligning the proposals in the Consultation with the goals of achieving investor protection and fairness to all stakeholders.
Key Recommendations
- Amend NI 31-103 to clarify that OBSI’s mandate does not extend to nonindividual clients.
- Permit PMs and their clients to use dispute resolution services other than OBSI.
- Conduct additional research to determine the reasons why parties settle for less than the recommended amount and consider appropriate enhancements to the existing OBSI service offering, which could include voluntary mediation and voluntary binding arbitration.
- If a binding process is implemented, it must be governed by principles of administrative and procedural fairness, limited to a low monetary threshold ($35,000), and must be harmonized across Canada.
Read the full submission here
