Proposed Amendments respecting Reporting, Internal Investigation and Client Complaint Requirements

1. Proposed Amendments

The Proposed Amendments are intended to:

1. help Dealers manage regulatory obligations and reduce duplicative reporting by align our ComSet Reporting Requirements, Complaint Requirements and Gatekeeper Obligations,
2. address inconsistencies in how Dealers interpret our requirements with respect to reporting, internal investigation and client complaint matters by making our requirements more consistent with regulatory expectations,
3. codify client complaints best practices that we have observed at our Dealers and internationally, and
4. help us to:
   • anticipate client complaints, and inquires made to IIROC, and respond to them efficiently,
   • better assess each Dealer’s risk which would then inform the frequency and content of our compliance examinations, 
   • protect capital markets from harmful conduct, and
   • conduct more efficient reviews of individual IIROC approval applications.

The Proposed Amendments do not involve a rule that IIROC, Dealers or Approved Persons must comply with in order to be exempted from a requirement of securities legislation.

We continue to monitor developments with the Canadian Securities Administrators (CSA), other regulatory organizations, SROs and jurisdictions which may impact the Complaint Requirements, in particular:

• the amount of time Dealers and their internal ombudsmen have to respond to a client complaint, and
• the communication of OBSI services.

1.1 Serious Misconduct

Our current ComSet Reporting Requirements are generally prescriptive in nature. They include specific lists of matters that:

• Dealer Members (Dealers) must report to us, and
• Dealers are required to conduct internal investigations on.

As a result, Dealers are not consistently reporting to us or conducting investigations on all matters where there is a risk of material harm to clients or the capital markets or where there is material non-compliance with IIROC requirements, securities laws or other applicable laws.

To address this issue, we propose to introduce a “serious misconduct” definition that is principles-based and is intended to consistently focus our ComSet Reporting Requirements on matters where there is:

• a reasonable risk of material harm to clients or the capital markets, or
• material non-compliance with IIROC requirements2, securities laws or any other applicable laws.

In addition to introducing a materiality threshold, we are proposing the new term “serious misconduct” to:

• consistently focus our ComSet Reporting Requirements on those matters we are most concerned about,
• require all client-related misconduct activities be reported through ComSet, including those that are currently required to be reported through Gatekeeper,
• align our ComSet Reporting Requirements and Complaint Requirements, and
• ensure Dealers investigate specific misconduct activities and report the results of such investigations to us.

In the new “serious misconduct” defined term, we propose to consolidate the activities listed in current section 3706 and subsection 3721(2)3 and two client-related activities from UMIR Rule 10.16(1)4 as examples of serious misconduct. Consequently, we propose to remove violations of the best execution of client order requirements and violations of client priority requirements from the list of matters that must be reported under UMIR 10.16(1).  

Specifically, the activities we propose including as examples of “serious misconduct” are:

• material breach of client personal information under the Dealer’s control,
• theft,
• fraud,
• misappropriation or misuse of funds or securities,
• forgery,
• money laundering,
• insider trading,
• misrepresentations,
• unauthorized trading, including discretionary trading contrary to subsection 3221(1),
• engaging in Dealer related activities outside the Dealer,
• engaging in activities outside the Dealer Member contrary to section 2554,
• addressing conflicts of interest in a manner that is contrary to section 3111 or section 3112,
• engaging in personal financial dealings with a client contrary to section 3115,
• violating the best execution of client order requirements in Part C of Rule 3100,
• violating the client priority requirements in section 3503 or in UMIR Rule 5.3, and
• violating the suitability determination obligation in Rule 3400.

We consider each of these matters to be activities which create a reasonable risk of material harm to clients or the capital markets. As such, we would require Dealers to report them to us regardless of whether Dealers consider these activities to be material or not, with the exception of breaches of client personal information (which must be material to be reported).  

While not specifically enumerated in the list of examples of “serious misconduct”, we consider engaging in manipulative or deceptive activities to constitute material non-compliance of our rules. Participants are required to report on this activity under UMIR 10.16. Unless they’ve already reported it under UMIR 10.16, all Dealer Members would need to report such activity if it meets the threshold of:

• a reasonable risk of material harm to clients or the capital markets, or
• a material non-compliance with IIROC requirements, securities laws or any other applicable laws.

In Appendix 5, we list out these examples of misconduct and clarify which are included under the current ComSet Reporting Requirements, Complaint Requirements and Gatekeeper Obligations.

1. Impact on ComSet Reporting Requirements

Under the Proposed Amendments, Dealers would have to conduct internal investigations and report to us if they become aware that the Dealer, an Approved Person or an employee may have engaged in serious misconduct, whether through a complaint or other means.

Under the expanded list of activities that constitute “serious misconduct”, Dealers would be required to report to us and conduct internal investigations  on the following additional activities:

• material breaches of client personal information under the Dealer’s control,
• personal financial dealings contrary to section 3115,
• engaging in Dealer activities outside the Dealer,
• addressing conflicts of interest in a manner that is contrary to section 3111 or section 3112,
• engaging in activities outside the Dealer Member contrary to section 2554,
• violation of best execution of client order requirements in Part C of Rule 3100,
• violation of client priority requirements in section 3503 or in UMIR Rule 5.3,
• violating the suitability determination obligation in Rule 3400, and
• any instance of material non-compliance with any other IIROC requirements, securities laws or any other applicable laws.

We are proposing these amendments to help Dealers quickly and consistently identify matters that must be reported or investigated. For those Dealers who are currently over-reporting or over-investigating, we anticipate these Proposed Amendments will have a positive impact. For others, this will likely mean an increase in reporting or investigation.

2. Impact on Complaint Requirements

Currently, complaints alleging serious misconduct must be reported to an Executive. Under the expanded list of activities that constitute “serious misconduct”, Dealers would be required to add the following activities as reportable to an Executive:

• money laundering,
• insider trading, 
• addressing conflicts of interest in a manner that is contrary to section 3111 or section 3112,
• engaging in activities outside the Dealer Member contrary to section 2554,
• violation of best execution of client order requirements in Part C of Rule 3100,
• violation of client priority requirements in UMIR Rule 5.3, and
• any instance of material non-compliance with any other IIROC requirements, securities laws or any other applicable laws.

3. Impact on Gatekeeper Obligations

Currently, Participants and Access Persons are subject to Gatekeeper Obligations in UMIR Rule 10.16.

Under the Proposed Amendments, the following two gatekeeper requirements in UMIR Rule 10.16(1) pertaining to Participants would be moved to Rule 3700 under the “serious misconduct” defined term:

• violation of best execution of client order requirements in Part C of Rule 3100, and
• violation of client priority requirements in UMIR Rule 5.3.

As a result, with respect to violations of best execution or client priority:

• Dealers (including Dealers who are also Participants) would have to report to us as soon as possible or, at the latest, within five business days of becoming aware of either one of these violations, which would be a new requirement that currently does not exist under the Gatekeeper Obligations.
• Dealers would then have to conduct an internal investigation (which includes an internal compliance review) into the violation, which is consistent with the current Gatekeeper Obligations. Dealers would be required to report the commencement of that investigation to us within five business days, which is also a new requirement that currently does not exist under the Gatekeeper Obligations.
• Finally, Dealers would need to report the results of that investigation to us as soon as possible or within 20 business days of the date on which the investigation is completed. This is a modification of our current rule that requires the results of an investigation to be reported only if the investigation determines that a violation of an applicable UMIR provision has occurred.
• Participants would no longer be required to report their related entities’5 violations of best execution of client order requirements in Part C of Rule 3100 and client priority requirements in UMIR Rule 5.3.

4. Definition of misrepresentation

We propose removing the definition of misrepresentation in subsection 3706(2) of the current IIROC Rules because it is duplicative of securities laws6. Any term that is defined in securities laws has the same meaning in the IIROC Rules unless we specify otherwise.7

5. Exception for matters reported under UMIR

We propose an exception from the ComSet Reporting Requirement for any matters reported in accordance with the UMIR Rules 10.16 through 10.18. We are proposing this exception to reduce duplicative reporting by ensuring that Dealers and Approved Persons are not required to report the same matter under both the IIROC Rules and UMIR. As such, if a Dealer and an Approved Person report a matter as required by UMIR Rules 10.16, 10.17 or 10.18, they would not be required to also report that matter to us under the ComSet Report Requirements.

Question #1

Do you think this exception appropriately achieves our policy objective to reduce regulatory reporting? Why or why not?

1.2 Serious Client-Related Misconduct

The new “serious client-related misconduct” defined term captures all serious misconduct relating to the client’s account and any personal financial dealings with the client contrary to section 3115. As such it includes all the activities listed under “serious misconduct”, to the extent they related to a client’s account or to interactions with the client. We created this term to continue to focus our Complaint Requirements for retail clients on serious misconduct relating to the client or their account.

Under the Proposed Amendments, Dealers would have to meet certain Complaint Requirements for complaints alleging serious client-related misconduct. These Complaint Requirements include:

• distinguishing between complaints on the basis of alleged client-related misconduct, and
• providing a written response to a complaint that alleges serious client-related misconduct.

Under the proposed “serious client-related misconduct” term, Dealers would be subject to these Complaint Requirements for complaints that allege the following additional activities, to the extent that they relate to the client’s account or to interactions with the client:

• money laundering,
• insider trading, 
• addressing conflicts of interest in a manner that is contrary to section 3111 or section 3112,
• engaging in activities outside the Dealer Member contrary to section 2554,
• violation of best execution of client order requirements in Part C of Rule 3100, and
• violation of client priority requirements in UMIR Rule 5.3.

We anticipate the impact of these Proposed Amendments to vary based on Dealers’ existing complaint practices. For some Dealers, these changes may result in an increase in the complaints they investigate and respond to. For other Dealers, there may be a more limited impact.

1.3 Timing requirements

Our ComSet Reporting Requirements do not currently prescribe timing requirements for Dealers to report to us. Instead, Dealers have been referring to the reporting timelines set out in Member Regulation Notice 0162 (MR0162). Generally, the Proposed Amendments would codify the existing reporting timelines in MR0162. However, based on preliminary feedback we received, we propose to require Dealers to report the results of internal investigations to us within 20 business days, instead of the five business days in MR0162.

To assist in reviewing the Proposed Amendments, we included charts that illustrate the timing requirements for each reportable matter in Appendices 6 and 7.

1.4 Employees

Our existing ComSet Reporting Requirements apply only to matters involving Approved Persons. Under the Proposed Amendments, we extend some of our requirements to matters involving employees.

As such, Dealers would be required to establish and maintain policies and procedures8 that require an employee to report to them if they:

• have engaged in any serious misconduct,
• are the subject of a client complaint alleging serious misconduct, or
• are subject to a criminal offence, civil claim, disciplinary action or denial of registration.

In addition, Dealers would be required to:

• conduct an internal investigation when they become aware that an employee may have engaged in serious misconduct, and
• report to us when they become aware of a complaint where a client alleges an employee has engaged in serious client-related misconduct.

Employees would also be required to obtain their Dealer’s written consent before entering into a settlement agreement.

1.5 Approved Person ComSet Reporting Requirements

Under our current requirements, Dealers must report to us when their Approved Persons are subject to a criminal offence, civil claim, disciplinary action or denial of registration. This requirement assumes that the Approved Person has first reported these matters to their Dealer. In the Proposed Amendments, we are updating section 37029 to clarify that Approved Persons must first report these matters to their Dealer so the Dealer can address them and report them to us.10

1.6 Investigations

Under clauses 3710(1)(v), 3710(2)(iv) and 3711(1)(iv) of the Proposed Amendment, Approved Persons and employees would be required to report to their Dealer, and the Dealer would be required to report to us, if they are subject to an investigation, to the extent they are permitted to do so by law or by the body conducting the investigation.

1.7 Compensation to clients

We propose a new requirement for Dealers to report to us any substantial compensation paid to a client. We expect Dealers will use their professional judgment in determining what substantial compensation means, considering the client’s circumstances and their Dealer’s business practices.

1.8 Proceedings and civil actions

We clarified under sub-clause 3711(1)(iv)(b) of the Proposed Amendments that Dealers must report to us any time an Approved Person or the Dealer is the subject of any proceeding or disciplinary action alleging contravention of any applicable laws, not just securities laws. 

We updated our civil action reporting requirement in sub-clause 3711(1)(iv)(e) of the Proposed Amendments to clarify that Dealers must report any civil claim or arbitration notice alleging serious misconduct.

1.9 Internal disciplinary actions

We updated our internal disciplinary actions ComSet Reporting Requirements in clause 3711(1)(v) of the Proposed Amendments. We removed the dollar thresholds for reporting internal disciplinary actions, and instead require Dealers report to us any disciplinary action they take against an Approved Person involving allegations of serious misconduct.

1.10 Resolution of matters   

While clause 3703(2)(i) requires Dealers report all client complaints to us, with the exception of service complaints, it does not require Dealers to report the outcomes of these complaints. We propose to clarify in subsection 3711(3) of the Proposed Amendments that Dealers would need to report the resolution of any client complaint alleging serious misconduct reported to us.

Likewise, we propose to clarify in subsection 3711(3) of the Proposed Amendments that Dealers would need to report the resolution of the following matters:

• criminal, civil, regulatory and other proceedings reported under clause 3711(1)(iv), and
• internal disciplinary actions.  

1.11 Results of internal investigations

In subsection 3711(4), we propose to clarify that when a Dealer reports the results of an internal investigation to us, they should include a detailed description of the investigation and its results.

1.12 Supporting documentation and record keeping

In MR0162 and IIROC Notice 11-0142, we outline the types of supporting documents we expect Dealers to provide to us for each type of reportable event. However, our ComSet Reporting Requirements currently do not reference supporting documentation. We propose clause 3804(2)(xx) to clarify that Dealers must provide additional documentation relating to the reportable matter to us upon request.

We also removed duplicative record keeping requirements and clarified our specific client complaint record keeping requirements.

1.13 Internal investigation records

We propose to clarify what we expect Dealers to maintain in their internal investigation records. Specifically, we expect them to maintain all documents and evidence collected, and document any recommendations made. We also clarified that Dealers must provide these records to us upon request.

1.14 Client complaint handling standards

We propose to clarify that Dealers must document and respond to each client complaint in a manner that a reasonable investor considers effective, fair and expeditious. This Proposed Amendment is consistent with our current requirement for Dealers to have policies and procedures to manage complaints effectively, fairly and expeditiously and with section 13.15 of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations.

1.15 Verbal complaints

We propose to define the term “complaint” and remove the distinction between verbal and written complaints. Dealers would no longer be required to assess the merits of verbal complaints.

1.16 Handling client complaints

Consistent with our existing client complaint handling guidance11, we propose to clarify that:

• Dealers should commit adequate resources to staff managing complaints and establish clear roles and responsibilities for managing complaints, and
• an individual who is the subject of a client complaint cannot handle the client complaint.

1.17 Client’s interest when handling complaints

We propose to remove the requirement for Dealers to handle complaints in a balanced manner considering the interests of the client, Dealer, Approved Person and employee. We determined this was inconsistent with the Dealer’s and Approved Person’s obligation to put the client’s interests first when managing conflicts of interest12, as this provision does not require Dealers to put the client’s interests ahead of their interests or their Approved Persons’ and employees’ interests.

1.18 Addressing systemic issues

Under the Proposed Amendments, when a Dealer determines that the number or severity of complaints is significant, or detects frequent and repetitive complaints which indicate a serious problem, they would have to, in addition to the existing requirements:

• ascertain the scope and severity of any client detriment, and
• consider whether it is fair and reasonable to proactively conduct any redress or remediation.

We propose this change to codify best practices and to ensure Dealers consider all clients impacted by a serious problem they have identified when deciding how to resolve it.

1.19 Accessible acknowledgement and substantive response letters

Consistent with client complaint handling best practices, we propose to require Dealers draft their acknowledgement and substantive response letters in plain language and provide them to the complainant in a format readily accessible and understandable by that complainant. For instance, if a complainant can only read Mandarin, and are serviced by their Dealer in Mandarin, the Dealer would have to respond to them in Mandarin. 

1.20 Content of substantive response letter

We propose to update the information Dealers must disclose in their substantive response letters to client complaints. Specifically, under clause 3756(4)(v) of the Proposed Amendments, we clarify that clients may report suspected serious misconduct to us, and we will assess whether any disciplinary action is warranted.

1.21 Internal dispute resolution service response time

We propose to allow a Dealer’s internal dispute resolution service a maximum of 90 days to respond to client complaints, consistent with the amount of time Dealers have to respond. Currently, there is no limit on how long a Dealer’s internal dispute resolution service can take to respond to a client complaint. We propose to limit this to a maximum of 90 days to ensure complaints are resolved more expeditiously, consistent with our proposed complaint handling standards.

1.22 Client complaint file

We propose to clarify that Dealers must maintain the materials reviewed and obtained during a client complaint investigation in the client complaint file.

1.23 Communication of dispute resolution services

In IIROC Notice 17-0229, we highlighted certain concerns regarding Dealers’ complaint handling and listed acceptable practices for the communication of internal dispute resolution services and OBSI services to clients13. We note that some of the issues raised in IIROC Notice 17-0229 continue to exist and so we propose to incorporate the acceptable practices for communicating internal dispute resolution services and OBSI services into section 3759 of the Proposed Amendments to codify our regulatory expectations.

In addition, we propose prohibiting the use of any misleading terms, including the term “ombudsman” or similar qualifiers, in referring to a Dealer’s or a Dealer’s affiliate’s internal dispute resolution service.

To support these changes, we created two new defined terms:

• “approved ombudsman service”, which refers to the OBSI as it is the only ombudsman service our Board has approved, and
• “internal dispute resolution service”, which refers to internal dispute resolution services provided by a Dealer or a Dealer’s affiliate.

2. Impacts     

A detailed assessment of the impact of the Proposed Amendments has been prepared and is included as  Appendix 8.

Overall, we believe that while there would be some negative impacts on Dealers,  these impacts would be outweighed by the positive impacts the Proposed Amendments would have on investors, clients, Dealers, Participants and IIROC.  

3. Proposed Rule 9500 Amendments

3.1 Removing Information Sharing Prohibition

Rule 9500 sets out our requirements relating to a Dealer’s participation in the OBSI. Section 9504 requires Dealers provide OBSI with any information or records requested relating to an investigation or review. However, subsection 9504(3) generally prohibits OBSI from sharing such information with IIROC (Information Sharing Prohibition),14 except in limited circumstances15.

For the reasons discussed below, we propose deleting subsection 9504(3) to:

• eliminate the inconsistency between our rules and the OBSI Terms of Reference, and
• align our requirements with other Canadian securities regulators.

We do not anticipate the Proposed Rule 9500 Amendments will significantly impact Dealers.

3.2 OBSI Terms of Reference

The OBSI Terms of Reference16 requires that OBSI “comply with a written request from a regulator for disclosure of information, documents, records or things”.  As a result, our Information Sharing Prohibition is not consistent with the OBSI Terms of Reference.

3.3 Other Canadian securities regulators

1. Provincial and Territorial Securities Regulators

   Section 13.16 of National Instrument 31-103 - Registration Requirements, Exemptions and Ongoing Registrant Obligations sets out the requirements by provincial and territorial securities regulators for participation by registered firms in OBSI. These requirements do not have a provision similar to our Information Sharing Prohibition. Therefore, provincial securities regulators do not face the same inconsistency between their information sharing rules and the OBSI Terms of Reference.

2. Mutual Fund Dealer’s Association (MFDA)

   The MFDA had a provision similar to our Information Sharing Prohibition.17 However, to resolve its inconsistency with the OBSI Terms of Reference, in December 2019, the MFDA removed its provision prohibiting information sharing.18

3.4 Comments on IIROC Notice 19-0181

We initially published the Proposed Rule 9500 Amendments for comment in IIROC Notice 19-0181. Most commenters were generally supportive of the Proposed Rule 9500 Amendments but some asked for more detail regarding:

• what specific information we would be requesting from OBSI, and
• how we would use the information obtained from OBSI.

While we currently obtain general information on client complaints from OBSI, the Proposed Rule 9500 Amendments would allow us to obtain Dealer-specific and client-specific information, on a case-by case basis. For example, we would know for which client complaints Dealers chose to compensate clients less that what the OBSI recommended.

We would use this information to improve our complaint information sharing with the MFDA and the CSA, conduct more holistic risk-based reviews of our Dealers, and inform our policy making and our enforcement investigations.19

As a technical matter, in order to include the Proposed Rule 9500 Amendments in this Notice and Request for Comment, we withdrew the amendment proposed under IIROC Notice 19-018120.  We included the Proposed Rule 9500 Amendments in this Notice so that our stakeholders could better understand how they would work together with the proposed amendments to our ComSet Reporting Requirements and our Complaint Requirement. For instance, we would use the client complaint information from ComSet in our work with the Joint Regulators Committee, which includes OBSI, the CSA and the MFDA, to identify and address industry-wide issues.

4. Next Steps

4.1 Implementation 

If approved, the Proposed Amendments and the Proposed Rule 9500 Amendments would be effective at least 6 months after we publish the Notice of Approval.

Question #2

Do you think 6 months would be an adequate amount of time for Dealers to implement the Proposed Amendments? If not, how much time do think Dealers would need?

4.2 Updated Guidance

We plan to issue updated guidance with the final version of the Proposed Amendments that addresses:

• for the ComSet Reporting Requirements:
  • the reduction in duplicative reporting by clarifying that Dealers that are Participants can make a single report to us under:
    • the Gatekeeper Obligations where the activity relates to a requirement under UMIR 10.16, 10.17 or 10.18,
    • the ComSet Reporting Requirements where the activity does not relate to UMIR 10.16, 10.17 or 10.18,
      
      and how to report on changes to or new information on a matter,
  • instances where duplicate reporting may still be required for certain matters, such as reporting through ComSet and the National Registrations Database for matters involving Approved Persons’ registration information,
  • what we consider to be substantial compensation paid to a client under clause 3711(1)(ii) of the Proposed Amendments,
  • examples of additional information we may request from Dealers when reviewing a matter, and
  • clarification of “material risk of harm” and certain serious misconduct activities, and
• for the Complaint Requirements:
  • the fair handling of client complaints,
  • training and resourcing of complaint handling staff,
  • interviewing complainants and communicating with them in an accessible manner,
  • the content of Dealer’s substantive response letters, including our expectations for situations in which Dealers deny part or all of a client’s complaint,
  • disclosure of internal dispute resolution service information, and
  • OBSI recommendations for settlement.

Question #3

Are there specific areas of the Proposed Amendments you would like further clarity on in the updated guidance? If so, please let us know which areas and why such clarity is needed.

5. Policy Development Process  

IIROC’s Board of Directors (Board) has determined the Proposed Amendments and the Proposed Rule 9500 Amendments to be in the public interest and on November 24, 2021 approved them for public comment.

The Proposed Amendments arose from:

• inconsistencies in how the ComSet Reporting Requirements and the Complaint Requirements were interpreted, and
• duplicative reporting requirements to IIROC.

We consulted with the industry throughout the development of the Proposed Amendments and the Proposed Rule 9500 Amendments, including consultations with various Conduct, Compliance and Legal Advisory Section subcommittees. We took the public interest into account when developing the Proposed Amendments both through these consultations and by considering feedback we had received from investors.

After considering the comments received in response to this Request for Comments together with any comments of the CSA, IIROC may revise the applicable proposed amendments. If the revisions and comments received are not material, the Board has authorized the President to approve the revisions on behalf of IIROC and the proposed amendments as revised will be subject to approval by the CSA and implementation. If the revisions or comments are material, the proposed amendments including any revisions will be submitted to the Board for approval for republication or implementation as applicable.

6. Appendices

Appendix 1 - Proposed amendments to IIROC Rules (clean)

Appendix 2 - Blackline of proposed amendments to IIROC Rules

Appendix 3 - Text of proposed UMIR amendments

Appendix 4 - Blackline of proposed UMIR amendments

Appendix 5 - Proposed serious misconduct definition chart

Appendix 6 - Approved Person reporting obligations

Appendix 7 -  Dealer Member reporting obligations

Appendix 8 - Impact assessment

Appendix 1 – Proposed Amendments to IIROC Rules (clean)

RULE 1200 | DEFINITIONS

1201.     Definitions

.
.
.

(2)      The following terms have the meanings set out when used in the IIROC requirements:

.
.
.

.
.
.

RULE 3700 | REPORTING AND HANDLING OF COMPLAINTS, INTERNAL INVESTIGATIONS AND OTHER REPORTABLE MATTERS

3701.     Introduction

(1)      Rule 3700 sets out Dealer Members’, Approved Persons’ and employees’ reporting, internal investigation and complaint handling and investigation requirements. Rule 3700 is divided into the following parts:

Part A – Reporting requirements
[sections 3710 through 3712]

Part B – Internal investigations and internal discipline
[sections 3720 through 3723]

Part C – Settlement agreements
[sections 3730 and 3731]

Part D – Client complaints – Institutional Clients
[section 3740]

Part E –  Client complaints – Retail Clients
[sections 3750 through 3759]

Part F –  Legal actions
[section 3760]

Part G – Specific record retention requirements for client complaints 
[section 3770]

3702.     Definitions

(1)      The following terms have the meaning set out below when used in Rule 3700:

3703. – 3709. Reserved.

PART A – REPORTING REQUIREMENTS

3710.     Reporting to the Dealer Member

1. An Approved Person must report to the Dealer Member as soon as possible or, at the latest, within two business days upon becoming aware of any of the following matters:
   1. if there is a change in the Approved Person’s registration information or Form 33-109F4,
   2. if the Approved Person has reason to believe that they may have engaged or currently be engaging in any serious misconduct,
   3. if the Approved Person is the subject of a client complaint,
   4. if there is a client complaint alleging serious client-related misconduct by another Approved Person or employee, or
   5. if the Approved Person is subject to any of the following in any jurisdiction inside or outside of Canada, while in the employ of the Dealer Member or concerning matters that occurred while in the employ of the Dealer Member:
      1. charged with, convicted of, plead guilty or no contest to, any criminal offence,
      2. named as a defendant or respondent in, or is the subject of, any proceeding, disciplinary action or investigation alleging contravention of any securities laws or applicable laws,
      3. named as a defendant or respondent in, or is the subject of any proceeding, disciplinary action or investigation alleging contravention of the requirements or policies of any regulatory or SRO, professional licensing or registration body, 
      4. denial of registration or license by any regulatory or SRO, professional licensing or registration body, or
      5. any pending legal actions against the Approved Person, including a civil claim or arbitration notice alleging serious misconduct.
2. A Dealer Member must establish and maintain policies and procedures that require an employee report to the Dealer Member any of the following matters as soon as possible or, at the latest, within two business days upon becoming aware of any of the following matters:
   1. if the employee has reason to believe that they may have engaged or currently be engaging in any serious misconduct,
   2. if the employee is the subject of a client complaint,
   3. if there is a client complaint alleging serious client-related misconduct by an Approved Person or another employee, or
   4. if the employee is subject to any of the following in any jurisdiction inside or outside of Canada, while in the employ of the Dealer Member or concerning matters that occurred while in the employ of the Dealer Member:
      1. charged with, convicted of, plead guilty or no contest to, any criminal offence,
      2. named as a defendant or respondent in, or is the subject of, any proceeding, disciplinary action or investigation alleging contravention of any securities laws or applicable laws,
      3. named as a defendant or respondent in, or is the subject of any proceeding, disciplinary action or investigation alleging contravention of the requirements or policies of any regulatory or SRO, professional licensing or registration body,  
      4. denial of registration or license by any regulatory or SRO, professional licensing or registration body, or
      5. any pending legal actions against the employee, including a civil claim or arbitration notice alleging serious misconduct.
3. A Dealer Member must designate an individual or department to receive and maintain records of the reports required by subsections 3710(1) and 3710(2).
4. Clauses 3710(1)(v) and 3710(2)(iv) do not include disclosure of an investigation if such disclosure is prohibited by the securities laws, applicable laws, or requirements or policies of any regulatory or SRO, professional licensing or registration body.

3711.     Reporting by a Dealer Member to IIROC

1. A Dealer Member must report to IIROC, using the method approved by IIROC, as soon as possible or, at the latest, within five business days upon becoming aware of any of the following matters:
   1. if the Dealer Member has reason to believe that they may have engaged or currently be engaging in any serious misconduct,
   2. if the Dealer Member or Approved Person or employee has paid substantial compensation to a client either directly or indirectly,
   3. if an internal investigation is commenced by the Dealer Member in accordance with section 3720,
   4. if the Dealer Member, or a current or former Approved Person or employee is subject to one of the following in any jurisdiction inside or outside of Canada, while in the employ of the Dealer Member or concerning matters that occurred while in the employ of the Dealer Member:
      1. charged with, convicted of, plead guilty or no contest to, any criminal offence,
      2. named as a defendant or respondent in, or is the subject of, any proceeding, disciplinary action, or investigation alleging contravention of any securities laws or applicable laws,
      3. named as a defendant or respondent in, or is the subject of any proceeding, disciplinary action or investigation alleging contravention of the requirements or policies of any regulatory organization or SRO, professional licensing or registration body,
      4. denial of registration or license by any regulatory organization or SRO, professional licensing or registration body, or
      5. subject to a civil claim or arbitration notice alleging serious misconduct, and
   5. any internal disciplinary action that is taken by a Dealer Member against an Approved Person or an employee as a result of:
      1. a client complaint involving allegations of serious misconduct,
      2. a civil claim or arbitration notice involving allegations of serious misconduct, or
      3. an internal investigation involving allegations of serious misconduct.
2. A Dealer Member must report to IIROC, using the method approved by IIROC, as soon as possible or at the latest within 20 business days upon becoming aware of a client complaint, all client complaints involving allegations of serious misconduct against the Dealer Member or any current or former Approved Person or employee while in the employ of the Dealer Member.
3. A Dealer Member must report to IIROC, using the method approved by IIROC, as soon as possible or at the latest within five business days the resolution of:
   1. any matter set out in clause 3711(1)(iv),
   2. any internal disciplinary action set out in clause 3711(1)(v), and
   3. any client complaint set out in clause 3711(2).
4. A Dealer Member must report to IIROC, using the method approved by IIROC, as soon as possible or at the latest within 20 business days from the date on which an internal investigation is completed, a detailed description of the internal investigation conducted under section 3720 and its results.
5. A Dealer Member must report to IIROC any cybersecurity incident, using the method approved by IIROC,
   1. within three calendar days upon becoming aware of a cybersecurity incident, and the report must include the following information:
      1. a description of the cybersecurity incident,
      2. the date on which or time period during which the cybersecurity incident occurred and the date when the Dealer Member became aware of it,
      3. an preliminary assessment of the cybersecurity incident, including the risk of harm to any person and/or impact on the operations of the Dealer Member,
      4. a description of immediate incident response steps the Dealer Member has taken to mitigate the risk of harm to persons and impact on its operations, and
      5. the name of and contact information for an individual who can answer, on behalf of the Dealer Member, any of IIROC’s follow-up questions about the cybersecurity incident,
   2. within 30 calendar days, unless otherwise agreed by IIROC, upon becoming aware of a cybersecurity incident, and the report must include the following information:
      1. a description of the cause of the cybersecurity incident,
      2. an assessment of the scope of the cybersecurity incident, including the number of persons harmed and the impact on the operations of the Dealer Member,
      3. details of the steps the Dealer Member took to mitigate the risk of harm to persons and impact on its operations,
      4. details of the steps the Dealer Member took to remediate any harm to any persons, and
      5. actions the Dealer Member has or will take to improve its cybersecurity incident preparedness.
6. Clause 3711(1)(iv) does not include disclosure of an investigation if such disclosure is prohibited by the securities laws, applicable laws, or requirements or policies of any regulatory organization or SRO, professional licensing or registration body.

3712.     Failure to report

1. Failure to report within the timelines set out in sections 3710 and 3711, may result in IIROC imposing an administrative fee, or other penalties that are permitted under IIROC requirements, against the Dealer Member or, where applicable, the Approved Person.

3713 - 3719. Reserved.

PART B – INTERNAL INVESTIGATIONS AND INTERNAL DISCIPLINE

3720.     Requirement to commence an internal investigation

1. A Dealer Member must conduct an internal investigation, which includes an internal compliance review, if it becomes aware that the Dealer Member, a current or former Approved Person or employee while employed by the Dealer Member engaged or appeared to have engaged in any serious misconduct.

3721. Records of an internal investigation

1. For each internal investigation conducted in accordance with section 3720, the Dealer Member must maintain records in accordance with section 3803 containing the:
   1. the issues investigated,
   2. the investigation steps taken, including the documents obtained and the individuals interviewed,
   3. the evidence collected, and
   4. the conclusion made and any resulting recommendations and steps taken.
2. A Dealer Member must provide IIROC with the records required under subsection 3721(1) upon request.

3722.     Internal discipline

1. A Dealer Member’s policies and procedures must establish procedures to determine the appropriate disciplinary measures, if any, for any breach of IIROC requirements or any securities laws by any Approved Person or employee.

3723.     Exception

1. A Dealer Member, an Approved Person and an employee are not required to comply with Parts A and B of Rule 3700 for any matter reported to IIROC under Universal Market Integrity Rules 10.16, 10.17 and 10.18.

3724 - 3729. Reserved.

PART C – SETTLEMENT AGREEMENTS

3730.     Entering into settlement agreements

1. Approved Persons and employees must obtain the Dealer Member’s written consent before entering into any settlement agreement with a client, regardless of the form of the settlement and regardless of whether the settlement is the result of a client complaint or a finding by the Approved Person or the employee or the Dealer Member.
2. A Dealer Member must keep a record of the prior written consent in accordance with section 3803.
3. Subsection 3730(1) does not apply to settlement agreements entered into by an Approved Person or employee who is authorized by the Dealer Member to negotiate or enter into settlement agreements in the normal course of their duties and does not arise out of activities involving the Approved Person or employee.

3731.     Release

1. A release entered into between a Dealer Member and a client may not impose confidentiality or similar restrictions aimed at preventing a client from initiating a complaint to the securities regulatory authorities, SROs or other enforcement authorities, or continuing with any pending complaint in progress, or participating in any further proceedings by such authorities.

3732. – 3739. Reserved.

PART D – CLIENT COMPLAINTS – INSTITUTIONAL CLIENTS

3740.     Complaint policies and procedures

1. The Dealer Member’s policies and procedures must specifically address dealing effectively with institutional client complaints received.
2. The Dealer Member’s policies and procedures must specifically address the following:
   1. the Dealer Member must acknowledge all institutional client complaints,
   2. the Dealer Member must convey the results of its investigation, if any, of a complaint to the institutional client in due course,
   3. the Dealer Member must ensure that the Approved Person and their Supervisor is aware of all institutional client complaints filed against the Approved Person,
   4. the Dealer Member must ensure that all allegations of serious misconduct are reported to an appropriate Executive, and
   5. complaints are to be handled by a Supervisor and a copy must be filed with the compliance department/function (or the equivalent) of the Dealer Member.
3. If the Dealer Member determines that the number or severity of complaints is significant, or when a Dealer Member detects frequent and repetitive complaints made with respect to the same or similar matters which may on a cumulative basis indicate a serious problem, then the Dealer Member must:
   1. review its internal policies and procedures, and
   2. ensure recommendations to remedy the problem are submitted to the appropriate management level.

3741. – 3749. Reserved.

PART E – CLIENT COMPLAINTS – RETAIL CLIENTS

3750.     Retail client complaints

1. A Dealer Member must document and, in a manner that a reasonable retail client would consider effective, fair and expeditious, respond to each retail client complaint made to the Dealer Member about any product or service offered by the Dealer Member or the Dealer Member’s Approved Person or employee. 
2. A Dealer Member must establish and maintain policies and procedures to deal effectively, fairly and expeditiously with retail client complaints. 
3. A Dealer Member must provide a written response to any retail client complaint that is submitted in the form specified in section 3751.

3751. Application

1. Sections 3751 to 3759 apply to complaints submitted by a retail client, or a person authorized to act on behalf of a retail client, alleging serious client-related misconduct.
2. Any matter which is the subject of a civil action or arbitration is not considered to be a complaint for the purpose of section 3751.

3752.     Handling client complaints

1. Complaints must be handled by supervisory or compliance staff and a copy of the complaint must be filed with the compliance department or function (or the equivalent) of the Dealer Member.
2. The Dealer Member must commit adequate resources, including training and support, to supervisory or compliance staff managing complaints and must establish clear roles and responsibility for the management of complaints.
3. The Dealer Member must appoint an individual to act as the designated complaints officer. The individual must have the requisite experience and authority to oversee the complaint-handling process and to act as a liaison with IIROC.
4. An individual who is the subject of a complaint must not handle the complaint.

3753.    Complaint policies and procedures

1. A Dealer Member’s policies and procedures must specifically address:
   1. procedures for a fair and thorough investigation of complaints,
   2. a process for assessing the merits of complaints with proper considerations of the facts of the case,
   3. the process to be followed in determining what offer should be made to the client, where the complaint is assessed to have merit,
   4. a description of remedial actions which may be appropriate to be taken within the Dealer Member.
   5. a process that ensures that the relevant Approved Persons, employees and their Supervisors are made aware of all complaints filed by their clients,
   6. procedures to inform an appropriate Executive of any serious misconduct, and
   7. procedures to monitor the general nature of the complaints.
2. If a Dealer Member determines that the number or severity of complaints is significant, or when a Dealer Member detects frequent and repetitive complaints made with respect to the same or similar matters which may on a cumulative basis indicate a serious problem, the Dealer Member must:
   1. review its internal procedures and practices,
   2. ascertain the scope and severity of client detriment that might have arisen,
   3. consider whether it is fair and reasonable for the Dealer Member to undertake proactively a redress or remediation exercise, and
   4. ensure recommendations to remedy the problem are submitted to the appropriate management level.

3754.     Disclosure of complaint handling procedures

1. At the time of account opening, a Dealer Member must provide each new client with:
   1. a written summary of the Dealer Member’s complaint-handling procedures, which is clear and can be easily understood by the client, and
   2. a copy of the complaint-handling process brochure, approved by IIROC.
2. A Dealer Member must make available on its website a written summary of the Dealer Member’s complaint-handling procedures. Where the Dealer Member does not have a website, the Dealer Member must make a written summary of their complaint-handling procedures available, on an ongoing basis, by other means.

3755.     Complaint acknowledgement letter

1. The Dealer Member must send an acknowledgement letter to the complainant within five business days of receipt of a complaint.
2. The acknowledgement letter in subsection 3755(1) must be written in plain language and be in a format readily accessible and understandable by the complainant and include the following:
   1. the name, job title and full contact information of the individual at the Dealer Member handling the complaint,
   2. a statement indicating that the client should contact the individual at the Dealer Member handling the complaint if they would like to inquire about the status of the complaint or provide the Dealer Member with any additional information,
   3. an explanation of the Dealer Member’s internal complaint handling process, including but not limited to the role of the designated complaints officer,
   4. a reference to an attached copy of IIROC approved complaint-handling process brochure and a reference to the statutes of limitations contained in the document,
   5. the 90-day time line to provide a substantive response to complainants, and
   6. a statement informing the client that the Dealer Member may request additional information, from time to time, to investigate the complaint.

3756.     Response to client complaints

1. The Dealer Member must send a substantive response letter to each complainant.
2. The substantive response letter must be accompanied by a copy of the complaint-handling process brochure approved by IIROC.
3. The substantive response letter must be written in plain language and be in a format readily accessible and understandable by the complainant.
4. The substantive response letter must be presented in a manner that is fair, clear and not misleading to the client, and must include the following information:
   1. a summary of the complaint,
   2. the result of the Dealer Member’s investigation,
   3. the Dealer Member’s final decision on the complaint, including an explanation,
   4. a statement describing to the client the options available if the client is not satisfied with the Dealer Member’s response, including the availability of:
      1. the approved ombudsman service, if a request is made within the period required by the approved ombudsman service,
      2. arbitration,
      3. litigation/civil action, and
      4. any other available options,
   5. a statement that the client may report any suspected serious misconduct to IIROC for an assessment of whether any disciplinary action is warranted, and
   6. if the Dealer Member offers an internal dispute resolution service to its retail clients, a statement describing the availability of an internal dispute resolution service, with an explanation that:
      1. the use of the internal dispute resolution service process is voluntary, and
      2. the internal dispute resolution service’s 90-day time line to provide a substantive response to complainants.
5. A Dealer Member must send a substantive response letter to each complainant as soon as possible and not later than 90 days from the date they received the complaint subject to the following:
   1. the 90-day time line must include all internal processes of the Dealer Member that are made available to the client, other than the internal dispute resolution service,
   2. the Dealer Member must inform the client if the Dealer Member is unable to provide the client with a substantive response letter within the 90-day time line and must include the reasons for the delay and the new estimated time of completion, and
   3. the Dealer Member must inform IIROC if the Dealer Member is unable to meet the 90-day time line and must provide reasons for the delay.
6. If the Dealer Member offers an internal dispute resolution service to its retail clients, the Dealer Member must establish and maintain policies and procedures that require the internal dispute resolution service to send a substantive response letter to each complainant as soon as possible and not later than 90 days from the date the internal dispute resolution service received the complaint.

3757. Duty to assist in client complaint resolution

1. If an Approved Person moves to a different Dealer Member after a complaint has been made against the Approved Person, the Approved Person must continue to co-operate with the Dealer Member where they were employed or acted as an agent until the complaint has been resolved.
2. Dealer Members must co-operate with each other if events relating to a complaint took place at more than one Dealer Member or if the Approved Person is an employee of another Dealer Member that is not involved in the events relating to the complaint. 

3758. Client complaint file

1. A Dealer Member must retain the following information in accordance with section 3771 for each client complaint:
   1. the complainant’s name,
   2. the date of the complaint,
   3. the nature of the complaint,
   4. the name of the individual who is subject of the complaint,
   5. the securities or services which are the subject of the complaint,
   6. the materials reviewed and obtained during the investigation,
   7. the name, title and date individuals were interviewed for the investigation, and
   8. the date and conclusion of the decision rendered in connection with the complaint.

3759.  Communication of internal dispute resolution service options

1. If the Dealer Member or an affiliate of a Dealer Member offers an internal dispute resolution service, the Dealer Member must clearly indicate in their communications with clients the following:
   1. the internal dispute resolution service is employed by the Dealer Member or an affiliate of a Dealer Member and is not an independent dispute resolution service,
   2. a client may submit a complaint to the approved ombudsman service without first submitting a complaint to the internal dispute resolution service if the Dealer Member has not provided the client with a substantive response letter within 90 days as required by subsection 3756(5),
   3. a client may submit their complaint to the approved ombudsman service without first submitting a complaint to the internal dispute resolution service if the client is not satisfied with the Dealer Member’s substantive response letter,
   4. the use of the internal dispute resolution service is voluntary,
   5. the internal dispute resolution service has 90 days to provide a substantive response to a client, and
   6. that the statutory limitation periods continue to run while an internal dispute resolution service reviews a complaint, which may impact a client’s ability to commence a civil action.
2. In referring to its internal dispute resolution service or to the persons assigned to its internal dispute resolution service, a Dealer Member may not use any misleading terms, including the term “ombudsman” or any other term with a similar meaning, that suggests that the internal dispute resolution service is independent of the Dealer Member.     
3. A Dealer Member must clearly indicate in their communications with clients the following:
   1. a client has 180 days after receiving the Dealer Member’s substantive response letter to submit their complaint to the approved ombudsman service, and
   2. the services of the approved ombudsman service are provided free of charge. 
4. A Dealer Member’s disclosure of the approved ombudsman service must:
   1. be equally prominent as the Dealer Member’s disclosure of the internal dispute resolution service,
   2. be clear, transparent and written in plain language, and
   3. include the full contact information of the approved ombudsman service.

PART F – LEGAL ACTIONS

3760.     Reporting legal actions

1. All legal actions against the Dealer Member must be reported to an appropriate Executive of the Dealer Member.

3761. – 3769. Reserved.

PART G – SPECIFIC RECORD RETENTION REQUIREMENTS FOR CLIENT COMPLAINTS

3770.     Client complaints

1. A Dealer Member must maintain a copy of each client complaints file in a central and readily accessible place for a period of two years from the date of receipt of a client complaint.

3771. – 3799. Reserved.

RULE 3800 | DEALER MEMBER RECORDS AND CLIENT COMMUNICATIONS

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3804.     General requirements to maintain records

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2. The records required under subsection 3804(1) include, but are not limited to, records that do the following:

1. permit timely creation and audit of financial statements and other financial information required to be filed or delivered to IIROC or the applicable securities regulatory authority,
2. permit determination of the Dealer Member’s capital position,
3. demonstrate compliance with the Dealer Member’s capital and insurance requirements,
4. demonstrate compliance with internal control procedures,
5. demonstrate compliance with the Dealer Member’s policies and procedures,
6. permit the identification and segregation of client cash, securities, and other property,
7. identify all transactions conducted on behalf of the Dealer Member and each of its clients, including the parties to the transaction and the terms of the purchase or sale,
8. provide an audit trail for:
   1. client instructions and orders, and
   2. each trade transmitted or executed for a client or by the Dealer Member on its own behalf,
9. permit the generation of account activity reports for clients,
10. provide securities pricing as may be required by securities laws,
11. document the opening of client accounts, including any agreements with clients and evidence that account related documents required by IIROC requirements have been provided to clients,
12. demonstrate compliance with know-your-client, account appropriateness, product due diligence, know‐your‐product and suitability determination requirements,
13. demonstrate compliance with complaint handling requirements,
14. document correspondence with clients,
15. document compliance, training, and and supervision actions taken by the Dealer Member,
16. demonstrate compliance with conflicts of interest requirements,
17. document
    1. the Dealer Member’s sales practices, compensation arrangements and incentive practices, and
    2. other compensation arrangements and incentive practices from which the Dealer Member or its Approved Persons, or any affiliate or associate of that Dealer Member, benefit,
18. demonstrate compliance with misleading communications requirements,
19. demonstrate compliance with the conditions for temporary holds, and
20. document each event required to be reported to IIROC under subsections 3711(1) through 3711(5).

RULE 9500 | ALTERNATIVE DISPUTE RESOLUTION

9501.     Introduction

1. Rule 9500 sets out the requirements relating to a Dealer Member’s obligation to participate in arbitration programs and ombudsman services approved by IIROC.

9502.     Participation by a Dealer Member in arbitration

1. The Board may approve, with terms and conditions, one or more arbitration programs or organizations for Dealer Members or any class of Dealer Members.
2. A Dealer Member must participate in or become a member of an arbitration program or organization approved by the Board.
3. The participation of a Dealer Member in, or any decision made under, an arbitration program will not affect IIROC’s authority, or prevent it from exercising that authority under IIROC requirements.
4. If a client requests arbitration, the Dealer Member involved must submit to binding arbitration in any dispute between the Dealer Member and the client.
5. The Dealer Member must comply with the arbitration program’s requirements and decisions.

9503.     Participation by a Dealer Member in an ombudsman service

1. A Dealer Member must participate in an ombudsman service approved by the Board.
2. The participation of a Dealer Member in, or any recommendations made by, an approved ombudsman service, will not affect the authority of IIROC or prevent it from exercising that authority under IIROC requirements.
3. On a client's request, any dispute between a Dealer Member and the client must be submitted to the approved ombudsman service. 
4. The eligibility of a dispute for review is made by the approved ombudsman service based on its terms of reference. 
5. A Dealer Member must comply with the approved ombudsman service’s requirements. 
6. The approved ombudsman service's recommendations are non-binding on each participant in the service.

9504.     Dealer Members must provide information to ombudsman service

1. The approved ombudsman service may ask a Dealer Member, or an Approved Person, or other person subject to IIROC’s authority for information or records relating to a review or investigation. 
2. The person in subsection 9504(1) must submit the information requested in the form and manner, including electronic, as prescribed by the approved ombudsman service.

9505. – 9699. Reserved.

Appendix 3 – Proposed Amendments to UMIR (clean)

POLICY 1.2 - INTERPRETATION

[…]

Part 4 -Applicable Regulatory Standards

Rule 7.1 requires each Participant prior to the entry of an order on a marketplace to comply with applicable regulatory standards with respect to the review, acceptance and approval of orders. Each Participant that is a dealer must be a member of a self-regulatory entity. Each Participant will be subject to the by-laws, regulations and policies as adopted from time to time by the applicable self-regulatory entity. These requirements may include an obligation on the member to “use due diligence to learn and remain informed of the essential facts relative to every customer and to every order or account accepted.” While knowledge by a Participant of “essential facts” of every customer and order is necessary to determine the suitability of any investment for a client, such requirement is not limited to that single application. The exercise of due diligence to learn essential facts “relative to every customer and to every order” is a central component of:

• the “Gatekeeper Obligation” embodied within the trading supervision obligation under Rule 7.1, and 10.16, and
• the reporting requirements under IIROC Rule 3700.

In addition, securities legislation applicable in a jurisdiction may impose review standards on Participants respecting orders and accounts. The regulatory standards that may apply to a particular order may vary depending upon a number of circumstances including:

• the requirements of any self-regulatory entity of which the Participant is a member;
• the type of account from which the order is received or originated; and
• the securities legislation in the jurisdiction applicable to the order.

[…]

POLICY 7.1 – TRADING SUPERVISION OBLIGATIONS

Part 2 – Minimum Elements of a Supervision System

For the purposes of Rule 7.1, a supervision system consists of both policies and procedures aimed at preventing violations from occurring and compliance procedures aimed at detecting whether violations have occurred.

[…]

Regardless of the circumstances of the Participant, however, every Participant must:

[…]

6. Identify the steps the Participant will take when a violation or possible violation of a Requirement or any regulatory requirement has been identified. These steps shall include the procedure for the reporting of the violation or possible violation to the Market Regulator if required by Rule 10.16 or to IIROC if required by IIROC Rule 3700. If there has been a violation or possible violation of a Requirement, identify the steps that would be taken by the Participant to determine if:

• additional supervision should be instituted for the employee, the account or the business line that may have been involved with the violation or possible violation of a Requirement; and
• the written policies and procedures that have been adopted by the Participant should be amended to reduce the possibility of a future violation of the Requirement.

[…]

UMIR 10.16 Gatekeeper Obligations of Directors, Officers and Employees of Participants and Access Persons

1. An officer, director, partner or employee of a Participant shall forthwith report to their supervisor or the compliance department of the Participant upon becoming aware of activity in a principal, non-client or client account of the Participant or a related entity that the officer, director, partner or employee believes may be a violation of:
   1. Subsection (1) of Rule 2.1 respecting specific unacceptable activities;
   2. Rule 2.2 respecting manipulative and deceptive activities;
   3. Rule 2.3 respecting improper orders and trades;
   4. Rule 4.1 respecting frontrunning;
   5. Rule 6.4 respecting trades to be on a marketplace; and
   6. Any Requirement that has been designated by the Market Regulatory for the purposes of this subsection.
2. An officer, director, partner or employee of an Access Person shall forthwith report to their supervisor or the compliance department of the Access Person upon becoming aware of activity by the Access Person or a related entity that the officer, director, partner or employee believes may be a violation of:
   1. Subsection (2) of Rule 2.1 respecting specific unacceptable activities;
   2. Rule 2.2 respecting manipulative and deceptive activities;
   3. Rules 2.3 respecting improper orders or trades; and
   4. any Requirement that has been designated by the Market Regulator for the purposes of this subsection.
3. If a supervisor or compliance department of a Participant or Access Person receives a report pursuant to subsection (1) or (2), the supervisor or compliance department shall diligently conduct a review in accordance with the policies and procedures of the Participant adopted in accordance with Rule 7.1 or in accordance with the ordinary practices of the Access Person.
4. If the review conducted by the supervisor or compliance department concluded that there may be a violation, the supervisor or compliance department shall:
   1. make a written record of the report by the officer, director, partner or employee and the review conducted in accordance with subsection (3);
   2. diligently investigate the activity that is the subject of the report and review;
   3. make a written record of the findings of the investigation; and
   4. report the findings of the investigation to the Market Regulator if the finding of the investigation is that a violation of an applicable provision of UMIR has occurred and such report shall be made not later than the 15^th day of the month following the month in which the findings are made.
5. Each Participant and Access Person shall with respect to the records of the report, the review and the findings required by subsection (4):
   1. retain the records for a period of not less than seven years from the creation of the record; and
   2. allow the Market Regulator to inspect and make copies of the records at any time during ordinary business hours during the period that such record is required to be retained in accordance with clause (a).   
6. The obligation of a Participant or an Access Person to report findings of an investigation under subsection (4) is in addition to any reporting obligation that may exist in accordance with applicable securities legislation, the requirements of any other self-regulatory entity and any applicable Marketplace Rules.

Appendix 5 – Proposed Serious Misconduct definition (section 3702(1))

Appendix 6 – Reporting by an Approved Person or Employee to the Dealer Member (proposed subsections 3710(1) and 3710(2))

Under the Proposed Amendments:

• an Approved Person would have to report the following matters to their Dealer Member within the amount of time set out below (subject to the exception in section 3723 of the Proposed Amendments), and
• an employee would have to report the following matters to their Dealer Member within the amount of time set out below (subject to the exception in section 3723 of the Proposed Amendments), as per the Dealer Member’s policies and procedures.

Appendix 7 – Reporting by a Dealer Member to IIROC (proposed section 3711)

Under the Proposed Amendments, a Dealer Member would have to report the following matters to IIROC using ComSet within the amount of time set out below (subject to the exception in section 3723 of the Proposed Amendments).

Appendix 8 – Impact Assessment

I. Impact Assessment Table

In the impact assessment table below, we list:

• the major policy elements of the Proposed Amendments,
• a description of the intended policy benefits of each element, and
• an assessment of its impact on investors, clients, Dealers, Participants and IIROC itself.

II. Conclusions

We concluded that, if approved, the Proposed Amendments would result in:

• generally net positive impacts on investors and clients, as we will be able to better prevent and address material harm to investors and clients,  
• neutral to negative impacts on Dealers and Participants resulting from:
  • an overall increase in the matters they must report to us,
  • taking more proactive steps to address systemic issues arising from client complaints,
  • potential increased costs in updating their template response letters and making these letters more accessible,
  • reduction of time available for the internal dispute resolution service to respond to complaints, and
  • for Dealers who use the “ombudsman” term (or similar qualifiers) in reference to an internal dispute resolution service, costs in renaming that service and its personnel.
• neutral to positive impacts on Dealers and Participants resulting from:  
  • the reduction of duplicative reporting,
  • lengthening the amount of time they have to report internal investigations results to us,
  • the equal treatment of verbal and written complaints, and 
  • focusing our complaint requirements on complaints alleging serious client-related misconduct and on activity that has not already been reported under Gatekeeper Obligations, and
• generally net positive impacts on IIROC, as we will be better able to investigate matters in a timely manner, assess a Dealer’s risk of non-compliance and help determine fitness for registration.

While there would be negative impacts on Dealers and Participants, we concluded these impacts were outweighed by the positive impacts the Proposed Amendments would have on investors, clients, Dealers, Participants and IIROC.

III. Cost Estimate

We do not know the dollar magnitude of the collective impacts of the Proposed Amendments and we cannot determine it without detailed stakeholder feedback. The stakeholders we did consult indicated that they would not be able to provide us with a cost estimate of the Proposed Amendments’ impacts without conducting a lengthy, detailed and costly analysis.

IV. Questions

Question #4

Have we identified all of the proposed provisions that will materially impact investors, clients, Dealers, Participants or IIROC? If not, please list any other proposed provisions that you believe will materially impact one or more parties and why.

Question #5

Overall, do you agree with IIROC’s qualitative assessment that the benefits of the Proposed Amendments are proportionate to their costs? Please provide reasons for your stance.

• 2Under subsection 1201(2), we include IIROC’s Universal Market Integrity Rules (UMIR) in the definition of “IIROC requirements”.
• 3Under the Proposed Amendments these sections are re-numbered as section 3720 and section 3751.
• 4Violations of best execution of client order requirements and violations of client priority requirements.
• 5A “related entity” is defined in UMIR Rule 1.1 to mean, in respect of a particular person:
  (a) an affiliated entity of the particular person which carries on business in Canada and is registered as a dealer or adviser in accordance with applicable securities legislation; and
  
  (b) a person who has been designated by a Market Regulator in accordance with subsection (3) of UMIR Rule 10.4 as a person who acts in conjunction with the particular person.
• 6See, for example, section 1 of the Ontario Securities Act or section 1 of the British Columbia Securities Act.
• 7See subsection 1201(1).
• 8Where the matter relates to a potential violation of a requirement listed in UMIR 10.16(1), or reporting obligations under UMIR 10.17 or UMIR 10.18, Dealers that are Participants must continue to establish and maintain policies and procedures pursuant to UMIR 7.1
• 9Under the Proposed Amendments this section is renumbered into section 3710.
• 10Where the activity at issue relates to a potential violation of a requirement set out in UMIR 10.16(1), an officer, director, partner or employee of a Participant must continue to report them to their supervisor or compliance department pursuant to UMIR 10.16(1).
• 11See Part B of Notice 09-0363 - Client Complaint Handling Rule and Guidance Note; and amendments to Dealer Member Rules 19, 37 and 2500.
• 12See sections 3111 and 3112.
• 13See Notice 17-0229.
• 14The Information Sharing Prohibition is currently set out in Dealer Member Rule 37.4.
• 15These limited circumstances are when the Dealer (a) knowingly provided false and misleading information to OBSI, or (b) failed to provide to information to OBSI. See clauses 9504(3)(i)&(ii).
• 16The OBSI Terms of Reference outlines OBSI’s mandate, describes its powers and the process for receiving, investigating and seeking resolution of customer complaints about their financial services firm.
• 17See subsection 24.A.1 of MFDA By-law No. 1.
• 18See MFDA Bulletin #0800-P.
• 19Information obtained from the OBSI would be supplemental to enforcement investigations and would not be solely relied on.
• 20See Notice 21-0096.
• 21Subsection 3706(1) of the current IIROC Rules. Dealer Member Rule 3100.II(1).
• 22UMIR 10.16(1). Some of these items, such as insider trading, may be reportable via Gatekeeper as potential violation of UMIR 2.3 Improper Orders and Trades. All order and/or trading activity on a marketplace that may be a violation of securities laws would also violate UMIR 2.3, and be reportable under UMIR 10.16.
• 23Subsection 3721(2) of the current IIROC Rules. Dealer Member Rule 2500B(2).
• 24Called “breach of confidentiality” under the Complaint Requirements.
• 25Called “inappropriate financial dealings” under the Complaint Requirements.
• 26Called “unsuitable investments” under the Complaint Requirements.
• 27As defined in the proposed amendments to subsection 3702(1).
• 28This reporting requirement applies to the reportable events to which the Approved Person is subject in any jurisdiction inside or outside of Canada, while employed by the Dealer Member or concerning matters that occurred while employed by the Dealer Member.
• 29Securities laws is a defined term in subsection 1201(2).
• 30Applicable law is a defined term in subsection 1201(2).
• 31As defined in the proposed amendments to subsection 3702(1).
• 32This reporting requirement applies with regards to the reportable events to which the Approved Person is subject in any jurisdiction inside or outside of Canada, while employed by the Dealer Member or concerning matters that occurred while employed by the Dealer Member.
• 33More specifically, a Dealer Member is required to report to IIROC the resolution of any matters set out in clause 3711(1)(iv), 3711(1)(v) and clause 3711(2).
• 34As defined in the proposed amendments to subsection 3702(1).
• 35The information that the Dealer Member is required to report to IIROC on the cyber incident at this early stage is currently set out in clause 3711(5)(i).
• 36The information that the Dealer Member is required to report to IIROC on the cyber incident at this later stage is currently set out in clause 3711(5)(ii).
• 37IIROC may agree to a different reporting deadline. See clause 3711(5)(ii).