IIROC urges Canadian firms to revise retail client agreements

Pan-Canadian self-regulator IIROC urges Canadian companies to revise agreements that exclude or unreasonably limit their accountability and place liability on clients.

October 10, 2019, | AtoZ MarketsThe Investment Industry Regulatory Organization of Canada (IIROC) today published Guidance advising firms to review their retail client account agreements and to change or remove clauses that absolve them of liability, or that are inconsistent with regulatory obligations.

IIROC identifies clauses that raise regulatory concerns 

During reviews of agreements from a variety of firms, the Canadian regulator came across clauses that raise regulatory concerns by excluding a firm’s liability for losses, including those caused by the firm or relieving a firm from its securities law obligations, such as suitability. This is inconsistent with IIROC rules and firms’ regulatory obligations.

It is inappropriate for any contractual clause to unreasonably limit or waive a firm’s liability for losses when that firm is in breach of its regulatory obligations to IIROC and to securities laws. Canadian retail clients should not be put at risk because of a firm’s own mistakes,” says Andrew J. Kriegler , IIROC’s President and CEO. 

The following are examples of inappropriate clauses:

  • firms waiving responsibility when clients suffer losses because of employee recommendations – effectively excluding themselves from meeting IIROC’s suitability requirements;
  • firms waiving or arbitrarily limiting their liability in the amount owed to clients for damages; and
  • firms limiting liability for technology malfunctions within their control (such as platform functionality) or unreasonably limiting liability for malfunctioning automated or outsourced processes.

IIROC regulated firms should review retail client account agreements

Effective immediately, Canadian firms are encouraged to review and revise inappropriate limitation of liability clauses in retail client agreements and to notify clients of changes.

In upcoming examinations, IIROC will review agreements and flag any issues. Depending on the severity, IIROC will recommend corrections, include such clauses as a finding or, in egregious cases, refer the matter for investigation and possible disciplinary action.

“Investor protection is a core obligation of all IIROC-regulated firms and clauses like this that attempt to absolve firms of this obligation are simply unacceptable,” adds Kriegler.

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