Securities regulators are cracking down on investment dealers that utilize account agreements with retail investors designed to shield the firm from liability for unsuitable advice and other misconduct.
The Investment Industry Regulatory Organization of Canada (IIROC) says that its compliance reviews have uncovered clauses in retail client account agreements “that raise regulatory concerns,” and that the Ontario Securities Commission (OSC) has also flagged clauses that violate firms’ obligations to deal fairly with clients.
Specifically, IIROC says that some of these agreements include language that is crafted to limit firms’ liability for things that are their responsibility, such as investment suitability and technological malfunctions. And, it notes that firms can’t shirk responsibility for clients’ losses by automating or outsourcing certain tasks.
IIROC says that these sorts of clauses are “inconsistent” with its rules and with 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,” said Andrew Kriegler, president and CEO of IIROC, in a statement.
“Canadian retail clients should not be put at risk because of a firm’s own mistakes,” he added.
The self-regulatory organization is calling on firms to immediately review their account agreements, scrap any inappropriate clauses and notify clients of these changes.
IIROC says that it will continue reviewing these agreements in future compliance reviews, and that violations may lead to enforcement action.
The SRO also issued new guidance for firms on Thursday that sets out its views on retail account liability clauses and details the sorts of language that it considers a violation of IIROC’s rules.
“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,” Kriegler said.
Source: Investment Executive