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IIROC Takes Steps To Prevent Investment Firms From Excluding Or Unreasonably Limiting Their Liability To Clients - Pan-Canadian Self-Regulator Calls For Firms To Revise Agreements That Exclude Or Unreasonably Limit Their Accountability And Place Onus On Clients

Date 10/10/2019

The 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.

During reviews of agreements from a variety of firms, IIROC discovered 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," says Andrew J. Kriegler, IIROC's President and CEO. "Canadian retail clients should not be put at risk because of a firm's own mistakes."

Examples of inappropriate clauses include:

  • 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.

Effective immediately, 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.

See the full Guidance Note.