The International Organisation of Securities Commissions (“IOSCO”) is an association of independent organisations regulating the global securities and futures markets. IOSCO has as its main objective the regulation of securities, and in particular investor protection.
On 27th January 2021, IOSCO published a report with the aim to assist its members in developing and improving the complaint handling procedures and mechanisms for retail investors. The report responded to a survey carried out by the Committee on Retail Investors (“C8”) on the participating jurisdictions, requesting insight into their current complaint handling procedure. There are over 100 participating jurisdictions, from Albania to Singapore, as well as most of the European countries. The report offered a comparative analysis of the different type of redress systems, including informal complaint handling processes used by financial service providers and regulators, alternative dispute resolution (“ADR”) and formal legal complaint handling for investors, and set out nine so called “sound practices” to help regulators in these jurisdictions in achieving the goal of offering retail investors better protection through an improved redress system.
The report assessed the existing complaint handling processes by financial service providers (“FSP”) and regulators around the world, dealing with informal and formal legal complaints. It identified the most common complaints received in the last year. These include fraud, sales practice issues (such as mis-selling of products and services, unauthorised transactions and inadequate disclosure concerning fees or products), operation issues (such as delays in executing orders, late payment of sale proceeds and technical issues), and performance issues relating to product, funds, portfolio and account.
Requirements establishing complaint handling mechanisms
While the complaint handling procedure varies between different jurisdictions, the requirements for FSPs are the same. Regardless of jurisdictions, an FSP is required to inform investors about its complaint handling process, respond to investor complaints within a prescribed timeframe and advise investors that ADR is available in cases where the FSP’s response is not satisfactory.
Information regarding the FSP’s complaint handling procedure must be made available to retail investors. This could be by way of publishing the information on the FSP’s website or providing physical notices, such as in account opening documents, in countries like South Africa or Ontario. Retail investors have to be informed of how complaints can be submitted (i.e. by mail, telephone or electronic communications etc.), the time limits for which they can file a complaint and for the FSPs to respond to the complaints and the possible outcomes under the complaint handling procedure, which could include monetary settlements, assistance or other remedial actions.
Not all jurisdictions involve the regulator in their complaint handling procedures. Some countries, including Australia and France, outsource investor’s complaints to an independent dispute resolution organisation or an ombudsman, while others, such as China and Germany, only involve the regulator to the extent that it is more appropriate to do so than engaging the FSP. The way this is assessed varies from jurisdiction to jurisdiction.
Alternative dispute resolution
Almost all of the jurisdictions that are part of the IOSCO offers ADR as a way of dealing with investor complaints that may not be able to resolved by the FSP. ADR facilities are usually licenced, whether they are public or private. Depending on the jurisdiction, ADR facilities can be established by regulators, self-regulatory organisations (“SRO”) or private independent bodies. Whilst resolving a complaint through ADR may be optional for some investors, others are contractually bound by brokerage agreements or other service agreements to do so. Requirements and maximum awards also vary depending on the jurisdiction. For example, in Poland, only disputes with a claim amount exceeding $125 USD may be filed for ADR, while in France, ADR is an option available to all retail investors regardless of the amount of their claim. In Canada, the maximum amount that may be recommended by an independent dispute resolution service is approximately $250,000 USD, whereas there is no limit to the amount of compensation that the Financial Ombudsman Service can recommend in the UK, subject to the fact that only amounts up to the award limit are enforceable, which is currently set at £350,000 for complaints on or after 1st April 2019 and £160,000 for those before this date.
In many jurisdictions, investors have the option to initiate legal action to seek damages and other remedies, ranging from individual civil action to class action, which is a representative action brought by an individual on behalf of a collective group of people. In certain jurisdictions, such as Hong Kong, Quebec and Trinidad and Tobago, securities regulators are authorised to bring civil enforcement actions on behalf of individual investors in the public interest.
THE NINE SOUND PRACTICES
As evident by the comparative analysis above, whilst the existing complaint handling system varies between jurisdictions, many similarities can be found.
Based on the outcome of the analysis, IOSCO has set forth nine sound practices (“SPs”) to assist jurisdictions in implementing a fair and effective complaint handling and redress system, which ultimately helps improve market discipline and promote investor confidence in the financial market.
These SPs address the importance of implementing a redress system that optimises investors’ benefits, especially the importance of the views of investors being heard. This was previously concluded in earlier reports conducted by IOSCO on the wholesale market conduct and suitability requirements, and with respect to the distribution of complex financial products, in 2017 and 2013 respectively. IOSCO strongly encourages policy makers of the participating jurisdictions to use these SPs to enhance the effectiveness of their existing complaint handling systems.
- Establishing a system for handling retail investor complains – while most, if not all, jurisdictions already have a system in place that requires FSP to be fair, transparent and efficient, IOSCO encourages those without such a requirement to develop one. IOSCO believes that having such a system in place provides retail investors with more accessible, affordable, fairer, accountable, timely and efficient methods of resolving complains, which directly feeds into increasing investor protection and their confidence in the markets.
- Taking steps to raise investor awareness of various available complaint handling systems – IOSCO encourages clearer and more understandable languages around the information presented on how retail investors can navigate their complaint handling system. The better informed the investors are, the less confused they will be about the process.
- Making available as many channels as possible for retail investors to submit complaints – IOSCO supports the search for new ways of communication with investors so that they could be encouraged to take advantage of the complaint handling procedures.
- Taking steps to support complaint handling systems – according to the survey, these steps typically include ensuring the availability of adequate manpower and resources, providing adequate training of staff on the resolution process and ensuring that responsibilities are delegated to facilitate the complaint process and any escalations.
- Encouraging FSP to offer a wide range of resolutions to retail investor complaints – whilst there is already a great variety of possible resolutions available to investors’ complaints, including monetary compensation ad system improvements, amongst others, IOSCO encourages FSP to consider other creative complaint resolutions that contribute towards a fairer and more efficient system.
- Using complaint data to identify areas for new or enhanced investor education initiatives – IOSCO puts forward the idea of setting up programmes to help investors recognise fraud, in order to promote investor education and avoid potential misunderstanding.
- Using complaint data for regulatory and supervisory purposes – the survey reveals that many jurisdictions are already analysing investors’ complaints as a possible indicator of potential misconduct or possible gaps in policy and regulation. IOSCO encourages jurisdictions that do not already do so to adopt the same approach.
- Seeking input from retail investors above their experience with complaint handling systems – IOSCO encourages FSPs to engage investors to speak about their satisfaction with the complaint handling process, in order to gain insight into how the process could be improved.
- Making ADR facilities operated by or affiliated with a regulator more accessible for retail investors – it is evident from the survey that ADR serves an important role in resolving investor complaints in many jurisdictions. As such, IOSCO encourages jurisdictions to simplify ADR and the instructions for using it to improve investors’ understanding, publish statistics of investors opting for ADR to increase transparency into the process, and suspend firms and professionals that fail to pay awards for using ADR.
To read the report please click here.
For more information, and any guidance or advice on how to navigate the complaint handling process for retail investors, Cleveland & Co External in-house counselTM, your specialist outsourced legal team, are here to help.