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Bulletin #0417-P

Policy
Amendments to MFDA Policy No. 3 Complaint Handling, Supervisory Investigations and Internal Discipline

Contact: Aamir Mirza
BULLETIN #0417 – P
Senior Legal & Policy Counsel
December 21, 2009
Phone: 416-945-5128
E-mail: amirza@mfda.ca

MFDA Bulletin

Policy

For Distribution to Relevant Parties within your Firm


Amendments to MFDA Policy No. 3 Complaint Handling, Supervisory
Investigations and Internal Discipline

Proposed amendments to MFDA Policy No. 3 Complaint Handling, Supervisory Investigations
and Internal Discipline
(“Policy No. 3”) and related consequential amendments to MFDA Rule
2.11 (Complaints), Policy No. 6 Information Reporting Requirements and By-Law No. 1,
Section 24.A.5 (Member to Provide Written Material to Clients) have received all requisite
approvals and will become effective on February 1, 2010.

The amendments are intended to provide additional guidance with respect to the standards that
Members should have in place regarding complaint handling and supervisory investigations and
harmonize the complaint handling requirements of the MFDA with those of the Investment
Industry Regulatory Organization of Canada and the requirements adopted under National
Instrument 31-103 Registration Requirements and Exemptions (“NI 31-103”). The amendments
replace much of what was contained in the previous version of Policy No. 3.

Both clean and blacklined versions of the amended Policy and related amendments are attached
as Schedules “A” and “B”.

DM#195683


SCHEDULE “A”

MUTUAL FUND DEALERS ASSOCIATION OF CANADA

MFDA POLICY NO. 3

COMPLAINT HANDLING, SUPERVISORY INVESTIGATIONS AND
INTERNAL DISCIPLINE


I.
Complaints
1. Introduction

MFDA Rule 2.11 requires Members to establish and implement written policies and procedures
for dealing with client complaints that ensure that such complaints are dealt with promptly and
fairly. This Policy establishes minimum standards for the development and implementation of
those procedures.

Compliance with the requirements of MFDA Rule 2.11 and this Policy must be supervised and
monitored by the Member and its personnel in accordance with MFDA Rule 2.5.
2.
Definition

A "complaint" shall be deemed to include any written or verbal statement of grievance, including
electronic communications from a client, former client, or any person who is acting on behalf of
a client and has written authorization to so act, or of a prospective client who has dealt with a
Member or Approved Person, alleging a grievance involving the Member, Approved Person of
the Member or former Approved Person of the Member, if the grievance involves matters that
occurred while the Approved Person was an Approved Person of the Member.

3.
Duty to Assess All Complaints

Members have a duty to engage in an adequate and reasonable assessment of all complaints.

All complaints are subject to the complaint handling requirements set out in Part I of this Policy.
Certain complaints are subject to additional complaint handling requirements as set out in Part II
of this Policy. Complaints must be assessed to determine whether, in the reasonable professional
judgment of the Member’s supervisory staff handling the complaint, they should be treated in
accordance with the Additional Complaint Handling Requirements prescribed by Part II of this
Policy.

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All complaints, including complaints from non-clients in respect of their own affairs, in any way
relating to the following must be dealt with in accordance with the Additional Complaint
Handling Requirements prescribed by Part II of this Policy:

• a breach of client confidentiality;
• unsuitable investments or leveraging (except for non-clients);
• theft, fraud, misappropriation, forgery, misrepresentation, unauthorized trading;
• engaging in securities related business outside of the Member;
• engaging in an undeclared occupation outside the Member;
• personal financial dealings with a client, money laundering, market manipulation or
insider trading.

In determining whether any other complaints not relating to the matters set out above should be
subject to the Additional Complaint Handling Requirements prescribed by Part II of this Policy
supervisory staff should consider whether the complaint alleges a matter similar in nature or
seriousness to those set out above, the complainant’s expectation as to how the complaint should
be handled and whether the complainant is alleging any financial harm. Where supervisory staff
determines that a complaint does not meet any of these criteria the complaint must be handled
fairly and promptly but can be concluded through an informal resolution.

4.
Minimum Requirements for Complaints Subject to Informal
Resolution

Any complaints that are subject to informal resolution must be handled fairly and responded to
promptly (i.e. generally in less time than it would take for complaints subject to the Additional
Complaint Handling Requirements prescribed by Part II of this Policy). Such complaints must
also be resolved in accordance with internal Member complaint handling policies and procedures
that clearly describe the process to be followed in the assessment and resolution of such matters.
Certain complaints subject to informal resolution must also be reported under Policy No. 6.

Where a complaint subject to informal resolution is received in writing the Member must provide
its substantive response in writing.

5.
Member Assistance in Documenting Verbal Complaints

Members should be prepared to assist clients in documenting verbal complaints where it is
apparent that such assistance is required.

6.
Client Access

At the time of account opening, Members must provide to new clients a written summary of the
Member’s complaint handling procedures, which is clear and can easily be understood by clients.
On account opening, the Member must also provide a Client Complaint Information Form
(“CCIF”), as approved by MFDA staff, describing complaint escalation options, including
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complaining to the Ombudsman for Banking Services and Investments and complaining to the
MFDA.

Members must ensure that information about their complaint handling process is made generally
available to clients so that clients are informed as to how to file a complaint and to whom they
should address a complaint. For example, Members who maintain a website must post their
complaint handling procedures on their website.

Member procedures must provide a specific point of initial contact at head office for complaints
or information about the Member’s complaint handling process. This contact may be a
designated person or may be a general inbox or telephone number that is continuously
monitored. Members may also advise clients to address their complaints to the Approved Person
servicing their account and to the Branch Manager supervising the Approved Person.

7.
Fair Handling of Client Complaints

To achieve the objective of handling complaints fairly, Members’ complaint handling procedures
must include standards that allow for a factual investigation and an analysis of the matters
specific to the complaint. Members must not have policies that allow for complaints to be
dismissed without due consideration of the facts of each case. There must be a balanced
approach to the gathering of facts that objectively considers the interests of the complainant, the
Approved Person and the Member.

The basis of the Member’s analysis must be reasonable. For example, a suitability complaint
must be considered in light of the same principles that would be applied by a reasonable Member
in conducting a suitability review, which would include an acknowledgement of the
complainant’s stated risk tolerance. It would not be reasonable for a Member to assess suitability
based on a risk level presumed by the Member that is higher than that indicated by the
complainant. A further example of an unreasonable analysis is where a Member dismisses a
complaint due to a simple uncorroborated denial by the Approved Person notwithstanding
evidence in support of the complainant.

A Member’s obligation to handle complaints in accordance with this Policy is not altered when a
complainant engages legal counsel in the complaint process and where no litigation has
commenced. Where litigation has been initiated by the complainant, the Member is expected to
participate in the litigation process in a timely manner in accordance with the rules of procedure
of the applicable jurisdiction and to refrain from acting in a way that is clearly unfair.

The Member’s review of the complaint must result in the Member’s substantive response to the
complainant. Examples of an appropriate substantive response include a fair offer to resolve the
complaint or a denial of the complaint with reasons. MFDA staff does not require that the
complainant accept the Member’s offer in order for the offer to be considered fair.

Page 4 of 24

8.
Prompt Handling of Client Complaints

The Member must handle the complaint and provide its substantive response within the time
period expected of a Member acting diligently in the circumstances. The time period may vary
depending on the complexity of the matter. The Member should determine its substantive
response and notify the complainant in writing in most cases within three months of receipt of
the complaint.

Further, staff recognizes that, if the complainant fails to co-operate during the complaint
resolution process, or if the matter requires an extensive amount of fact-finding or complex legal
analysis, time frames for the substantive response may need to be extended. In cases where a
substantive response will not be provided within three months, the Member must advise the
complainant as such, provide an explanation for the delay and also provide the Member’s best
estimate of the time required for the completion of the substantive response.

It is not required that the complainant accept the Member’s substantive response. Where the
Member has communicated its substantive response, the Member must continue to proactively
address further communications from the complainant in a timely manner until no further action
on the part of the Member is required.
9.
General Complaint Handling Requirements

1.
All client complaints and supervisory obligations must be handled by qualified sales
supervisors/compliance staff. An individual who is the subject of a complaint must not
handle the complaint unless the Member has no other supervisory staff who are qualified
to handle such complaints.

2.
Each Approved Person must report certain complaints and other information relevant to
this Policy to the Member as required under MFDA Policy No. 6.

3.
Each Member must put procedures in place so that senior management is made aware of
complaints of serious misconduct and of all legal actions.

4.
Members may use the electronic reporting system designated under MFDA Policy No. 6
(the “Member Event Tracking System” or “METS”) as their complaint log for those
complaints reported on METS. For complaints that are not required to be reported
through METS Members must have policies and procedures for the detection of frequent
and repetitive complaints made with respect to the same matter which may, on a
cumulative basis indicate a serious problem.

5.
Follow-up documentation for all complaints must be kept in a central location along with
the consolidated log of complaints. Alternatively, where a Member has various regional
head offices or branches, the Member may keep follow-up documentation at any one
regional head office or branch, so long as information about the handling of the
complaint is in the Member head office log and the follow-up documentation can be
produced in a timely manner.
Page 5 of 24

6.
Where the events relating to a complaint took place in part at another Member or a
member of another SRO, Members and Approved Persons must cooperate with other
Members or SRO members in the sharing of information necessary to address the
complaint.
10. Settlement Agreements

No Approved Person shall, without the prior written consent of the Member, enter into any
settlement agreement with, pay any compensation to or make any restitution to a client.

No Member or Approved Person of such Member may impose confidentiality restrictions on
clients or a requirement to withdraw a complaint with respect to the MFDA or a securities
commission, regulatory authority, law enforcement agency, SRO, stock exchange or other
trading market as part of a resolution of a dispute or otherwise.

II. Additional Complaint Handling Requirements

Each Member’s procedures for handling complaints that are subject to the requirements of this
section must include the following:

1.
Initial Response – An initial response letter must be sent to the complainant within a
reasonable time, and generally within 5 business days of receipt of the complaint. If a
complaint can be concluded in less than 5 business days then an initial response letter is not
necessary. The initial response letter must include the following information:
• A written acknowledgment of the complaint;
• A request to the complainant for any additional reasonable information required to
resolve the complaint;
• The name, job title and full contact information of the individual at the Member
handling the complaint;
• A statement indicating that the complainant should contact the individual at the
Member handling the complaint if he/she would like to inquire about the status of the
complaint;
• A summary of the Member’s internal complaint handling process, including general
timelines for providing the Member’s response to complaints and a statement
advising clients that each province and territory has a time limit for taking legal
action; and
• A reference to an attached copy of the CCIF, and a reference to the fact that the CCIF
contains information about applicable limitation periods.
Page 6 of 24

2.
Substantive
Response – The substantive response letter, which Members must provide
to the complainant, may be accompanied by a summary of the Member’s complaint
handling procedures and must include a copy of the CCIF. The substantive response
letter to complainants must also include the following information:

• An outline of the complaint;
• The Member’s substantive decision on the complaint, including reasons for the
decision; and
• A reminder to the complainant that he/she has the right to consider: (i) presenting the
complaint to the Ombudsman for Banking Services and Investments which will
consider complaints brought to it within six months of the substantive response letter;
(ii) making a complaint to the MFDA; (iii) litigation/civil action; or (iv) any other
applicable options, such as an internal ombudservice provided by an affiliate of the
Member.

III. Supervisory Investigations

A Member must monitor, through its supervisory personnel, all information that it receives
regarding potential breaches of applicable requirements on the part of the Member and its current
and former Approved Persons that raise the possibility of risk to the Member’s clients or other
investors. Applicable requirements include MFDA By-laws, Rules and Policies, other applicable
legal and regulatory requirements and the Member’s related internal policies and procedures.
This applies to information received from both internal and external sources. For example, such
information may come from client complaints, be identified during the Member’s routine
supervisory activity, or come from other Approved Persons of the Member or individuals outside
the Member who are not clients.

For purposes of clarity, where the information is received by way of a client complaint, the
supervisory duty goes beyond addressing the relief requested by the complainant and extends to
a consideration of general risk at the Member. The duty to deal with the supervisory aspects of
the matter continues when a complainant purports to withdraw the complaint or indicates
satisfaction with the result of the Member’s complaint handling.

Members must take reasonable supervisory action in relation to such information, the extent of
which will in part depend on the severity of the allegation and the complexity of the issues. In all
cases, the Member must track such information and note trends in risk, including those related to
specific Approved Persons or branches, subject matter, product types, procedures and cases, and
take necessary action in response to those trends as appropriate. In some cases, it will be
necessary to conduct an active supervisory investigation in relation to the information received in
specific situations and the level of the investigation must be reasonable in the circumstances.

For example, where the Member identifies unsuitable investment or leveraging recommendations
by one if its Approved Persons, the investigation may extend to include determining relevant
matters such as the understanding of the Approved Person and applicable supervisory personnel
Page 7 of 24

of the Member’s policies and procedures and the possibility that such conduct occurred in
relation to other clients.

With regard to the type of conduct outlined in Part I, Section 3 of this Policy, other than
suitability, the Member has a duty to conduct a detailed investigation in all situations where
there is information from any source, written or verbal, whether from an identified source or
anonymous, to raise the possibility that such conduct occurred. This duty applies to all conduct
by the current or former Approved Person, whether it occurred inside or outside the Member.

The investigation must be sufficiently detailed and must include all reasonable steps to determine
whether the potential activity occurred. Examples of the activities that the Member may need to
take include:

(a)
interviewing or otherwise communicating with individuals such as:

• the individuals of concern;
• related supervisory personnel;
• other branch staff;
• head office personnel;
• the client or other external individuals who brought the information to the Member’s
attention; or
• other clients who may have been affected by the activity.

(b)
conducting a review at the branch or sub-branch.

(c)
reviewing documentation such as:

• files of the Approved Person relating to Member business; or
• files and other documents in the Approved Person’s custody or control that relate to
outside business, where there is a reasonable possibility that such information is
relevant to the investigation. Members have the right to require such information to
meet their supervisory responsibilities and Approved Persons have an obligation to
cooperate with such requests.

IV. Internal Discipline

Each Member must establish procedures to ensure that breaches of MFDA By-laws, Rules and
Policies are subjected to appropriate internal disciplinary measures.

V.
Record Retention
Documentation associated with a Member’s activity under this Policy shall be maintained for a
minimum of 7 years from the creation of the record and made available to the MFDA upon
request.

Page 8 of 24

Rule 2.11 (Complaints)

Every Member shall establish written policies and procedures for dealing with complaints which
ensure that such complaints are dealt with promptly and fairly, and in accordance with the
minimum standards prescribed by the Corporation from time to time.

. . .

Policy No. 6 Information Reporting Requirements

4.
Approved Person Reporting Requirements

4.1. An Approved Person shall report the following events to his or her current Member in
such detail as required by the Member, within 2 business days:

(a)
the Approved Person is the subject of a client complaint in writing;

(b)
the Approved Person is aware of a complaint from any person, whether in writing
or any other form, and with respect to him or herself, or any other Approved
Person, involving allegations of:

(i)
theft, fraud, misappropriation, forgery, money laundering, market
manipulation, insider trading, misrepresentation, or unauthorized trading;
(ii)
a breach of client confidentiality;
(iii)
engaging in securities related business outside of the Member;
(iv)
engaging in an undeclared occupation outside the Member; or
(v)
personal financial dealings with a client.
(c)
whenever the Approved Person has reason to believe that he or she has or may
have contravened, or is named as a defendant or respondent in any proceeding, in
any jurisdiction, alleging the contravention of:

(i)
any securities law; or
(ii)
any regulatory requirements.

(d)
the Approved Person is charged with, convicted of, pleads guilty or no contest to,
any criminal offence, in any jurisdiction;

(e)
the Approved Person is named as a defendant in a civil claim, in any jurisdiction,
relating to the handling of client accounts or trading or advising in securities;

(f)
the Approved Person is denied registration or a license that allows the Approved
Person to deal with the public in any capacity by any regulatory body, or has such
Page 9 of 24

registration or license cancelled, suspended or terminated, or made subject to
terms and conditions;

(g)
the Approved Person becomes bankrupt or suspends payment of debts generally
or makes an arrangement with creditors or makes an assignment or is deemed
insolvent;

(h)
there are garnishments outstanding or rendered against the Approved Person.

. . .

6.

General Events to be Reported

6.1.
Members shall report to the MFDA:

(a)
all client complaints in writing, against the Member or a current or former
Approved Person, relating to member business, except service complaints;

(b)
whenever a Member is aware, through a written or verbal complaint or otherwise,
that the Member or any current or former Approved Person has or may have
contravened any law or regulatory requirement, relating to:

(i)
theft, fraud, misappropriation, forgery, money laundering, market
manipulation, insider trading, misrepresentation, or unauthorized trading;

(ii)
a breach of client confidentiality;

(iii)
engaging in securities related business outside of the Member;

(iv)
engaging in an undeclared occupation outside the Member; or

(v)
personal financial dealings with a client.

(c)
whenever the Member, or a current or former Approved Person, is:

(i)
charged with, convicted of, pleads guilty or no contest to, any criminal
offence, in any jurisdiction;

(ii)
named as a defendant or respondent in, or is subject of, any proceeding or
disciplinary action, in any jurisdiction, alleging contravention of any
securities law;

(iii)
named as a defendant or respondent in, or is the subject of, any proceeding
or disciplinary action, in any jurisdiction, alleging contravention of
regulatory requirements;

Page 10 of 24

(iv)
denied registration or a license that allows a person to deal with the public
in any capacity by any regulatory body, or has such registration or license
cancelled, suspended or terminated, or made subject to terms and
conditions;

(v)
named as a defendant in a civil claim, in any jurisdiction, relating to
handling of client accounts or trading or advising in securities.

(d)
whenever an Approved Person becomes bankrupt or suspends payment of debts
generally or makes an arrangement with creditors or makes an assignment or is
deemed insolvent;

(e)
there are garnishments outstanding or rendered against the Member or an
Approved Person.

7.

Reporting of Updates and Resolution of Events

7.1. Members shall update event reports previously reported to reflect updates to, or the
resolution of, any event that has been reported pursuant to section 6.1 of this Policy
within 5 business days of the occurrence of the update or resolution and such update or
resolution shall include but not be limited to:

(a)
any judgments, awards, arbitration awards or orders and settlements in any
jurisdiction;

(b)
compensation paid to clients directly or indirectly, or any benefit received by
clients from a Member or Approved Person directly or indirectly;

(c)
any internal disciplinary action or sanction against an Approved Person by a
Member;

(d)
the termination of an Approved Person;

(e)
the results of any internal investigation conducted.

. . .


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SCHEDULE “B”

MUTUAL FUND DEALERS ASSOCIATION OF CANADA

MFDA POLICY NO. 3

HANDLING CLIENT COMPLAINTS
COMPLAINT HANDLING, SUPERVISORY INVESTIGATIONS AND
INTERNAL DISCIPLINE

Introduction

This Policy establishes minimum industry standards for handling client complaints. A
"complaint" shall be deemed to mean any written statement of a client or any person acting on
behalf of a client alleging a grievance involving the conduct, business or affairs of the Member
or any registered salesperson, partner, director or officer of the Member.

Although the definition of "complaint" refers to only written complaints, there may be instances
where a Member receives a verbal complaint from a client which will warrant the same treatment
as a written complaint. Such situations depend upon the nature and severity of the client's
allegations and require the professional judgement of the Member's supervisory staff handling
the complaint.

Complaint Procedure

Each Member must establish procedures to deal effectively with client complaints, which should
include the following:

1.
Each Member must acknowledge all client complaints.

2.
Each Member must convey the results of its investigation of a client complaint in writing
to the client in due course.

3.
Client complaints involving the sales practices of a Member, its partners, directors,
officers, salespersons or employees or agents must be handled by qualified sales
supervisors/compliance staff.

4.
Each Member must ensure that registered salespersons and their supervisors are made
aware of all complaints filed by their clients.

5.
Each Member must put procedures in place so that senior management is made aware of
complaints of serious misconduct and of all legal actions.

Page 12 of 24

6.
Each Member must maintain in a central place an orderly, up-to-date record of
complaints together with follow-up documentation regarding such complaints, for regular
internal/external compliance reviews. For each complaint, the record should include the
following information:
• the date of the complaint;
• the complainant’s name;
• the name of the person who is the subject of the complaint;
• the security or services which are the subject of the complaint; and
• the date and conclusions of the decision rendered in connection with the complaint.

This record must be retained for a period of seven years from the date of receipt of the
complaint.

8.
Each Member must establish procedures to ensure that breaches of MFDA By-laws,
Rules and Policies are subjected to appropriate internal disciplinary procedures.

9.
When a Member finds complaints to be a significant factor, internal procedures and
practices should be reviewed, with recommendations for changes to be submitted to the
appropriate management level.

Settlement Agreements and Dispositions of Securities-Related Claims

No Approved Person shall, without the prior written consent of the Member, enter into any
settlement agreement with a client.

No Member or Approved Person of such Member may impose confidentiality restrictions on
clients with respect to the MFDA or a securities commission, regulatory authority, law
enforcement agency, self-regulatory organization, stock exchange or other trading market as part
of a resolution of a dispute or otherwise.

I.
Complaints
1. Introduction

MFDA Rule 2.11 requires Members to establish and implement written policies and procedures
for dealing with client complaints that ensure that such complaints are dealt with promptly and
fairly. This Policy establishes minimum standards for the development and implementation of
those procedures.

Compliance with the requirements of MFDA Rule 2.11 and this Policy must be supervised and
monitored by the Member and its personnel in accordance with MFDA Rule 2.5.

Page 13 of 24

2.
Definition

A "complaint" shall be deemed to include any written or verbal statement of grievance, including
electronic communications from a client, former client, or any person who is acting on behalf of
a client and has written authorization to so act, or of a prospective client who has dealt with a
Member or Approved Person, alleging a grievance involving the Member, Approved Person of
the Member or former Approved Person of the Member, if the grievance involves matters that
occurred while the Approved Person was an Approved Person of the Member.

3.
Duty to Assess All Complaints

Members have a duty to engage in an adequate and reasonable assessment of all complaints.

All complaints are subject to the complaint handling requirements set out in Part I of this Policy.
Certain complaints are subject to additional complaint handling requirements as set out in Part II
of this Policy. Complaints must be assessed to determine whether, in the reasonable professional
judgment of the Member’s supervisory staff handling the complaint, they should be treated in
accordance with the Additional Complaint Handling Requirements prescribed by Part II of this
Policy.

All complaints, including complaints from non-clients in respect of their own affairs, in any way
relating to the following must be dealt with in accordance with the Additional Complaint
Handling Requirements prescribed by Part II of this Policy:

• a breach of client confidentiality;
• unsuitable investments or leveraging (except for non-clients);
• theft, fraud, misappropriation, forgery, misrepresentation, unauthorized trading;
• engaging in securities related business outside of the Member;
• engaging in an undeclared occupation outside the Member;
• personal financial dealings with a client, money laundering, market manipulation or
insider trading.
In determining whether any other complaints not relating to the matters set out above should be
subject to the Additional Complaint Handling Requirements prescribed by Part II of this Policy
supervisory staff should consider whether the complaint alleges a matter similar in nature or
seriousness to those set out above, the complainant’s expectation as to how the complaint should
be handled and whether the complainant is alleging any financial harm. Where supervisory staff
determines that a complaint does not meet any of these criteria the complaint must be handled
fairly and promptly but can be concluded through an informal resolution.

4.
Minimum Requirements for Complaints Subject to Informal
Resolution
Page 14 of 24

Any complaints that are subject to informal resolution must be handled fairly and responded to
promptly (i.e. generally in less time than it would take for complaints subject to the Additional
Complaint Handling Requirements prescribed by Part II of this Policy). Such complaints must
also be resolved in accordance with internal Member complaint handling policies and procedures
that clearly describe the process to be followed in the assessment and resolution of such matters.
Certain complaints subject to informal resolution must also be reported under Policy No. 6.

Where a complaint subject to informal resolution is received in writing the Member must provide
its substantive response in writing.

5.
Member Assistance in Documenting Verbal Complaints

Members should be prepared to assist clients in documenting verbal complaints where it is
apparent that such assistance is required.

6.
Client Access

At the time of account opening, Members must provide to new clients a written summary of the
Member’s complaint handling procedures, which is clear and can easily be understood by clients.
On account opening, the Member must also provide a Client Complaint Information Form
(“CCIF”), as approved by MFDA staff, describing complaint escalation options, including
complaining to the Ombudsman for Banking Services and Investments and complaining to the
MFDA.

Members must ensure that information about their complaint handling process is made generally
available to clients so that clients are informed as to how to file a complaint and to whom they
should address a complaint. For example, Members who maintain a website must post their
complaint handling procedures on their website.

Member procedures must provide a specific point of initial contact at head office for complaints
or information about the Member’s complaint handling process. This contact may be a
designated person or may be a general inbox or telephone number that is continuously
monitored. Members may also advise clients to address their complaints to the Approved Person
servicing their account and to the Branch Manager supervising the Approved Person.

7.
Fair Handling of Client Complaints

To achieve the objective of handling complaints fairly, Members’ complaint handling procedures
must include standards that allow for a factual investigation and an analysis of the matters
specific to the complaint. Members must not have policies that allow for complaints to be
dismissed without due consideration of the facts of each case. There must be a balanced
approach to the gathering of facts that objectively considers the interests of the complainant, the
Approved Person and the Member.

Page 15 of 24

The basis of the Member’s analysis must be reasonable. For example, a suitability complaint
must be considered in light of the same principles that would be applied by a reasonable Member
in conducting a suitability review, which would include an acknowledgement of the
complainant’s stated risk tolerance. It would not be reasonable for a Member to assess suitability
based on a risk level presumed by the Member that is higher than that indicated by the
complainant. A further example of an unreasonable analysis is where a Member dismisses a
complaint due to a simple uncorroborated denial by the Approved Person notwithstanding
evidence in support of the complainant.

A Member’s obligation to handle complaints in accordance with this Policy is not altered when a
complainant engages legal counsel in the complaint process and where no litigation has
commenced. Where litigation has been initiated by the complainant, the Member is expected to
participate in the litigation process in a timely manner in accordance with the rules of procedure
of the applicable jurisdiction and to refrain from acting in a way that is clearly unfair.

The Member’s review of the complaint must result in the Member’s substantive response to the
complainant. Examples of an appropriate substantive response include a fair offer to resolve the
complaint or a denial of the complaint with reasons. MFDA staff does not require that the
complainant accept the Member’s offer in order for the offer to be considered fair.

8.
Prompt Handling of Client Complaints

The Member must handle the complaint and provide its substantive response within the time
period expected of a Member acting diligently in the circumstances. The time period may vary
depending on the complexity of the matter. The Member should determine its substantive
response and notify the complainant in writing in most cases within three months of receipt of
the complaint.

Further, staff recognizes that, if the complainant fails to co-operate during the complaint
resolution process, or if the matter requires an extensive amount of fact-finding or complex legal
analysis, time frames for the substantive response may need to be extended. In cases where a
substantive response will not be provided within three months, the Member must advise the
complainant as such, provide an explanation for the delay and also provide the Member’s best
estimate of the time required for the completion of the substantive response.

It is not required that the complainant accept the Member’s substantive response. Where the
Member has communicated its substantive response, the Member must continue to proactively
address further communications from the complainant in a timely manner until no further action
on the part of the Member is required.
9.
General Complaint Handling Requirements

1.
All client complaints and supervisory obligations must be handled by qualified sales
supervisors/compliance staff. An individual who is the subject of a complaint must not
handle the complaint unless the Member has no other supervisory staff who are qualified
to handle such complaints.
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2.
Each Approved Person must report certain complaints and other information relevant to
this Policy to the Member as required under MFDA Policy No. 6.

3.
Each Member must put procedures in place so that senior management is made aware of
complaints of serious misconduct and of all legal actions.

4.
Members may use the electronic reporting system designated under MFDA Policy No. 6
(the “Member Event Tracking System” or “METS”) as their complaint log for those
complaints reported on METS. For complaints that are not required to be reported
through METS Members must have policies and procedures for the detection of frequent
and repetitive complaints made with respect to the same matter which may, on a
cumulative basis indicate a serious problem.

5.
Follow-up documentation for all complaints must be kept in a central location along with
the consolidated log of complaints. Alternatively, where a Member has various regional
head offices or branches, the Member may keep follow-up documentation at any one
regional head office or branch, so long as information about the handling of the
complaint is in the Member head office log and the follow-up documentation can be
produced in a timely manner.

6.
Where the events relating to a complaint took place in part at another Member or a
member of another SRO, Members and Approved Persons must cooperate with other
Members or SRO members in the sharing of information necessary to address the
complaint.
10. Settlement Agreements

No Approved Person shall, without the prior written consent of the Member, enter into any
settlement agreement with, pay any compensation to or make any restitution to a client.

No Member or Approved Person of such Member may impose confidentiality restrictions on
clients or a requirement to withdraw a complaint with respect to the MFDA or a securities
commission, regulatory authority, law enforcement agency, SRO, stock exchange or other
trading market as part of a resolution of a dispute or otherwise.
II. Additional Complaint Handling Requirements

Each Member’s procedures for handling complaints that are subject to the requirements of this
section must include the following:

1.
Initial Response – An initial response letter must be sent to the complainant within a
reasonable time, and generally within 5 business days of receipt of the complaint. If a
complaint can be concluded in less than 5 business days then an initial response letter is not
necessary. The initial response letter must include the following information:
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• A written acknowledgment of the complaint;
• A request to the complainant for any additional reasonable information required to
resolve the complaint;
• The name, job title and full contact information of the individual at the Member
handling the complaint;
• A statement indicating that the complainant should contact the individual at the
Member handling the complaint if he/she would like to inquire about the status of the
complaint;
• A summary of the Member’s internal complaint handling process, including general
timelines for providing the Member’s response to complaints and a statement
advising clients that each province and territory has a time limit for taking legal
action; and
• A reference to an attached copy of the CCIF, and a reference to the fact that the CCIF
contains information about applicable limitation periods.

2.
Substantive
Response – The substantive response letter, which Members must provide
to the complainant, may be accompanied by a summary of the Member’s complaint
handling procedures and must include a copy of the CCIF. The substantive response
letter to complainants must also include the following information:

• An outline of the complaint;
• The Member’s substantive decision on the complaint, including reasons for the
decision; and
• A reminder to the complainant that he/she has the right to consider: (i) presenting the
complaint to the Ombudsman for Banking Services and Investments which will
consider complaints brought to it within six months of the substantive response letter;
(ii) making a complaint to the MFDA; (iii) litigation/civil action; or (iv) any other
applicable options, such as an internal ombudservice provided by an affiliate of the
Member.

III. Supervisory Investigations

A Member must monitor, through its supervisory personnel, all information that it receives
regarding potential breaches of applicable requirements on the part of the Member and its current
and former Approved Persons that raise the possibility of risk to the Member’s clients or other
investors. Applicable requirements include MFDA By-laws, Rules and Policies, other applicable
legal and regulatory requirements and the Member’s related internal policies and procedures.
This applies to information received from both internal and external sources. For example, such
information may come from client complaints, be identified during the Member’s routine
supervisory activity, or come from other Approved Persons of the Member or individuals outside
the Member who are not clients.

For purposes of clarity, where the information is received by way of a client complaint, the
supervisory duty goes beyond addressing the relief requested by the complainant and extends to
a consideration of general risk at the Member. The duty to deal with the supervisory aspects of
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the matter continues when a complainant purports to withdraw the complaint or indicates
satisfaction with the result of the Member’s complaint handling.

Members must take reasonable supervisory action in relation to such information, the extent of
which will in part depend on the severity of the allegation and the complexity of the issues. In all
cases, the Member must track such information and note trends in risk, including those related to
specific Approved Persons or branches, subject matter, product types, procedures and cases, and
take necessary action in response to those trends as appropriate. In some cases, it will be
necessary to conduct an active supervisory investigation in relation to the information received in
specific situations and the level of the investigation must be reasonable in the circumstances.

For example, where the Member identifies unsuitable investment or leveraging recommendations
by one if its Approved Persons, the investigation may extend to include determining relevant
matters such as the understanding of the Approved Person and applicable supervisory personnel
of the Member’s policies and procedures and the possibility that such conduct occurred in
relation to other clients.

With regard to the type of conduct outlined in Part I, Section 3 of this Policy, other than
suitability, the Member has a duty to conduct a detailed investigation in all situations where
there is information from any source, written or verbal, whether from an identified source or
anonymous, to raise the possibility that such conduct occurred. This duty applies to all conduct
by the current or former Approved Person, whether it occurred inside or outside the Member.

The investigation must be sufficiently detailed and must include all reasonable steps to determine
whether the potential activity occurred. Examples of the activities that the Member may need to
take include:

(a)
interviewing or otherwise communicating with individuals such as:

• the individuals of concern;
• related supervisory personnel;
• other branch staff;
• head office personnel;
• the client or other external individuals who brought the information to the Member’s
attention; or
• other clients who may have been affected by the activity.

(b)
conducting a review at the branch or sub-branch.

(c)
reviewing documentation such as:

• files of the Approved Person relating to Member business; or
• files and other documents in the Approved Person’s custody or control that relate to
outside business, where there is a reasonable possibility that such information is
relevant to the investigation. Members have the right to require such information to
meet their supervisory responsibilities and Approved Persons have an obligation to
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cooperate with such requests.

IV. Internal Discipline

Each Member must establish procedures to ensure that breaches of MFDA By-laws, Rules and
Policies are subjected to appropriate internal disciplinary measures.

V.
Record Retention

Documentation associated with a Member’s activity under this Policy shall be maintained for a
minimum of 7 years from the creation of the record and made available to the MFDA upon
request.

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Rule 2.11 (Complaints)

Every Member shall maintain a log of client complaints and shall establish written policies and
procedures for dealing with client complaints which ensure that such complaints are dealt with
promptly and fairly, and in accordance with the minimum standards prescribed by the
Corporation from time to time.

. . .

Policy No. 6 Information Reporting Requirements

4.
Approved Person Reporting Requirements

4.1. An Approved Person shall report the following events to his or her current Member in
such detail as required by the Member, within 2 business days:

(a)
the Approved Person is the subject of a client complaint in writing;

(b)
the Approved Person is aware of a complaint from any person, whether in writing
or any other form, and with respect to him or herself, or any other Approved
Person, involving allegations of:

(i) theft,
fraud,
misappropriation of funds or securities, forgery, money
laundering, market manipulation, insider trading, misrepresentation, or
unauthorized trading; or
(ii)
a breach of client confidentiality;
(iii)
engaging in securities related business outside of the Member.;
(iv)
engaging in an undeclared occupation outside the Member; or
(v)
personal financial dealings with a client.
(c)
whenever the Approved Person has reason to believe that he or she has or may
have contravened, or is named as a defendant or respondent in any proceeding, in
any jurisdiction, alleging the contravention of:

(i)
any securities law; or
(ii)
any regulatory requirements.

(d)
the Approved Person is charged with, convicted of, pleads guilty or no contest to,
any criminal offence, in any jurisdiction;

(e)
the Approved Person is named as a defendant in a civil claim, in any jurisdiction,
relating to the handling of client accounts or trading or advising in securities;

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(f)
the Approved Person is denied registration or a license that allows the Approved
Person to deal with the public in any capacity by any regulatory body, or has such
registration or license cancelled, suspended or terminated, or made subject to
terms and conditions;

(g)
the Approved Person becomes bankrupt or suspends payment of debts generally
or makes an arrangement with creditors or makes an assignment or is declared
deemed insolvent;

(h)
there are garnishments outstanding or rendered against the Approved Person in
any civil court in Canada.

. . .

6.

General Events to be Reported

6.1.
Members shall report to the MFDA:

(a)
all client complaints in writing, against the Member or a current or former
Approved Person, relating to member business, except service complaints;

(b)
whenever a Member is aware, through a written or verbal complaint or otherwise,
that the Member or any current or former Approved Person has or may have
contravened any provision of any law or has contravened any regulatory
requirement, relating to:

(i) theft,
fraud,
misappropriation of funds or securities, forgery, money
laundering, market manipulation, insider trading, misrepresentation, or
unauthorized trading; or

(ii)
a breach of client confidentiality;

(iii)
engaging in securities related business outside of the Member;.

(iv)
engaging in an undeclared occupation outside the Member; or

(v)
personal financial dealings with a client.

(c)
whenever the Member, or a current or former Approved Person, is:

(i)
charged with, convicted of, pleads guilty or no contest to, any criminal
offence, in any jurisdiction;

(ii)
named as a defendant or respondent in, or is subject of, any proceeding or
disciplinary action, in any jurisdiction, alleging contravention of any
securities law;

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(iii)
named as a defendant or respondent in, or is the subject of, any proceeding
or disciplinary action, in any jurisdiction, alleging contravention of
regulatory requirements;

(iv)
denied registration or a license that allows a person to deal with the public
in any capacity by any regulatory body, or has such registration or license
cancelled, suspended or terminated, or made subject to terms and
conditions;

(v)
named as a defendant in a civil claim, in any jurisdiction, relating to
handling of client accounts or trading or advising in securities.

(d)
whenever an Approved Person becomes bankrupt or suspends payment of debts
generally or makes an arrangement with creditors or makes an assignment or is
declared deemed insolvent;

(e)
there are garnishments outstanding or rendered against the Member or an
Approved Person in any civil court in Canada.

7.

Reporting of Updates and Resolution of Events

7.1.
Members shall update event reports previously reported to reflect the updates to, or the
resolution of, any event that has been reported pursuant to section 6.1 of this Policy
within 5 business days of the occurrence of the update or resolution and such update or
resolutions shall include but not be limited to:

(a)
any judgments, awards, arbitration awards or orders and settlements in any
jurisdiction;

(b)
compensation paid to clients directly or indirectly, or any benefit received by
clients from a Member or Approved Person directly or indirectly;

(c)
any internal disciplinary action or sanction against an Approved Person by a
Member;

(d)
the termination of an Approved Person;

(e)
the results of any internal investigation conducted.

. . .

Section 24.A.5 (Ombudservice – Member to Provide Written Material to Clients) of By-law
No. 1

24.A.5 Member to Provide Written Material to Clients
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Each Member shall provide to new clients, and to clients who submit written complaints to the
Member, a copy of the written material approved by the Corporation which describes the
ombudservice approved by the Board of Directors pursuant to By-law 24.A.1

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