For investors who have legitimate complaints against their dealers/brokers, the IDA’s MR076 Notice to its Members offers limited comfort. It protects the ability of regulators to investigate cases of misconduct, but impairs other investors who have suffered at the hands of those same firms. The IDA does not condemn confidentiality - as long as it is immune from its effects. Fund dealers and brokerage firms can still concoct confidentiality provisions that prevent customers from sharing information with one another.
"After five years, I'm beaten into submission," one such investor told me this week. "I'm not allowed to disparage the bank at all. We're living in fear of the might of the bank closing down on us and suing for everything we've got." Source: Jonathan Chevreau, “Grievances never see the light of day: Banks, brokerages use confidentiality pacts to great effect “, Financial Post, June 25, 2005
Thus by keeping settlements secret, other investors with the firm are in the dark even though the malfeasance and the resultant settlement may also be applicable to them and may still be occurring.
“The "financial euthanasia" of Canadian retirees is as important an election issue as health care, Gag orders would never be tolerated in the health care system -- the public has a right to know about the spread of SARS or other diseases. Investors should receive similar warnings of financial industry practices that threaten investors' financial well-being” –Investor advocate Joe Killoran Source: Jonathan Chevreau, “Grievances never see the light of day: Banks, brokerages use confidentiality pacts to great effect “, Financial Post, June 25, 2005
Financial services firms aren’t the only one wanting to keep information confidential. Here’s the language from the current standard letter received by industry-sponsored OBSI www.obsi.ca clients.
“..Neither you nor [name of FSP] will surrender any legal rights by participating in OBSI’s process. It is critical to the success of this process that both you and [name of FSP] are able to deal with OBSI in a complete and open manner without the risk that you may prejudice your legal rights. Thus by signing this letter, you and [name of FSP] agree that OBSI’s correspondence and discussions with you as part of this process, and OBSI’s files, are confidential. You and [name of FSP] agree that in the event of any subsequent legal or other proceedings neither of you will use that correspondence or information. In addition, neither you nor [name of FSP] will seek to compel OBSI to produce its files and records, or seek to compel the Ombudsman or any other OBSI staff member or advisor to give evidence or testify in any such proceeding….”
Ironically, a bigger threat to investors is the new Ontario Limitations Act which requires investors to file for legal action within 2 years of discovery. This actually encourages financial services firms to drag out the complaint process and make low -ball offers. You won’t have to worry about the gag order-there may be no settlement at all. Seniors, retirees and small investors are truly disadvantaged by this Act making the signing of oppressive “ boilerplate provisions ” now much more likely.
Since the primary role of regulators is protect investors and act in the Public interest, how about the following ?:
Ban confidentiality Agreements unless desired by the investor
If a outright ban is not practicable, define industry –standard language for such agreements approved by regulators
If a outright ban is not practicable, include a maximum hush period of 1 year
Bound the penalties for an investor breach to the amount of restitution and define the remedies available to investors for a firm’s breach
Publish periodic statistical summaries of the hushed cases with trends and commentary so other investors can learn what type of cases are being settled
As Louis Brandeis said: Sunlight is the best disinfectant. The financial services industry needs to Walk the Talk. It’s time to respect and honor investor protection.
Ken Kivenko P.Eng.
