Proposal to Modernize the CIRO Arbitration Program

On December 6, 2022, the Investment Industry Regulatory Organization of Canada (IIROC), a predecessor organization to the Canadian Investment Regulatory Organization (CIRO), published Notice 22-0187 seeking comments on the recommendations made by an independent working group (Working Group) on, at that time, the IIROC (now CIRO) Arbitration Program (Program). IIROC amalgamated with the Mutual Fund Dealers Association of Canada (MFDA) to form the New Self-Regulatory Organization of Canada (New SRO) on January 1, 2023. New SRO changed its name to become the Canadian Investment Regulatory Organization (CIRO) on June 1, 2023.

We received twelve comment letters from various stakeholders through the consultation. We thank all commenters. Copies of the comment letters are publicly available on the CIRO website. Appendix A provides a summary of the comments received and our responses.

We have considered the recommendations made by the Working Group together with the public comments received through the consultation. We have conducted our own review of the current Program and received input from the CIRO Investor Advisory Panel to prepare our proposal, which is set out below. We believe that the proposed reforms to the Program align with CIRO’s mandate of protecting investors and fostering confidence in the capital markets and will modernize the Program to make it more viable and effective. Appendix B sets out our impact assessment of the proposed changes to the Program. We invite comments on the proposal from all stakeholders by January 31, 2025.

Need for the Program

Currently, the Program is open to claims by clients of CIRO’s investment dealers under $500,000. The Program has built-in flexibility and offers parties control over the process, from selecting their own arbitrator to designing their own process, which is achieved through flexible rules and procedures. Arbitration awards are final (i.e., claimants cannot start a new claim elsewhere, and parties expressly agree not to appeal the arbitration award) and enforceable against CIRO’s investment dealers. Although more flexible and expedient, the Program procedures are akin to the court fact-finding and adjudication processes, with pre-hearing discovery, examination of witnesses, expert evidence and legal arguments, written and oral, being presented in front of an independent expert adjudicator. The Program is intended to be cost-effective, but it is not free. Parties are required to pay fees of the Program administrator and arbitrator. These costs are typically split 50% - 50% between the parties. Parties may also incur their own legal costs. Due to the adversarial nature of the arbitration and procedural complexities, parties in the Program are usually represented by lawyers.1

By design, the Program has significant distinctive features from other dispute resolution options aiming to offer a flexible, fast and cost-effective alternative to litigation in court.

Such features include, for example, the parties’ ability to:

• select their own arbitrator,
• gather evidence through disclosure of documents, examination of witnesses and expert evidence,
• craft their own process through case management, mediation, expert discussions and other flexible tools,
• present their case and make arguments in front of an expert decision-maker, and
• enforce the award through CIRO’s established processes.

Recently, the Program has had low uptake.2 Among other reasons, the Working Group pointed out the lack of awareness about the Program among investors and costs of the Program to the parties. Despite these challenges, the Working Group concluded, and numerous commenters agreed, that the Program has the potential of offering a much-needed alternative dispute resolution (ADR) forum in Canada, being part of the investor protection landscape, promoting greater access to justice and resources for resolution of investment-related disputes.3

We note that the Program is not intended to cater for all cases, but rather has a unique niche, being more suitable for complex disputes that typically require more formal and, as a result, often more adversarial procedures, which in its turn often requires legal representation. Given the unique aspects of the Program and its niche nature, we do not believe that the Program will ever have huge case volumes, rather its success should be measured by its effectiveness and quality of ADR tools it offers.

The features of the Program set it uniquely apart from other dispute resolution options available in Canada. The Program was created as and continues to maintain its value by offering a unique dispute resolution mechanism being an alternative to civil litigation. Closing the Program down would leave many investors with no options but going to court.

Extending the Program to Clients of Mutual Fund Dealers

Since the publication of the Working Group’s recommendations in December 2022, IIROC consolidated with the MFDA to form CIRO. Some commenters and other stakeholders expressed support for the Program to be extended to all divisions of CIRO. This would reduce investor confusion and ensure that clients of different types of CIRO dealers have the same avenues of redress available to them.

Consultation Question #1

As part of the Rule Consolidation Project, Phase 3 to harmonize CIRO’s rules, we proposed to make the Program available to clients of both investment dealers and mutual fund dealers. We welcome comments on this question as part of this consultation, particularly in light of the proposed changes to the Program discussed below.

Investor Confusion and Overlap with OBSI

In addition to comments on the Working Group’s recommendations, we asked for comments on the role of the Program in the current dispute resolution framework, its coexistence with other dispute resolution options available to investors and the free dispute resolution services through the Ombudsman for Banking Services and Investments (OBSI).

There is general consensus that the regulatory system in Canada, where multiple regulators are involved in the regulation of different investment products and services, is complex and may be confusing for investors. There are diverse views, however, as to whether the Program may contribute to investor confusion. Some commenters stated that a system with multiple dispute resolution avenues may reduce OBSI’s ability to positively influence the investor dispute resolution framework and create confusion for investors. Others did not see how a long-established program could contribute to investor confusion and stated that removing the Program or limiting investors’ access to the Program as a dispute resolution option could undermine investor protection and reduce investor confidence in the regulatory system and dispute resolution framework.

Most commenters supported the continuation of the Program to preserve investors’ choice as a distinct option. They would like to see the roles of the Program and OBSI not competing but complementing each other.

The unique features of the Program, described above, have little semblance of the less formal and more straightforward process offered through OBSI. OBSI provides dispute resolution services for participating dealers and their clients across Canada. Dealers are required to make OBSI services available to their clients. In Quebec, investors also have access to the Autorité des marchés financiers’ dispute resolution services. There is no fee for investors to use OBSI services. Currently, OBSI can make compensation recommendations up to $350,000, which are non-binding on the participating firms. Parties are not required to have lawyers, and claimants are usually unrepresented. Instead of adversarial discovery, proof of evidence and arguments, OBSI staff investigate complaints and make compensation recommendations based on documents provided by the parties and interviews with complainants, representatives of the respondents and relevant third parties.4

As part of our review, we have also considered the CSA proposal to provide OBSI with binding decision-making authority.5  We are supportive of the CSA initiative and considered the Program in light of the proposed framework. The CSA proposed framework would enhance the accessibility and efficiency of dispute resolution in Canada while strengthening investor protection and confidence.

The Program has been used by investors in Canada for over 30 years.6  OBSI has had a dispute resolution mandate over investment firms for over 20 years. Both options coexisted for a long time. Based on the Working Group’s recommendations, public comments and other stakeholder feedback received to date, we believe there is value and ways for the Program and OBSI to continue to coexist.

Lower Award Limit

Commenters were divided on whether access to the Program should be limited to claims above the OBSI limit or whether the Program should remain open to all claims regardless of OBSI services. Some believe that limiting access to the Program would deny investors their choice, which could reduce confidence in the regulatory system and dispute resolution framework. Others believe OBSI is better suited for claims under $500,000, suggesting that allowing lower claims in the Program could lead to an overlap with OBSI, create investor confusion and negate the OBSI case for binding authority.

To ensure that investors with claims within the OBSI limit are aware of and try to resolve their claims through OBSI before resorting to more adversarial dispute resolution options, we propose to limit access to the Program for claims below the OBSI compensation maximum, which is currently $350,000. The Program lower limit would track future changes to the OBSI limit.7

Consultation Question #2

Under the current OBSI process and as contemplated in the CSA proposal on OBSI’s binding authority, there may be claims that 1) fall outside OBSI’s mandate/eligibility criteria8 and 2) investors have the choice to withdraw or abandon their complaint before OBSI.9

On one hand, allowing investors to access the Program where OBSI services are not available and have an option to withdraw from OBSI preserves their freedom of choice offering a less expensive and less complex alternative to civil litigation, especially for claims that could be large in size within the $350,000 (and potentially $500,000) limit and not eligible for small claims courts.10  Additionally, it may be reasonable to make arbitration available in all instances where litigation remains an option, such as the case for abandoned or withdrawn OBSI claims. However, making the Program available to investors who abandon or withdraw claims from the OBSI process could enable certain investors to indirectly bypass the OBSI process by initiating and then purposely abandoning a claim, thereby undermining OBSI’s intended role as the primary dispute resolution mechanism for claims under the OBSI limit. Strictly limiting the availability of the Program to claims above $350,000 could alleviate this concern by preventing overlap and confusion within the dispute resolution regime and by supporting OBSI’s intended role as the primary mechanism for resolving disputes of $350,000 and below not otherwise directed to civil litigation.

Given the above considerations, we invite comments on whether the Program should remain available to 1) claims that are outside of OBSI’s mandate/eligibility criteria and 2) where investors have attempted to resolve their dispute through OBSI but have withdrawn or abandoned the process, or should there be a clear rule that all claims under the OBSI limit are ineligible for the Program?

Upper Award Limit

We have considered the Working Group’s recommendation to increase the upper award limit to open up the Program to more potential claimants who would otherwise have to take their disputes to court. Several commenters agreed that increasing the upper limit could increase the effectiveness and the viability of the Program. The award increase would also be consistent with the focus of the Program on claims above the OBSI limit.

As recommended by the Working Group, we have considered raising the award limit to $5,000,000 or removing it altogether. In both scenarios, the consequences increase with the increased stakes and might be too severe given the finality of the arbitration process and reputational risks to both parties with no appeal available from arbitration decisions.

We have also considered that most claims in the Program in the past four years were at the Program maximum of $500,000 and that client complaints above $1,000,000 (as reported by CIRO dealers) are rare. We therefore propose to double the current award limit raising it to $1,000,000 and allow parties to use the Program on consent for claims above $1,000,000, in which case, their arbitration would not be limited by any set limit.

Consultation Question #3

Is the proposed range, between $350,000 (and potentially $500,000) to $1,000,000, appropriate for arbitration claims involving investor disputes in Canada?

The 90-day Requirement

The Working Group invited us to consider shortening the requirement to access the Program from 90 days to 30-45 days. Commenters agreed that 30-45 days would be too short and as such may compromise the investigation of complaints by firms to the potential detriment of investors and create a hierarchy, due to different response times, for complaint handling by various regulators.

We agree with the Working Group and several commenters who stated that the current process encourages early resolution that is beneficial to both parties and having different timelines may create misalignment and confusion. The 90-day requirement generally aligns with the current regulatory requirements and timing for launching a complaint with OBSI. For these reasons, we do not propose to change the 90-day requirement to access the Program at this time. The timeline for the provision of a substantive response to client complaints will be reviewed by CIRO as part of a future and separate policy project.

Limitation Period

Some commenters noted that the basic two-year limitation period is at the lower end of the spectrum and presents a major obstacle to investors’ access to justice.

Extending the limitation period would increase access to the Program for claimants who cannot otherwise pursue a civil claim in court but could ultimately undermine certainty and predictability of the dispute resolution process.

Commenters recommended the limitation period under the Program be extended to six years, consistent with OBSI and FINRA arbitration.

Consultation Question #4

We welcome further comments on whether the limitation period for claims under the Program should be extended and what would be the appropriate limitation period for arbitration claims in the Program?

Costs as the Biggest Barrier to Access

The Working Group identified the costs of arbitration as the biggest barrier to investor participation in the Program. We agree and have carefully considered the Working Group’s recommendation to provide funding by way of a fee waiver and subsidy for qualified cases in the Program to increase investors’ access to justice and viability of the Program (#14 Fee Waiver and Subsidy). The recommendation envisioned making funding available out of the IIROC (now CIRO) Restricted Fund.

The use of the Restricted Fund is limited by the purposes enumerated in s. 16 of the Recognition Orders with an overarching theme of investor protection in the public interest. Given the general use of the Restricted Fund to the greater public interest, we do not believe it would be appropriate to extend the use of the Restricted Fund to funding of individual cases, particularly where there is no direct link between the funds held in the Restricted Fund and the individual losses.

Instead, to address the issues of access and costs, we propose to:

1. fund reasonable costs of case management and mediation,
2. set reasonable arbitrators’ fees and offer fixed fee arbitration options, and
3. refer unrepresented litigants to legal clinics and lawyers offering pro bono legal services.

Case Management

Given the comments received and our proposal to set the lower and upper award limits under the Program (above), we do not propose to proceed with the tiered approach to claims (#9 Tiered Approach). We have concluded that a tiered approach would add unnecessary complexity to the Program. Instead, we believe that flexible case management tools would be more appropriate to address the effectiveness of the Program and provide a solution to a number of procedural challenges identified by the Working Group.

The Working Group’s recommendation to pilot case management to make the Program more efficient, fair and tailored to specific parties’ needs (#10 Case Management) was supported by public comments. We agree with that recommendation and propose to make case management available for all claims in the Program regardless of the dollar value. We anticipate it would be most helpful and frequently used for higher value claims that may require flexible procedural tools and guidance from a case management administrator or arbitrator.

Case management has proved to be an effective tool used by courts and tribunals. In arbitration, case management involves administrative and procedural oversight of the arbitration process, ensuring effective communication between the parties and the arbitrator throughout the process and includes handling timelines, procedural matters and logistics. It aims to promote cost-effectiveness and efficiency by streamlining procedures, resolving procedural disputes promptly and avoiding unnecessary delays.

At the start, many procedural matters could be effectively managed by an administrator. In appropriate cases, the administrator may assign, at their own initiative or request of the parties, an arbitrator to carry out case management. The arbitrator involved in case management will be different from the arbitrator ultimately hearing the matter unless parties consent to proceed with the same arbitrator.

Some commenters agreed that procedures to triage claims and assist clients would help ease investor confusion about the process while also ensuring that claims are being brought via the most appropriate and cost-effective way. We agree and propose that all claims in the Program be triaged at the initial stage through case management.

Case management would also include initial conferences to:

• set timelines,
• narrow down the scope of issues,
• consider delays and adjournment requests,
• provide guidance on disclosure, discovery and methods of production, place and format of arbitration, use of expert evidence and
• other preliminary matters.

Case management will not deal with substantive matters. Where there is disagreement between parties on the nature of the issue, the case management arbitrator will have discretion to decide if the matter should be dealt with through case management or at an arbitration hearing.

We agree with the Working Group’s recommendation on establishing shorter resolution timelines and case managing delays in the Program (#6 Length of Arbitration and Delays). A balanced approach could be implemented through case management, including consideration of what constitutes a reasonable delay in the circumstances of a particular case. We propose to set the ultimate claim resolution limit to 12 months with administrative tools to enforce the timeframes (e.g., administrative dismissal for claims dormant for 6-12 months).

Given the advance of virtual and hybrid hearings, the place of arbitration is no longer a contentious issue. We agree with the Working Group (#5 Place of Arbitration) and commenters that providing flexibility and increased access where virtual or hybrid proceedings are appropriate makes sense. In case of disagreement between the parties, a case management administrator or arbitrator would have discretion to decide on the appropriate place and format of the hearing.

Several concerns were raised by the Working Group and commenters about claimants having timely access to documents and typically less bargaining power when dealing with sophisticated respondents, “unwanted” delays or too aggressive timelines, use of expert evidence, and nuisance motions, which they recommended could be addressed through flexible procedural tools (#12 Tailored Procedural Tools & #13 Set Timeframes). We believe these evidentiary and procedural challenges could also be effectively addressed through active case management.

Given that case management would be a new tool for the Program and may initially increase costs, to assist the parties with their costs of arbitration, we propose to provide funding for reasonable costs of case management, for example, up to 10-20 hours of case management per case, from CIRO’s operating fund. A pilot could be conducted for the first couple of years of the refreshed Program, at a reasonable predetermined funding cap, regularly reviewed, and conditional on the effectiveness of the Program.

Mediation

We also agree with the Working Group and several commenters on the benefits of making mediation available through the Program (#11 Mediation). We propose to make mediation available for all claims in the Program at the request of the parties and/or case management recommendation. Given the focus of the Program on larger claims, we do not believe mandatory mediation would create value. Rather, we propose to make it available and encouraged for all claims throughout the process.

A case management administrator or arbitrator should be able to identify matters suitable for mediation early in the process and recommend it to the parties. A mediator would be different from the arbitrator ultimately hearing the matter unless both parties consent for the mediator (and case management arbitrator, if the same) continuing with the arbitration.

To create settlement incentives and alleviate costs, we propose to fund reasonable costs of mediation, for example, up to a half-day mediation session, if recommended through case management. If unable to achieve a resolution within that time, parties could continue to mediate but would be responsible for additional costs.

Funding for mediation would be part of and subject to the same pilot terms as case management described above.

Quality of Arbitration and Arbitrators’ Rates

The Working Group and commenters recommended more quality control over the Program (#3 Quality of Arbitration & #4 Selection Process). We generally agree with these recommendations.

Some commenters believe arbitrators in the Program should have their qualifications reviewed and approved by CIRO. We note that it is very important to maintain and heighten the independence of the Program. For these reasons, we intend to continue overseeing the Program but will not participate in the selection process. Our oversight would be limited to reviewing the qualification metrics for arbitrators and regular attestations to an arbitrator’s Code of Conduct to set the high standards of conduct, excellence, neutrality and impartiality for arbitrators participating in the Program.

As part of the oversight, we propose to continue reviewing and approving arbitrators’ rates. Based on our review of the Program, the largest part of arbitration costs goes to arbitrators’ fees. Currently, arbitrators in the Program may charge $350 per hour in Quebec and $400 per hour in other jurisdictions.11 These fees are typically split equally between parties. We propose to regularly review and ensure that arbitrators’ fees remain reasonable to control costs of the Program for the parties.

Fixed Fee Arbitration

To further control costs of the Program, we have also considered alternative fee arrangements such as fixed fee arbitration.

For example, ADR Chambers offers expedited arbitration at a fixed fee. This process is typically suitable for smaller and/or less complex claims given its limitations (i.e., no discovery, no expert witnesses, no motions, up to one hearing day, up to 20 documents in evidence, up to 25 pages of written submissions, up to 3 authorities, up to 2 witnesses per party).

We are considering creating fixed fee options under the Program, which could include, for example, arbitration by written hearing ($3,000 per party), one-day oral hearing ($7,500 per party), two-day oral hearing ($15,000 per party) etc. These options will likely be subject to the limitations similar to the expedited arbitration, as set out above.

Representation and Pro Bono Legal Advice

Claimants in the Program can be self-represented, represented by legal counsel or assisted by persons of their choice. We believe it would be fair to allow representation of the parties by an agent, i.e., non-lawyer (#7 Parties’ Representation) with the ability for the opposing party to challenge the agent’s representation. This is consistent with general court and tribunal practices where agents are allowed in straightforward proceedings that do not require representation by qualified lawyers. As arbitration proceedings may involve complex issues, at the opposing party’s request or their own initiative, a case management arbitrator would have the ability to review the agent’s capacity (i.e., legal authority to represent the party and lack of conflicting interests or obligations that could compromise representation) and competence (i.e., knowledge of relevant laws and procedures, ability to communicate effectively and ethical responsibilities).

Most commenters agreed with the Working Group’s recommendation on developing partnerships with legal clinics and lawyers providing pro bono legal services to make the Program more accessible (#8 Partnerships with Investor Protection Clinics and Pro Bono Legal Counsel). Given the adversarial nature and complexities of the arbitration process, the Program is more suitable for claimants who have legal representation. Claimants who self-represent in the Program would likely benefit from free legal assistance. As recommended, we intend to continue developing partnerships with legal clinics and lawyers providing pro bono legal services to improve access to the Program.

Consultation Question #5

Would the proposed changes, in particular: (1) funding reasonable case management and mediation costs, (2) setting reasonable arbitrators’ rates and offering fixed fee arbitration, and (3) referring self-represented litigants to pro bono legal assistance, effectively address the issue of costs in the Program and promote greater access to justice for parties in investment-related disputes?

Publication of Arbitration Decisions

Currently, we do not publish arbitration decisions but publish limited annual Arbitration Statistics on the Program, which include the number and types of cases opened and closed, key issues involved and average claim amounts. The Working Group invited consultation on this point (#15Publication of Arbitration Decisions) recommending that either summaries or redacted / unredacted decisions be published to increase transparency about the Program and provide incentives to parties. The Working Group was however concerned that removing privacy and confidentiality of the process would effectively remove the key feature of the Program, making it less attractive, especially without an appeal mechanism. Published decisions may also have a significant precedential and reputation impact on both parties.

While most commenters supported the publication of arbitration decisions, there was consensus that preserving confidentiality of the process is key for the Program. Keeping that in mind, we propose to: (1) publish enhanced statistics about the Program’s usage (i.e., case volumes per region, type of dealers involved, time to resolution) and detailed key issues to enhance transparency, and (2) publish select anonymized case studies representative of key issues to inform the public and potential users about typical claims in the Program. The level of detail and frequency of such publications would depend on the effectiveness of the refreshed Program.

Public Consultation

We welcome comments on all aspects of the Program and, in particular, the following consultation questions:

1. Should the Program be extended to clients of mutual fund dealers?
2. Should the Program remain available for 1) claims that fall outside OBSI’s mandate/eligibility criteria and 2) claims where investors had attempted to resolve their dispute through OBSI and withdrew from or abandoned the process?
3. Is the proposed range, between $350,000 (and potentially $500,000) to $1,000,000, appropriate for arbitration claims involving investor disputes in Canada?
4. Should the limitation period be extended and what would be the appropriate limitation period for arbitration claims in the Program?
5. Would the proposed changes, in particular: (1) funding reasonable case management and mediation costs, (2) setting reasonable arbitrators’ rates and offering fixed fee arbitration, and (3) referring self-represented litigants to pro bono legal assistance, effectively address the issue of costs in the Program and promote greater access to justice for parties in investment-related disputes?

How to Submit Comments

Comments should be made in writing and delivered by January 31, 2025 to:

[email protected]

General Counsel’s Office
Canadian Regulatory Organization of Canada
40 Temperance Street, Suite 2600 
Toronto, Ontario, M5H 0B4

Commenters should be aware that a copy of their comment letters will be public on the CIRO website at www.ciro.ca.

Attachments

Appendix A - Summary of Comments Received and CIRO’s Response (Notice 22-0187)

Appendix B - Impact Assessment of the Proposal to Modernize the CIRO Arbitration Program

• 1For detailed background on the Program, please see Notice 22-0187.
• 2There were 90 cases in the Program in 2001. Case volumes started to decline since approximately 2007, with the current Program average of 3-4 cases per year. For more information, see Arbitration Statistics.
• 3Please see the IIROC Arbitration Program Working Group Recommendations and public comments for more detail.
• 4Independent Evaluation of OBSI’s Investment Complaints Mandate, June 13, 2022.
• 5CSA Notice and Request for Comment – Registered Firm Requirements Pertaining to an Independent Dispute Resolution Service, November 30, 2023.
• 6The Program was launched as a pilot project in British Columbia in 1993 and extended to Québec in 1996 and other jurisdictions in Canada in 1999. 
• 7It was recommended to increase the OBSI compensation limit to $500,000, see supra note 4 at page 52.
• 8See OBSI Terms of References, Parts 4 and 5.
• 9Supra note 5.
• 10Limits on claims in the Small Claims Court are under $15,000 in Quebec and Manitoba, $16,000 in Prince Edward Island, $20,000 in Nunavut and New Brunswick, $25,000 in Nova Scotia and Newfoundland and Labrador, $35,000 in British Columbia, the Northwest Territories and Ontario, $50,000 in Saskatchewan and $100,000 in Alberta (increased from $50,000 in 2023).
• 11See Arbitration Rate Schedule.