Yahoo Finance Complaints body to have binding power over investment dealers as Canada plays catch-up on consumer protection
After years of domestic and international pressure, securities regulators across Canada are moving to give the ombudsman that handles complaints against investment dealers the power to make binding decisions, including compensation orders for clients of up to $350,000.
The Ombudsman for Banking Services and Investments (OBSI) is a free service for those who have disputes with investment dealers, but it has for years been out of step with international counterparts that make binding orders.
The Canadian Securities Administrators, the national umbrella organization for the country’s regional market watchdogs, plans to move forward with the binding system in 2024, following a 90-day comment period on structural elements of the proposal.
“In developing the proposed framework, the CSA considered various public reports, consultations and reviews that contemplated the benefits of giving OBSI binding authority,” the regulators said in a statement.
An independent evaluation in 2022 led by York University law professor Poonam Puri concluded that the current structure where OBSI’s only power is to “name and shame” investment dealers that don’t abide by its rulings “provides an economic incentive for both parties to settle for amounts below OBSI’s recommendation.”
Giving the dispute resolution body authority to render decisions that are binding on both parties “is consistent with international best practices and would bring more legitimacy to the system,” the evaluation said, echoing a 2016 review led by Deborah Battell, who was New Zealand’s Banking Ombudsman from 2009 to 2015.
OBSI’s website lists 22 instances since 2007 of firms that have refused to compensate investors or otherwise follow its dispute resolution orders.
Stan Magidson, chair of the CSA and of the Alberta Securities Commission, said regulators have contemplating making changes to the system for years, with global observers including the International Monetary Fund pointing out Canada’s outlier status when it comes to investment complaint handling. The IMF said in a 2019 report that binding authority for OBSI would improve investor protection.
“We spent a lot of time considering what other jurisdictions were doing in this regard… and how we compare globally on this file,” Magidson said, adding that the new proposal would grant binding decision-making power but would also come with the CSA getting oversight to monitor OBSI’s costs structure and performance.
“Hopefully what we’ve put out here is a proposals that people could come on board with,” he said.
OBSI got a boost earlier this year when federal finance minister Chrystia Freeland designated it as the sole external complaints body for use by Canadian banks. This will force the return of the country’s three largest banks, which had withdrawn from OBSI is favour of for-profit dispute resolution company ADR Chambers following disagreements over how OBSI dealt with complaints and compensation.
Despite widespread approval for the Oct. 17 announcement, investor advocates noted that Freeland’s move did not give OBSI authority to make binding orders against the banks, including client compensation.
Freeland’s Spring 2022 budget included a pledge by the federal government to introduce “targeted legislative measures” to strengthen the external complaints handling system, but that has not yet happened and it is unclear whether that would include binding authority for OBSI when it comes to resolving customer disputes with banks.
As for the investment dealers — some of which operate within the country’s biggest banks — they have always been obligated by their regulators to use OBSI as an external dispute resolution mechanism for client complaints that can’t be resolved in-house. Still, investor advocates such as the Foundation for Investor Rights (FAIR Canada) have complained that OBSI’s authority has been limited when it comes to international standards for compensation and for investigating behaviour that could indicate widespread or systemic problems within the industry.
Still, other avenues such as the courts are costly, and Magidson acknowledged a “mismatch of resources” between large investment dealers and their clients.
The CSA proposal, which would require some provincial legislative changes, creates a two-stage process with an optional review of the OBSI recommendation at the end of the first stage built into the system. If the complainant opts to move to the second stage, which would be dealt with by a new reviewer within OBSI, the decision reached at that stage would be final. However, if the client opts not to continue to a second-stage review requested by the dealer, they could still pursue their complaint outside OBSI, such as through the courts.
“We knew this was a topic in which investor advocates and industry might differ so we took the time to really try and carefully calibrate an approach to binding authority that we felt properly considers all the constituents and their needs,” Magidson said. “Efficient dispute resolution, we think, should be in the interests of both.”
While there is now consensus among Canadian securities regulators that there should be binding authority for dispute resolution and compensation, presumably through OBSI, there are regional differences in approach.
For example, British Columbia is considering legislative changes “that may achieve the same outcomes as those intended by the proposed framework,” according to the CSA, which said the BCSC will take into consideration the comments received on the framework proposed by the umbrella organization of securities regulators.
Saskatchewan, too, has moved ahead of the CSA proposal with the introduction of legislation that, among other things, would allow the Financial Consumer Affairs Authority (FCAA) to designate an independent dispute resolution service with the power to make bindng orders, including for compensation and revising practices, according to a Nov. 28 report on advisor.ca.
Quebec’s Autorité des marchés financiers (AMF), meanwhile, plans to continue using its own dispute resolution service alongside conciliation and mediation services that are available to all consumers of financial products and services under the Quebec regulator’s governing legislation, the CSA said.
• Email: bshecter@postmedia.com
Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.
