CSA proposes making OBSI dispute resolution mandatory

Earlier this year, the federal government proposed some standards for the external dispute resolution services used by the banks, but declined to mandate that OBSI provide that service.

Less power for OBSI?

The CSA says it has decided that a common dispute resolution service for the securities industry is in the best interest of both investors and firms, and that OBSI is the appropriate choice to fill that role. Additionally, the group is proposing to adopt OBSI’s six-year limitation period for complaints, starting from the date when the client knew, or should of known, about the activity that sparked their complaint; and its $350,000 limit for compensation awards.

The CSA says that its proposals will benefit investors by setting common standards for dispute resolution, and, creating consistent client expectations. “Our goal is to ensure the independence of dispute resolution services and consistency in expectations and outcomes,” the CSA says in its notice. “Client complaints considered by the common dispute resolution service would be handled to a uniform standard. A common dispute resolution service provider would reduce investor confusion as to who to contact when complaints are not resolved at the registrant level. There would be no perception that competition for business from registered firms might influence the recommendations of for-profit dispute resolution service providers.”

The CSA says that it believes OBSI is the appropriate choice to be the common dispute resolution provider for all registered dealers and advisors, as it is independent, not-for-profit, and has extensive experience in this capacity over the past 10 years for many firms. “During that time it has resolved thousands of complaints from investors,” it notes. And, OBSI adheres to standards established by the Joint Forum of Financial Market Regulators, which requires that it undergoes independent third party evaluations on a regular basis.

The CSA also notes that it has been working with OBSI “to develop a fee model that will be fair to all registrants who will… be required to use OBSI’s services for dispute resolution.” Under its current model, firms pay a levy based on their size or volume of business. The regulators report that they are also considering their oversight role, and that they are working with OBSI to ensure that it will have the capacity to provide effective services for an expanded base of registered firms.

The firms that would be most directly affected by the proposed amendments are dealers and advisors that don’t belong to the industry self-regulatory organizations, the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA), both of which already require their members to use OBSI. Some of the firms outside the SRO world, such as exempt market dealers, scholarship plan dealers, and portfolio managers, already voluntarily use OBSI; but the proposals would make that mandatory within the securities industry.

“Mandating all registered dealers and advisors to offer dispute resolution services through OBSI will establish a level playing field in terms of expectations and costs, and will provide investors with a common, independent and consistent service standard,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC).

The proposals are out for a 90-day comment period, until February 15, 2013.

OBSI notes that over 600 firms already participate in its service, and says that if the CSA’s proposal is adopted, that would almost double the number of firms participating in OBSI to well over 1000.

“We are gratified by the confidence in OBSI demonstrated by the CSA in proposing these amendments. As always, we will work closely with all of our stakeholders and regulatory partners to ensure OBSI continues to meet the high standards set for us,” it said in a statement.