OBSI to place greater pressure on firms

Ultimately, the decision to focus on cutting out these inefficiencies reflects a philosophical shift at the organization, says OBSI CEO Douglas Melville. In the past, OBSI staff felt the need to exhaustively defend their decisions. Now, Melville says, OBSI has proven its credibility in investigating complaints. Thus, OBSI is aiming to devote far fewer resources to defending its process and more time toward assessing complaints and rendering decisions.

For example, OBSI doesn’t intend to spend time trying to persuade firms to follow its recommendations anymore. From now on, if a firm indicates it doesn’t intend to go along and pay the recommended compensation after OBSI makes its recommendation, the ombudservice will move quickly to announce the refusal.

In the past, OBSI has spent a good deal of time trying to convince firms of the merits of its recommendations and to get them to compensate clients with valid complaints. However, OBSI has found that this strategy has created a perverse incentive for some firms to drag out the process – in the theory that delaying payment is almost as good as not paying at all. This approach has consumed resources that OBSI has now decided will be better used to investigate complaints.

Melville acknowledges that the result of this new policy may well be that OBSI finds itself announcing many more refusals. But, he stresses, OBSI’s mandate is to make decisions on the merits of complaints, not to convince firms of the validity of those decisions.

Of course, a substantial increase in refusal announcements could have far-reaching implications for both OBSI and the financial services sector. But, at this point, it’s too early to know whether this new approach will result in many more refusals and whether that would prompt some sort of response from regulators.

Not only is OBSI prepared to do more “naming and shaming” when it comes to firms refusing to compensate clients, OBSI also is threatening to deploy its power to “name and shame” firms that drag their feet during OBSI’s investigations – a power that OBSI has had from its inception but never used.

OBSI also intends to demand better co-operation from both clients and firms. If clients don’t provide information to support their complaints quickly enough, their cases will be closed. If firms don’t co-operate, OBSI will take the issue to the regulators; and, if that doesn’t get a firm moving, OBSI will publicly announce any instance of lack of co-operation.

Although it appears OBSI is proposing to take a harder line with firms, it’s also hoping for greater co-operation. Specifically, OBSI intends to implement a blanket “tolling” agreement with investment firms, which stops the clock on civil limitation periods while OBSI investigates a complaint. (This already is in place on the banking side.) Adopting a standard agreement, instead of negotiating with individual firms, will eliminate another opportunity for delay.

As well, Melville says, OBSI intends to work with the Investment Industry Association of Canada and the Investment Funds Institute of Canada to develop a tolling agreement that will serve that purpose.

In addition, OBSI hopes to expedite complaints in other ways, including writing shorter investigation reports or not writing reports at all in cases in which the complaints appear to be a lost cause – either because the firm in question looks to be going out of business and is in no position to pay a compensation award or because the firm has made it clear it doesn’t intend to compensate the client despite OBSI’s recommendation.

In such cases, OBSI intends to wrap up its investigations more quickly and not waste any time doing the painstaking analysis required to calculate a compensation recommendation down to the penny when there’s clearly no hope of payment being made. Instead, for such cases, OBSI will publish a case summary of the basics of the complaint, but without detailed analysis.

Moving on more quickly from futile cases will allow OBSI to deal with more complaints, Melville notes, and allow clients in futile cases to pursue other avenues for possible compensation, such as a bankruptcy proceeding.

OBSI used this approach in a recent case involving suspended investment firm Northern Securities Inc. In that case, OBSI announced that client compensation was warranted but didn’t publish a full investigation report. Instead, OBSI simply sketched out some of the details of the case.

These moves, designed to improve OBSI’s timeliness, come amid growing criticism from investor advocates who worry that OBSI has been undermined in its mission of providing impartial, cost-effective resolutions in client complaints.

In late October, the Ontario Securities Commission’s (OSC) independent Investor Advisory Panel (IAP) wrote to OSC chairman and CEO Howard Wetston expressing concern about OBSI. That letter states the IAP’s worry about OBSI’s inability to meet its own standards for handling complaints in a timely way. Indeed, according to OBSI’s latest annual report, only about 20% of investment complaints are resolved within 180 days.

And with forthcoming changes to expand OBSI’s membership on the investment side (the Canadian Securities Administrators [CSA] has proposed rules that would require all firms under its jurisdiction to use OBSI for dispute resolution) and looming reforms to cost disclosure and performance reporting, which may trigger greater volumes of complaints, investor advocates are worried about OBSI’s ability to take on an even greater workload.

The CSA was expected to finalize its proposal to require all firms to participate in OBSI by the end of 2013 and that the requirement to belong to OBSI would take effect in mid-2014. To that point, only firms that belong to the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada must use OBSI. So, the CSA rule will expand that requirement to firms that are under the direct oversight of the provincial regulators, such as exempt-market dealers and portfolio managers.

In the meantime, the reforms afoot at OBSI may be just beginning. In addition to the aforementioned process changes, OBSI also is in the midst of a thorough examination by external consultants designed to ferret out other potential performance improvements. OBSI expects to receive their report sometime in the spring. That report may well bring further changes.IE

Many challenges remain for OBSI

If the Ombudsman for Banking Services and Investments’ (OBSI) efforts to speed up its service work as intended, that may quell one criticism. But OBSI faces other hurdles.

In addition to the various initiatives OBSI is undertaking (see story at left), the organization also is in the midst of adopting controversial revisions to its mandate, as well as seeking official approval in the banking sector.

Although investor advocates have expressed concern about OBSI’s capacity and its growing workload, they’re also worried that proposed changes to OBSI’s terms of reference may hurt its ability to provide comprehensive service. OBSI is proposing to drop its ability to investigate systemic issues and to stop considering complaints involving segregated funds – steps that the Ontario Securities Commission’s (OSC)Investor Advisory Panel (IAP) calls “unacceptable and a major blow to investor protection.”

A letter to the OSC from the IAP warns: “These changes will impair OBSI’s ability to carry out its investor protection mandate. They will undermine OBSI’s stature, scope and effectiveness as an independent, free and accessible ombudsman.”

That status already has been undermined on the banking side: two of the Big Five banks have withdrawn from OBSI in the past few years.

As well, the federal government has decided to allow competition in dispute resolution for banking complaints rather than mandating a single provider (unlike the securities regulators’ proposal). As a result, OBSI must qualify as a dispute-resolution provider under the process established by the federal government to set standards in this area.

OBSI filed its application seeking recognition with the Financial Consumer Agency of Canada in September. That application recently was published for public comment until Jan. 27.

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