Regulators say they are surprised and concerned about the sudden closing of the Centre for the Financial Services OmbudsNetwork. But industry officials insist consumers will not be hurt by the shutdown.

The CFSO was shuttered by the industry at the end of May, much to the dismay of its five independent directors and the astonishment of the regulators, who endorsed its creation in 2001.

“We knew there was a level of dissatisfaction on the part of the industry, but we were surprised by the closing,” says David Wild, chairman of the Saskatchewan Financial Services Commission. Wild is also superintendent of pensions and chairman of the Joint Forum of Financial Market Regulators, an organization that includes Canadian securities, pension and insurance regulators. The Joint Forum had endorsed the initial framework of the OmbudsNetwork, which included three industry ombudservices and the centre.

Regulators were not consulted about closing the centre, Wild says.

The now-defunct centre began operations in 2002 in response to the report of the McKay Task Force on the Future of Canadian Financial Services Sector, released in the late 1990s. The report recommended a government-run national ombudservice for the entire financial services industry. However, six financial services industry associations — the Canadian Bankers Association, the Canadian Life and Health Insurance Association, the Insurance Bureau of Canada, the Investment Dealers Association of Canada, the Investment Funds Institute of Canada and the Mutual Fund Dealers Association — developed and successfully lobbied for an alternative industry-run plan.

Under the plan, the CFSO was established to act as a “single wicket” referral centre to the three industry ombudservices: the Ombudsman for Banking and Investment Services, the Canadian Life and Health Insurance OmbudService and the General Insurance OmbudService. The CFSO was also expected to run public-awareness campaigns promoting itself as a one-stop place for consumers to go for answers if they were confused about steps to take in making a complaint. It did not actually conduct any dispute resolution services.

Furthermore, a framework document states, the CFSO was expected to establish standards for the ombudservices and provide independent oversight of the standards.

The CFSO never did provide oversight of the standards it developed and shared with the three ombudservices, however. CFSO chairwoman Huguette Labelle says that, although standards were set: “Ensuring they were being met was more complicated.” Each of the industry ombudservices had its own standards, she adds.

Wild says the CFSO’s structure did not give it authority to oversee the implementation of consistent standards across all three services. “Those expectations were not met, primarily because the structure was flawed,” he says.

Industry stakeholders say the CFSO was only a referral centre and the closing was a natural evolution as the three ombudservices became better known to their members and direct referrals increased.

Barbara Waters, the CLHIO’s general manager, says the CFSO centre served a useful purpose when it was first launched: “It was there as a referral service, which was exactly what was needed at the time. It was a bridge to what we have today.”

The three industry ombudservices, two of which were launched around the same time as the centre, were not well known, she says. Now, members of each refer dissatisfied customers directly to the service of the industry concerned.

The three ombudservices work very well together, Waters says, and OBIS and the CLHIO recently co-located. “In fact, consumers will get help faster by calling us directly,” she says. “When an average person calls for help, he or she doesn’t expect to get referred elsewhere; he or she expects help.”

“I always thought the centre was window dressing,” says Glorianne Stromberg, investor advocate and former Ontario Securities Commissioner. “But the closing of the centre highlights again the fundamental problem that we do not have uniform regulations across the country for consumers of financial services.”

Wild says that the closing of the CFSO will not harm consumers: “There is no threat to consumers, as the actual dispute resolution services are still operating as normal.”

In addition, the three ombudservices are maintaining the CFSO’s toll-free phone line and its Web site.

IDA president Joe Oliver says the industry no longer wanted to support the extra infrastructure. “The feeling was that it really was not necessary, and that consumers would be less confused and better served by going directly to one of the three ombudservices.” He adds that the industry had agreed to set up the centre on a temporary basis only.

@page_break@The independent directors, however, say they strongly believed the CFSO was supposed to be a first step in integrating the three industry ombudservices.

David Crombie, former mayor of Toronto and now president and CEO of the Canadian Urban Institute, is one of the CFSO’s original independent directors. He says the original strategy was to find a way to integrate functions across industry lines to benefit consumers: “The idea was to move toward one ombudservice.”

Crombie says the independent directors put forward a resolution at the CFSO’s January board meeting that all three of the industry ombudservices would share one board of directors, “strengthening the network overall, providing more cohesive direction and reducing the cost of governance and the number of directors.”

The chairmen of those ombudservices, who are also board members of the CFSO, agreed to take the matter to their own boards for approval, Crombie says. At the CFSO’s May board meeting, however, the industry directors and three ombudservices chairmen proposed a resolution to close the CFSO, surprising the independent board members. The industry directors outnumbered the independents, the resolution passed and the CFSO was closed by the end of June, leaving its six employees looking for new jobs.

David Agnew, OBIS president and CEO, says it would be difficult to have a single ombudservice: “The reality is we don’t have one single jurisdiction for these industries.”

In June, the independent directors sent a letter to Labelle and the regulators, voicing their concern about the closing and setting the record straight that they unanimously voted against the resolution. The letter raises a number of issues, including whether the closing is in consumers’ interests and questioning the independence of the industry ombudservices.

“It would, perhaps, be timely to re-examine the true independence of the network entities in light of the extensive influence of the industry directors,” the letter says.

Over the summer, Wild says, regulators are examining the complaint-resolution experience in other jurisdictions around the world. This will be followed by meetings with the industry and ombudservices in the fall to discuss the future of the Canadian system.

Wild says regulators want more say in developing any new OmbudsNetwork: “Regulators need to be more actively engaged in the evolution of the OmbudsNetwork. We need greater input into how it is evolving.” IE