A recent decision in a proposed class-action lawsuit highlights the courts’ skepticism with the efficacy of the financial services industry’s dispute-resolution mechanism.
This case involves a motion to certify a class action against a pair of financial advisors and a mutual fund dealer over allegedly unsuitable recommendations. The case has yet to be heard, but the decision to certify the class action concludes that the courts are a better venue for resolving the dispute than the Ombudsman for Banking Services and Investments.
Pointing to another recent decision in which a court had certified a class action because it found enforcement proceedings brought by the Ontario Securities Commission don’t provide the investors with access to justice, the court in the recent case has found the same to be true of OBSI’s proceedings.
According to the decision from the Ontario Superior Court of Justice, the defendants in the case argue that OBSI is the proper venue for resolving the complaints against them. However, in certifying the class action, the court has decided otherwise, ruling that OBSI’s process doesn’t provide investors with justice: “The fact that the OBSI proceedings can only make a recommendation and not bind the [firm] is itself a denial of access to justice.”
The court has ruled that OBSI’s proceedings would not fulfil the class-action legislation’s goal of providing the action’s members with access to justice for a variety of reasons, which largely boil down to the fact OBSI’s powers are very limited.
Among other things, the court has noted that OBSI can only make a recommendation for compensation; it can’t compel it. And the court called OBSI’s only enforcement power — publishing the name of a firm that refuses to go along with a recommendation — a “rather anemic remedy.”
Given that OBSI proceedings are not binding, the court observed: “A truly impartial and independent body would have control over its process.”
The court also found that the process is “sparsely defined,” as there is no hearing that would allow an investor to introduce evidence or make submissions. The ombudsman is not bound by the rules of evidence, and doesn’t provide legal, accounting or other professional advice.
Moreover, the court found that OBSI proceedings provide little or no basis for investor participation, and that the procedure for reaching a compensation recommendation does not facilitate investor participation or provide a record of how a recommendation is calculated.