It’s crunch time for regulators and the financial services industry: the future of the industry’s dispute-resolution service hangs in the balance.
The past few months have been tumultuous for the Ombudsman for Banking Services and Invest-ments. OBSI has been butting heads with a number of firms in the investment industry, and has now suffered a second major defection from the banking side.
In late October, Toronto-Dominion Bank announced it has withdrawn from OBSI and is now using ADR Chambers Banking Ombuds Office, a private, Toronto-based mediator, to resolve persistent disputes with its clients. TD is following in the footsteps of Royal Bank of Canada, which made the same move in 2008. TD says the change was driven by a desire to speed up the process of resolving complaints.
In the wake of this recent blow, OBSI’s board has released a statement expressing its support of and confidence in its beleaguered ombudservice. OBSI also is calling on the feds to prevent further fragmentation of the dispute-resolution system by making participation in OBSI mandatory for Canadian banks, either under the Bank Act or as part of legislation passed earlier this year (as part of an omnibus budget bill), that requires that banks belong to an external complaints body approved by the Financial Consumer Agency of Canada.
At the same time, OBSI also remains at loggerheads with several investment firms. Unlike the banks, they can’t withdraw from OBSI because their participation in the service is mandated by the provincial securities regulators.
Nevertheless, these firms’ displeasure with some recent decisions by OBSI has created a backlog of cases in which the firms have been refusing to accept OBSI’s decisions.
In an effort to break the stalemate over those cases, the securities regulators (the Canadian Securities Administrators, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada) sent a joint letter to OBSI in late October, directing the service to forward the letter to the firms and encouraging them to resolve these outstanding cases.
Ombudsman Doug Melville says that the cases in question involve complaints in which, following an investigation, OBSI has “reached a clear conclusion. But the firm in question has not yet agreed to compensate the inves-tor, despite a significant amount of time having passed.
“I expect there will be discussions over the coming weeks with the affected firms and the regulators,” he continues, “while we make this final attempt to resolve the outstanding complaints.”
At the same time, OBSI also is puzzling over its long-term future. Earlier this year, besieged by criticism from within the financial services industry, OBSI held a public consultation to examine its process for dealing with investment suitability complaints and its methodology for calculating investment losses. OBSI says it intends to hold a meeting by the end of November to consider whether any changes to its processes for assessing suitability and calculating losses are needed. If the service decides that changes are warranted, any proposals would go out for a 60-day public comment period.
However, an independent review of OBSI, carried out by Australia’s Navigator Co. and published in September, already has concluded that OBSI’s processes and loss-assessment methodology are world-class and that changes aren’t warranted.
Although that review found that the Canadian industry’s complaints about OBSI are unfounded and “somewhat baffling,” it also calls on regulators to shore up OBSI’s standing in some fundamental ways because of growing industry intransigence. This includes giving OBSI binding authority over the firms that use the service, introducing an appeal process and enhancing governance.
So far, the regulators have been fairly silent on whether they endorse the Navigator report’s conclusions or intend to follow its recommendations. Phil Khoury, author of the report, says he’s had discussions with some of the regulators since the report was published: “I understand that it will take some time for OBSI and the regulators to work through the issues and to get agreement on a response.”
Still, Khoury is encouraged by remarks from Howard Wetston, chairman of the Ontario Secur-ities Commission, who said at the OSC’s annual conference in Toronto that the CSA “strongly supports the existence of a single system of informal dispute resolution.”
Wetston’s remarks “were a pretty unequivocal message of support,” Khoury says, “which I think augurs well for the OBSI’s future.”
And, indeed, that’s what Khoury believes is best for Canada, too.
“The experience in other countries is that a single, strong, independent ombudsman service for financial services is the most effective model,” Khoury says. “In my view, it would be a step backward for Canada if that was lost.”
Melville says that an OBSI board committee is currently reviewing the Navigator report’s recommendations, and a plan is being prepared for approval at the Dec. 6 OBSI board meeting. IE