The compensation recommendations handed down by the Ombudsman for Banking and Investment Services (OBSI) should be binding, says the Ontario Securities Commission’s (OSC) independent Investor Advisory Panel (IAP).

In a letter to OSC chairman Howard Wetston, the IAP is demanding that OBSI’s decisions be made binding on the industry, in the wake of a rise in industry resistance to OBSI recommendations.

“We call on the Ontario Securities Commission to act now to ensure that Ontario investors have access to independent, timely and binding compensation services,” the IAP says in its letter.

The panel notes that OBSI was created with the power to “name and shame” firms that refuse its recommendations as its only enforcement power. While that approach was apparently adequate for a number of years, with firms always accepting its decisions, in the past couple of years, that has changed notably, with firms increasingly willing to decline OBSI recommendations.

“In establishing OBSI, the regulators elected to not give OBSI the power to compel firms to award compensation to their clients, preferring instead to rely on the voluntary cooperation and goodwill of the firms to comply with the Ombudsman’s recommendations. Sadly for investors, this reliance appears increasingly misplaced as more and more firms are refusing to accept the Ombudsman’s recommendations,” the letter says.

The panel sharply criticizes the commission for not addressing this trend of refusals. “Ontario investors deserve better. They rightly expect their regulators to not stand by passively as the system that they put in place falters in the face of firm non-compliance,” it says. “It is long past time for the Ontario Securities Commission to address the flawed nature of the only restitution system they have made available to Ontario investors. Restitution, where warranted, must be made binding and not at the whim and goodwill of the industry that Ontario’s regulators are mandated to oversee.”

Recently, the Canadian Securities Administrators (CSA) have adopted rule changes that require all registered firms to belong to OBSI, including exempt market dealers and portfolio managers. The regulators also set up a new oversight committee. However, these rule changes did not introduce any new enforcement powers for the dispute resolution service.