OBSI sticking with ‘name and shame’

From the industry side, OBSI says, that some have suggested that the recent increase in refusals reflects a campaign by OBSI against the industry, or particular firms. “Such beliefs are mistaken,” it says. In fact, OBSI notes that the process of publicizing refusals “represents an obligation placed on OBSI” when it was first created. “It was the power that the financial industry and regulators gave us to incent cooperation, though most expected that it would never need to be used,” it says.

Conversely, investors and investor advocates have complained about OBSI’s inability to impose its recommendations. Yet, the dispute resolution service indicates that this likely won’t change anytime soon. “OBSI and the financial regulators who oversee us will continue to evaluate the impact of the compensation refusal announcements, both on firms and the complainants who come to OBSI. But for the foreseeable future, OBSI’s principal tool to incent cooperation will continue to be so-called ‘name and shame’,” it says.

OBSI then goes on to enumerate some of the factors that it has observed as featuring in firms’ responses to its recommendations. For one, it reports that involvement by senior management at investment firms often helps resolve cases. “We recommend as a best practice that complaint-handling staff at firms make their senior management aware of the details of a refused OBSI recommendation and the implications of this refusal at the earliest opportunity,” it says.

OBSI also reports that many of the recent refusals stem from older complaints that are only now working their way through its process, that they tend to involve smaller firms, and that the type of insurance a firm has may influence their willingness to accept a compensation recommendation.

In terms of the higher incidence of refusals at smaller firms, this may reflect the business environment for these firms, OBSI suggests. “While not all of the refusals can be linked to financial difficulties at the firms in question, we note that several of the firms involved were either in the process of deregistering or winding down operations, were suspended from their self-regulatory organization (SRO), or otherwise existed as a going entity in name only,” it says, adding that both OBSI’s board and the regulators “will continue to monitor the implications of these circumstances for the effective functioning of OBSI’s mandate.”

Additionally, the sort of errors and omissions (E&O) insurance that firms carry can also impact their willingness to refuse OBSI’s recommendations, it says. In some cases, firms’ insurance only covers binding decisions, such as court orders, and not voluntary payments — which can make a firm more likely to refuse an OBSI recommendation.

“It has been our experience that cases involving firms that lack E&O insurance covering OBSI settlements, or where there is some doubt as to whether they would be covered, tend to be more drawn out and/or more likely to end in a compensation refusal,” it notes.

With that in mind, OBSI says that firms should review their E&O policies “to make sure that voluntary payment of compensation recommended by OBSI is covered.” And, it says that it is willing to speak with insurers directly to help them understand its role and process.

Finally, OBSI says that some firms have suggested that it should keep producing full investigation reports in all cases, which is something it has stopped doing for cases where it’s clear that compensation won’t be paid. “We have no doubt that there are other firms who would object to such a move, but we do wish to note that there are various views amongst industry stakeholders as to what the best approach would be,” it says.