The embattled industry ombudservice has been fighting wars on two fronts over the past year — with investment firms rebuffing its recommendations, and with banks threatening to withdraw altogether.

On the banking side, the federal government has decided to allow the banks to hire their own arbiters of client complaints.

The Ombudsman for Banking Services and Investments (OSBI) has had a bit more success on the investment side: the Canadian Securities Administrators (CSA) recently proposed rule amendments that would require all firms under its jurisdiction to participate in OBSI. Investment dealers and mutual fund dealers are already compelled to use OBSI by their self-regulatory organizations; the CSA proposed rule would force firms that are under the direct oversight of the provincial commissions, such as exempt-market dealers, scholarship plan dealers and portfolio managers, to use OBSI, too. (Some of them already do, voluntarily.)

Last autumn, an independent review recommended a series of fundamental reforms to shore up OBSI. In response, OBSI has made changes to its governance structure. And even though the review found OBSI’s suitability and loss-assessment methodology to be first rate, it has tweaked that too.

What hasn’t been addressed are the bigger changes that OBSI cannot make unilaterally, including introducing an appeal mechanism and having the power to compel compliance with its decisions.

OBSI’s only real power is its ability to “name and shame” firms that refuse its recommendations. It has used this power only twice (as of press-time), both last month; it’s intended to be a last resort, when it just can’t persuade a firm to compensate an aggrieved client.

OBSI has deployed its so-called “nukes” twice in the past month, and threatens that there are more to come. Yet, it’s hard to tell whether the naming of intransigent firms will actually produce any shame. And, the more frequently OBSI uses this power, the less effective it’s likely to be.

Regulators cannot let this situation continue. The CSA must ensure OBSI has the capability to fulfil its mandate effectively. Absent that, investors’ only real recourse will be to the courts — too costly an option for most.