OBSI proposes changes

Now, OBSI is proposing to make several changes in response to the feedback it has received. Most of the proposed changes will revise how OBSI calculates losses in situations in which it finds that clients deserve compensation. OBSI isn’t proposing to alter how it investigates complaints or determines suitability.

Perhaps the biggest proposed change is to stop estimating how a client’s portfolio would have performed if it had been suitably invested based on investments the client already holds. Instead, OBSI is proposing to make those calculations based on the performance of a suitable index.

In the past, OBSI has used both indices and existing suitable investments to make these calculations. And in OBSI’s latest paper, it notes that its preference is to use actual investments in the belief that this best represents how clients probably would have invested their money if they hadn’t been in an unsuitable investment.

OBSI says it has been advised to use indices instead, because that method typically is used in privately settled disputes and by the courts. OBSI indicates this change will increase the speed and predictability of its calculations.

The other proposed changes also address OBSI’s loss-calculation procedures. The service is planning to take fees and trading costs into account when making suitable performance comparisons – something it has done when using actual investments to calculate losses, but not when using an index as a benchmark.

OBSI also will add interest to losses only in cases in which OBSI is recommending compensation – not for facilitated settlements. Further, OBSI will provide firms with working versions of its loss-calculation spreadsheets during its investigation.

OBSI also is proposing to adopt voluntarily a limitation period of six years for complaints. Currently, it’s not subject to statutory limitation periods; but, it says, the lack of a limitation period has been pointed out by firms (and was noted by an independent review of OBSI published last autumn). So, OBSI is proposing to adopt a limitation period that would run from the time at which an investor knew or ought to have known there was a problem.

It remains to be seen whether these proposed changes are enough to calm some of the industry’s complaints with OBSI and put the service on track to a more sustainable future. Comments are due by July 9.

Last autumn, the independent review suggested that OBSI was in an increasingly untenable situation, given the growing lack of industry support for the service.

However, that review also found that the industry complaints were largely unwarranted and called on regulators to shore up OBSI with a series of fundamental reforms. That hasn’t happened yet.

Indeed, since that report was issued, OBSI has been weakened by the withdrawal from the service by another big bank. Furthermore, the federal government has declined to compel the banks to participate in OBSI, leaving them to hire their own dispute-resolution services – a move that has outraged consumer groups such as the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) and the Public Interest Advocacy Centre, both of which have called on the government to make OBSI mandatory for the banks.

Securities regulators haven’t done much for OBSI, either, although they continue to make more promising noises. Regulators have rebuffed efforts by investment dealers seeking to leave OBSI; they’ve tried to push the resolution of so-called “stuck” cases, in which firms have indicated that they intend to refuse OBSI’s recommendations; and have said they are looking at making OBSI mandatory for all firms under their jurisdiction – not just investment dealers and mutual fund dealers. But the regulators have yet to address some of the more important recommendations of the independent review.

The regulators “support the concept of an independent complaint-resolution service strongly,” says Mary Condon, vice chairwoman of the Ontario Securities Commission, adding that the Canadian Securities Administrators is continuing to examine the review’s recommendations and evaluate its policy options. “While no decisions have been made, we are concentrating our attention on the issue of governance and mandatory participation.”

Meanwhile, OBSI is undertaking its own governance improvements in response to the independent review. Tyler Fleming, OBSI’s director of stakeholder relations and communications, says OBSI has begun consultations on a new governance framework, which will be considered at its next board meeting on June 5. The framework includes reforms to the process for selecting directors, term limits for directors and provisions to ensure board independence.

OBSI also hopes to find a new chairman in time for the board meeting and will begin recruiting two new directors after the new governance framework has been adopted. OBSI also is shortlisting candidates to review and, hopefully, resolve the “stuck” cases.IE

© 2012 Investment Executive. All rights reserved.