So far, not much has been done following the release of an independent report five months ago that calls for an overhaul of the Ombudsman for Banking Services and Investments, the financial services industry’s primary dispute-resolution system.
In the past couple of years, the industry has grown increasingly at odds with OBSI, complaining that the service has become less a neutral arbiter of consumer complaints and more of a consumer advocate — and that the decisions OBSI is handing down are unfair to the industry.
This is despite the facts that the industry prevails in more than two-thirds of the complaints brought before OBSI, the total value of OBSI awards are comparatively tiny and OBSI can’t force firms to comply with its judgments.
Nevertheless, some investment firms have become dissatisfied enough to pull out of OBSI. Although securities regulators have denied permission for that, Toronto-Dominion Bank (which, unlike the securities dealers, is not compelled to participate in OBSI) pulled out of the service this past October, joining Royal Bank of Canada, which withdrew in 2008.
OBSI also has accumulated a backlog of “stuck” complaints — cases for which it has decided in favour of the complaining client but the firm is objecting to the decision, and OBSI is reluctant to force the issue with its only enforcement power — the ability to “name and shame” firms.
Amid this growing intransigence, a report detailing the results of a review of the embattled service by Navigator Co., an international expert in dispute-resolution services, was released in October. That report found the Canadian industry’s complaints to be without merit, saying there’s no substantive basis for the criticism and that OBSI compares well with other dispute-resolution services around the world.
But, given the growing discord, the report does see the need for fundamental reforms to put OBSI on solid ground. Among other things, it calls for regulators to enhance their oversight of the service, give OBSI binding powers over firms, make membership in the service compulsory and develop an appeals mechanism.
Since then, regulators have publicly expressed support for OBSI but have yet to act on the recommendations — although they may be getting closer to addressing a couple of them. Mary Condon, vice chairwoman of the Ontario Securities Commission, says regulators have been reviewing the report’s recommendations “with a view to fostering a sustainable ombudservice in Canada.”
In particular, Condon says, regulators are examining various policy options to respond to a couple of the recommendations — namely, the call to make membership in OBSI mandatory for all registrants and to provide some form of regulatory input or oversight of the service.
“No decisions have been made on these issues,” Condon says. “But this is where we are concentrating our attention at this time.”
Other recommendations, she adds, “raise more complex issues and challenges. And we will want to study them in greater detail before considering whether and/or how to implement them.”
Despite the lack of progress on the report’s recommendations, Tyler Fleming, OBSI’s director, stakeholder relations and communications, says: “We’ve found the engagement by securities regulators over the past year to be significant and positive.”
That said, OBSI is more critical of government and banking authorities for failing to mandate membership for banks. In fact, OBSI’s latest annual report warns that without sufficient support from government and banking regulators, it may be necessary to revive the original idea of a statutory dispute-resolution scheme.
In the meantime, OBSI is planning changes to its governance in response to Navigator’s report. Following board meetings in January, OBSI has announced that it has decided to “focus first on what is doable and within its authority, followed by continued engagement with stakeholders on the remaining recommendations.”
In particular, to address the recommendation that the OBSI board be restructured to include an independent chairman, an external search has begun for a new chairman. And OBSI will address the recommendation for a louder consumer voice on the board by developing a new director nomination and selection policy that will take account of consumer, investor and industry perspectives. These changes, which are being overseen by a new governance committee, are to be completed in time for OBSI’s next annual meeting in September.
OBSI’s board also has directed its management to develop a temporary, independent review process to try to resolve the “stuck” complaints — and promises that the details of this process will be made public soon.
Furthermore, OBSI’s board will propose revisions to its methodology for assessing suitability complaints and calculating losses. OBSI had carried out a consultation on this issue last year, largely in response to industry criticism, and is now planning changes in response. The proposed changes will be issued for a 60-day comment period that will begin soon.
However, this is exactly the sort of effort at appeasement the Navigator report warns against. As part of Navigator’s review, it examined OBSI’s existing methodology and found it to be perfectly sound. The report recommends that regulators endorse OBSI and that the industry accept it: “This unhelpful debate simply has to end.”
The report also warns that without clear regulatory support, the industry’s criticism “may ultimately leave OBSI with nowhere to go but to make a series of backward-stepping compromises.” And, the report doubts this would lead to “lasting peace,” as it believes the industry’s real problem is OBSI’s evolving role and growing independence, not its methodology.
Similarly, in a response to the Navigator report, OBSI’s consumer investor advisory council says the industry’s squabbling over OBSI’s methodology has been a waste of time and resources, adding that this resistance should end and that regulators and government should endorse the methodology.
Nevertheless, Fleming says, “Any process can still be improved upon.” Thus, OBSI will be “proposing refinements” based on the feedback it has received.
Consumer advocates also appear to be concerned about some of the plans to solve OBSI’s problems. For example, OBSI’s CIAC says the “stuck” cases should be resolved by firms complying with the ombudsman’s recommendations, not by a review of those decisions. The council also rejects the idea of introducing an appeals mechanism for OBSI decisions.
The CIAC also calls on the regulators to act quickly to reform OBSI’s governance, designate OBSI as the single provider of consumer dispute-resolution services and make its recommendations binding. IE