These are hard times for our court of last resort in disputes with the investment industry.
It’s not the fact that Toronto-Dominion Bank said Wednesday it will no longer have the Ombudsman for Banking Services and Investments (OBSI) handle unresolved banking disputes with its customers. Starting Nov. 1, TD will use a rival service called the ADR Chambers Banking Ombuds Office.
Nor is it the fact that a small group of financial firms have said they don’t like the way OBSI handles the more complex and expensive claims associated with investing complaints.
No, OBSI’s real trouble is that no one in this country will stand up for it publicly and affirm its essential role in giving Canadians an impartial, zero-cost place to take disputes with the financial industry. OBSI does that. Not perfectly, but that’s to be expected. A neutral entity standing between profit-hungry financial firms and aggrieved investors is bound to displease both parties at times.
The OBSI drama is a perfect example of the stunted investor-protection culture in Canada. Regulators, bankers and investment industry people are effectively deciding what happens to the organization without any communication or consultation with the investing public it’s designed to serve.
Mind you, OBSI has always been a kind of orphan. It was formed by the banks in 1996 after the federal government threatened legislation forcing the creation of an dispute-resolution service for bank customers. Still funded by the financial industry, OBSI is today run by a board of three industry representatives and seven independents.
Ever seen a TV commercial for OBSI, or a magazine ad? The federal government-based Canada Deposit Insurance Corp., does this stuff all the time, but not OBSI. No one in power speaks for it.
Given that Royal Bank of Canada pulled its banking business out of OBSI three years ago, the TD announcement is mostly symbolic. “For most of the clients that we deal with day to day, there is no impact at all,” ombudsman Doug Melville said. “From a volume standpoint, they [TD]are the largest source of our complaints.”
OBSI’s much bigger issue is that several big firms – TD Waterhouse, RBC Dominion Securities and Manulife Financial – don’t like the way it handles investment disputes. Earlier this year, they sought the freedom to find an alternative.
Thankfully, a regulatory leash held them back. As members of the Investment Industry Regulatory Organization of Canada (IIROC), these firms must participate in OBSI.
IIROC says it’s working with other regulators and OBSI to address the issues raised by the rebellious financial firms. But OBSI needs more. First, it needs an endorsement that it’s a fixture in the Canadian financial landscape and will not be manhandled by the very firms it must stand up to as part of its work.
Securities regulation is a provincial jurisdiction, but it would still be nice to hear Finance Minister Jim Flaherty back up OBSI. Securities regulators could do likewise. We just need a public statement saying OBSI has their full support.
OBSI’s Mr. Melville seems generally satisfied with the job regulators are doing in protecting his organization. “We’ve seen on the investment side that regulators have sent a clear signal of their support for a strong dispute resolution service. They’ve satisfied themselves that the industry should be working with us.”
Still, he wants regulators to do more. For example, he said there needs to be “closer engagement” between regulators and OBSI to ensure the organization is working effectively. He’d also like a mechanism for resolving disputes between OBSI and the financial industry.
The predicament OBSI is in right now was nicely summed up in a recent independent third-party analysis of the job it’s doing. While praising OBSI’s operational effectiveness, the report noted “a much less happy [story]that sees a storm of criticism and key stakeholders campaigning for OBSI’s demise.”
Criticisms of OBSI from within the financial community focus mainly on the way it calculates losses. Simply put, judgments in favour of investors are too high.
The independent review of OBSI’s operations, by an Australian company called The Navigator Company, doesn’t buy this, however. “OBSI has come in for sustained criticism of its investment complaints methodology, however we found no substantive basis for the criticisms,” the document said. “To the contrary, we found the methodology to be world-leading in some respects.”
If we had a strong culture of investor protection in this country, we’d celebrate an evaluation like this. Instead, OBSI has been put on the defensive by a financial industry that knows just how to play these confrontations. Anyone out there care to speak up for OBSI?
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