Canada’s financial sector ombudsman needs stronger powers to force financial firms to pay up when it orders compensation awards for clients, an independent review report recommends.
Deborah Battell, the former New Zealand banking ombudsman who was appointed to review Canada’s Ombudsman for Banking Services and Investments (OBSI), issued a report Monday saying some investment firms are refusing to pay compensation to clients when recommended by OBSI while others are only paying a portion of the recommended amount.
Ms. Battell said that unlike other financial sector ombudsmen in several other countries around the world, OBSI has no authority to compel payments, which “tilts the playing field in favour of firms.” As a result, OBSI’s operating model is “overly focused” on resolving cases through negotiated settlements, she said, which leads to longer resolution times.
“In our view ... OBSI is not a true industry ombudsman, it is a dispute resolution system,” Ms. Battell said.
“Regulators must now decide whether OBSI is to remain with its current limited mandate – and therefore limited effectiveness, efficiency and value – or whether it becomes a full-value ombudsman service. In our view, OBSI is ready to take this next step.”
Since 2011, 18 firms have refused to pay settlements recommended by OBSI after the agency reviewed customer complaints. In 2015 alone, 18 per cent of complainants received settlements that were lower than OBSI recommended and 3.5 per cent were not paid at all.
Ms. Battell’s review was commissioned by OBSI’s board as part of a requirement to undertake an independent evaluation of its operations within two years after the organization received expanded powers from Canada’s securities regulators in 2014.
A joint committee of Canada’s provincial securities regulators and the self-regulatory organizations for Canada’s brokerage and mutual fund industries – who together monitor OBSI’s governance and operations – issued a statement Monday saying the group would analyze Ms. Battell’s recommendations and meet with OBSI “in considering next steps in response to the report.”
The committee said its members “strongly support OBSI as the dispute resolution service, and expect registrants to abide by their obligations by participating in OBSI’s services in a manner consistent with their obligations to deal fairly, honestly and in good faith with their clients.”
OBSI was created 20 years ago and helps consumers and small businesses with complaints they have been unable to resolve with a financial firm. It is a free alternative to using the legal system, but OBSI can only recommend compensation to a maximum amount of $350,000.
Susan Copland, managing director of the Investment Industry Association of Canada (IIAC), an industry association for brokerage firms, said her organization is opposed to expanding OBSI’s power without a system to allow payment orders to be appealed to an independent panel.
Ms. Copland said IIAC also does not support a recommendation to raise OBSI’s compensation limit to $500,000, saying it “is simply too high” without having due process safeguards built into the system.
But investor advocate Neil Gross, executive director of the Canadian Foundation for Advancement of Investor Rights, said it is important for OBSI to have powers to make binding decisions both to help victims and to maintain public confidence in the capital markets.
“Canadian regulators need to turn this around,” he said Monday. “They need to devise a workable mechanism for the OBSI process to result in binding decisions, and they need to get that mechanism up and running soon. This can’t wait for another five or 10 years.”
While OBSI has published names on its website of firms that have refused to make payments, Ms. Battell said the public “naming and shaming” has turned out to be counterproductive. She said the publicity has reinforced OBSI’s limitations and has undermined public confidence in the agency, but has caused less reputation damage to the firms that aren’t paying.
“This is a shame, as OBSI has been effective for 82 per cent of complainants who have been assessed as requiring compensation,” she said in her findings.
Ms. Battell said she also investigated concerns voiced by industry players about OBSI’s approach to calculating losses, but said the criticisms “appeared to have morphed into mythology.”
“We say mythology because we looked carefully for evidence to substantiate these long-held concerns but found very little basis for criticizing OBSI’s decisions,” she said. “In fact, we think firms should have a high degree of confidence.”Report Typo/Error