Consumer disputes involving Canadian securities firms should result in binding judgments from the industry’s independent arbiter rather than the current “name and shame” enforcement protocol, says a recently released report.
The independent evaluation of the Ombudsman of Banking Services and Investments (OBSI) found that the “inability to universally secure redress for consumers through the name and shame system continues to limit its effectiveness, as it provides an economic incentive for both parties to settle for amounts below OBSI’s recommendation.”
The report was authored as part of a regular five-year review of OBSI operations.
“We believe that OBSI should be given authority to render decisions that are binding on the parties to its process,” the report says. “This is consistent with international best practices and would bring more legitimacy to the system.”
The report was authored by Professor Poona Puri, a leading expert on Canadian governance and securities law, and delivered to the OBSI Board and committees, which include representatives from the Canadian Securities Administrators (CSA), Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA), whose customer disputes are funneled to OBSI.
OBSI was established to resolve disputes between consumers and securities firms at no cost to the consumer. It only has the power to recommend settlements, and only up to $350,000. In instances where the recommendations are not followed, it can “name and shame” by publishing details about the firm involved in the dispute and its findings, but cannot require compensation to the consumers.
The 2021 report concluded that OBSI had fulfilled its obligations by dealing with complaints in a timely manner, properly investigated complaints, kept parties apprised during the investigation, issued fair and proportionate decisions and that the conclusions flowed from the evidence. The report found “room to improve the current protocol for handling systemic issues,” because systemic issues are defined too narrowly and leave “consumers wondering what happens to systemic issues after they are identified.”
OBSI also provides similar services to some of Canada’s banks. Unlike securities firms, banks are allowed to choose their own external dispute resolution arbiter, though the federal government, in its most recent budget, indicated a desire to eliminate this choice.
The independent review of OBSI’s banking mandate is expected to be published in the coming weeks.