An Ontario government task force is pushing the province to set a national standard for protecting investors by giving a revamped ombudsman the power to make binding decisions and award more generous compensation for successful complaints against investment firms.
The task force urges Ontario’s government and securities regulator to designate a service for resolving customer disputes and give it new authority within a year. That could help bolster customers’ recourse against investment managers and resolve long-standing concerns that the current system puts some customers at a disadvantage when pressing complaints.
The Ombudsman for Banking Services and Investments (OBSI) is a national body that resolves disputes between investment firms and their customers, and also among some banks and their retail banking clients over issues such as credit card fraud, fees or penalties on mortgages. But banks and investment dealers are not bound by OBSI’s decisions, and have sometimes ignored its guidance or offered less generous settlements.
The recommendation is set out in a recent report by the Capital Markets Modernization Taskforce, which also called for an overhaul of Canada’s largest securities regulator, the Ontario Securities Commission (OSC). The proposal – which focuses only on OBSI’s mandate to hear complaints from clients about investment firms, and not its role as a banking ombudsman – is an attempt to spur action on an aspect of investor protection that has long been discussed but is still unresolved. But it is fraught with complexities as Ontario pushes for changes that may require buy-in from other provinces and regulators across Canada.
The task force recommends that either OBSI be revamped, or that a new Ontario-made dispute-resolution body be created from scratch, with powers to issue binding orders and raise the maximum compensation that can be awarded from $350,000 to $500,000.
It is the report’s “cornerstone” recommendation on investor protection, said task force chair Walied Soliman, who also chairs Bay Street law firm Norton Rose Fulbright Canada LLP. “I do believe that the bar will be raised and that this will become the standard across the country,” he said in an interview.
In a 2019 assessment, the International Monetary Fund (IMF) criticized Canada for not offering investors an ombudsman that can make binding decisions – a recourse already available in countries such as Britain and Australia.
“This has been a known problem for many years, and it calls into question the fairness and integrity of the system,” said Jean-Paul Bureaud, executive director of investor advocacy group FAIR Canada, in an interview. “So I think it’s entirely appropriate to have a call to arms.”
The task force is hoping to force a resolution, at least in Ontario. But in consultations, stakeholders were divided on whether OBSI is the right body for the job. Investment firms want OBSI to show more transparency about its decisions and recruit more experts with market experience.
Most of Canada’s major banks, which own large investment dealers, did not comment on the proposal in submissions to the task force. But Royal Bank of Canada expressed concerns that the changes would shift OBSI’s role as “impartial arbitrator” to one with “attributes of a regulator,” and could create delays by causing more investors to turn to OBSI.
“We are encouraged by the Task Force recommendation to require investment firms to pay fair compensation to harmed investors when warranted,” OBSI spokesperson Mark Wright said.
Mr. Soliman said “Plan A” is to revamp OBSI with the proposed new powers. Building an entirely new entity would be the backup plan, if OBSI and other authorities across Canada can’t agree on how to proceed. The task force is asking the OSC to present a plan to Ontario’s government within six months, and start making changes by early 2022.
“The bottom line is investors need to have this protection, and [investment firms] are also entitled to the expertise and transparency that they so desire,” Mr. Soliman said.
If successful, a strengthened ombudsman could help level potential power imbalances when investors square off against large firms. In 2018 and 2019, 7 per cent of 316 OBSI cases that resulted in financial compensation were settled for lower amounts than OBSI recommended, by a total of $1-million.
If Ontario is forced to go it alone, however, it could further splinter an already inconsistent regime for resolving consumer complaints. For disputes over retail banking issues, which don’t involve investment firms, Canada’s three largest banks have opted out of OBSI to use an alternative dispute-resolution provider, ADR Chambers Banking Ombuds Office (ADRBO), for example.
Through a spokesperson, Ontario Finance Minister Peter Bethlenfalvy said he is “carefully reviewing and considering the recommendations” from the task force. OSC spokesperson Kate Ballotta said the securities regulator is “well-positioned to implement any recommendations adopted as government policy.”
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James Bradshaw