The Ombudsman for Banking Services and Investments can make recommendations to settle disputes. However, the recommendations are not binding, which means that securities firms can refuse them without facing any meaningful consequences.Adrien Veczan/The Canadian Press
Grant Vingoe is the chief executive officer of the Ontario Securities Commission.
Andrew Kriegler is the chief executive officer of the Canadian Investment Regulatory Organization.
As the cost of living continues to rise and fewer Canadians have employer pensions, more investors are relying on our capital markets to meet their financial goals.
The Canadian financial system does an excellent job of serving a wide range of investors, with many options available – from do-it-yourself investing platforms to full-service advice channels. However, the system falls short when investors have a complaint against a securities firm or its advisers that may have placed their money in inappropriate investments or caused them to otherwise suffer loss, damage or harm.
The Ombudsman for Banking Services and Investments, which capably administers an external dispute resolution system, lacks the powers it needs to ensure investors are treated fairly in these cases. The system today allows for the ombudsman’s office to review complaints from investors who are not satisfied with their securities firm’s final response.
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As an independent service, the ombudsman can make recommendations to settle disputes. However, the recommendations are not binding, which means that securities firms can refuse them, or offer lowball settlements, without facing any meaningful consequences.
Consider the real case of a widow with minimal financial knowledge, who struggled to provide for her family through her low-income job after the unexpected death of her husband. After entrusting an adviser to invest the proceeds of her husband’s modest life insurance policy and investments, she discovered several years later that she had incurred a loss of more than $130,000 from investments that were far riskier than what she had agreed to. Her adviser had also received more than $40,000 in undue commissions from excessive trading.
After factoring in what she could have earned had her funds been invested appropriately, the ombudsman awarded the widow more than $220,000 in compensation, which the adviser’s firm simply refused to pay. After waiting months for resolution, she reluctantly accepted a low-ball settlement of $40,000 owing to her poor financial situation.
This is unacceptable. Securities firms typically have an overwhelming advantage in resources to outlast small investors in a prolonged process that can leave claimants financially and emotionally worn down. The ombudsman can only publicly release the names of the firms that refuse their recommendations, but this name-and-shame system is not enough to meet a reasonable standard of investor protection.
Other alternatives are not readily available to investors; they can sue in court, but the cost of litigation is typically far greater than the potential compensation, and therefore not practical.
Most securities firms operate with integrity and treat investors with respect in the case of a dispute. These firms’ reputation is tarnished by the minority of firms that exploit harmed investors with impunity for their own financial gain. The investment industry will benefit from a stronger system for redress that fosters trust and confidence in their relationships with their clients and regulators.
Canadian investors deserve a fair, efficient and meaningful system of redress that aligns Canada with international best practices for dispute resolution and investor protection.
It is for this reason that in November, 2023, the Canadian Securities Administrators published for public comment a proposal to give the ombudsman’s office the authority to make binding and enforceable decisions on investment disputes between retail clients and securities firms. The CSA is now reviewing the valuable insights received to inform the next steps of the proposal. In its recent spring budget, the Ontario government expressed its support for a modernized dispute resolution framework for investors.
We strongly support the CSA’s proposal, which presents a dispute resolution system that is efficient, accessible and impartial. It has the right checks and balances to ensure fairness by allowing both parties to object to the ombudsman’s initial recommendation, to raise issues with the office’s investigation or methodology, and to participate in a second-step review stage. And while the widow’s case involved a relatively large sum of money, most disputes involve far less. The ombudsman’s average recommendation is about $10,000 – a nominal amount to most securities firms, but real money to ordinary Canadians.
The Ombudsman for Banking Services and Investments is a crucial part of our regulatory system designed to provide fair dispute resolution for investors, but the office needs the proper tools to do its job.
Canadian consumers already have access to independent dispute resolution services that offer binding decisions in both the airline and telecom industries. Given the importance of financial health to Canadians, it is time to question why this mechanism does not exist for securities firms that have not met the standard of care expected of them.