From the Regulators

Exempt market dealers and portfolio managers will now be required to use OBSI’s dispute resolution service

By James Langton |

Canadian securities regulators have finalized rules mandating that all firms use the Ombudsman for Banking Services and Investments (OBSI) to resolve client disputes. They also announced a new oversight framework for OBSI.

The Canadian Securities Administrators (CSA) today published final amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations that will require all registered dealers and advisors to use OBSI.

Currently, only firms that belong to the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) are required to use OBSI, the CSA's amendments will extend that requirement to other sorts of firms, such as exempt market dealers (EMDs) and portfolio managers.

The CSA says that mandating the use of OBSI as an independent dispute resolution service "is an important component of the CSA's investor protection framework", noting that all registered firms will now face the same requirement. Fund managers are only subject to the amendments if they also operate under a dealer or adviser registration.

"Our purpose in making the amendments is to ensure the independence of dispute resolution and mediation services, and consistency in expectations and outcomes for those services, while also setting reasonable limits on the complaints that will be eligible to be considered by an independent service paid for by a registered dealer or adviser," the CSA says in its rule notice; adding that this means complaints will be handled to a uniform standard, and that investors will know whom they should contact with complaints.

"We believe that designating [OBSI] as the common service provider for these purposes will be in the best interests of both investors and registrants," it says.

At the same time, the CSA is also pledging to step up its oversight of the ombudservice, which has faced increased criticism from both the investment industry and investor advocates in recent years. The CSA announced that it has entered into a memorandum of understanding (MOU) with OBSI that creates a new oversight framework for the dispute resolution service; and, it has established a joint CSA committee to facilitate this stepped-up oversight.

The oversight framework aims to ensure that OBSI meets the CSA's standards in areas such as governance; independence, standards of fairness; timeliness; fees and costs; resources; accessibility; systems and controls; methodologies for dispute resolution; transparency of material changes to OBSI's operations; and, information sharing with the CSA. The MOU replaces the oversight framework adopted by the CSA in August 2007.

The CSA notes that it intends to review OBSI's model for setting fees within two years, after it has developed some practical experience with its expanded mandate. "We intend to ensure that fees are set fairly across categories of registered dealer and registered adviser," it says.

The amendments announced today come into force May 1, 2014, and provides a three-month transition period, meaning that firms who are not currently OBSI members must comply with the amendments by August 1, 2014.

The requirement that all investment firms join OBSI comes at the same time as the service is embarking on an ambitious effort to step up its productivity, and clear a long-standing backlog of investment complaints. (See Investment Executive, OBSI to place greater pressure on firms, January 2014). 

"Mandating all registered dealers and advisers to offer dispute resolution services through OBSI is in the best interest of both investors and registrants. Customer complaints will be held to an independent and uniform standard that will establish a level playing field in terms of service levels, costs and outcomes," said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC). 

These amendments do not apply in Québec where the Autorité des marchés financiers (AMF) already provides a mediation service to clients of all registered dealers and advisers. The Quebec regime will remain unchanged.

OBSI notes the CSA plans will more than double its membership to almost 1,600 firms, and it  pledges to follow a fair, transparent process for setting fees and allocating costs across to its expanded membership.

"In determining membership fees, we build on the principle that no sector or registrant category should subsidize another," it says. "Each member only pays for the costs associated with resolving their membership category's complaints, along with their category's share of administration and overhead costs."

OBSI says that, in consultation with the CSA, it has established a fee of $165 per registered rep for a new membership category that includes the firms captured by the CSA's latest amendments. The existing fee models for firms that are already required to use OBSI is unchanged, it notes, and scholarship plan dealers that are already voluntary members of OBSI will have a two-year transition from their existing fee structure to the new model.

OBSI stresses that it is "committed to working closely and collaboratively with all incoming participating firms, and their industry associations, to ensure the transition to mandatory membership in OBSI goes smoothly."

Separately, it also announced that its board has approved changes to its terms of reference (ToR), such as giving up its ability to investigate systemic issues on the investment side and referring complaints involving segregated funds to the insurance industry ombudservice, among various other changes.