An independent review of the Ombudsman for Banking Services and Investments (OBSI) has concluded that OBSI should be given the authority to impose its compensation decisions on the investment industry.
OBSI released a report on Monday detailing the results of an independent review carried out by the former New Zealand Banking Ombudsman, Deborah Battell, which examines how well OBSI is carrying out its mandate to resolve complaints from investment industry clients. The report, which does not assess the banking side of OBSI's operations, concludes that OBSI is functioning well as a dispute-resolution service, but that it does not meet the true definition of an ombudsman. The report then recommends that regulators should empower OBSI to become a true ombudsman.
OBSI differs from "comparable international financial sector ombudsmen in that it does not have the authority to bind firms to observe its compensation recommendations (binding authority)," the report notes. "This drives its operating model and prevents it from fulfilling the fundamental role of an ombudsman, securing redress for all consumers who have been wronged."
OBSI's power of "naming and shaming" firms that refuse its compensation recommendations has actually proven to be counterproductive, the report states, as it has broadcast OBSI's limitations and undermined public confidence in the dispute-resolution system and in markets, generally. The report notes that in 2015, 18% of clients with valid complaints received less from the firm than OBSI recommended.
"The real mischief, however, is not that some consumers receive less, but that OBSI's current mandate allows this to happen," the report says. "It, in effect, tilts the playing field in favour of firms. The fact this is happening in a complex industry that has a significant impact on people's well-being, and in which customer literacy is generally low, is of concern."
Moreover, the limitations of OBSI's mandate have created an "operating model that is inherently inefficient — it is overly focused on resolution through negotiated settlements rather than judicious use of determinations," the report notes.
As a result, it takes longer to resolve complaints and poses a risk of creating future backlogs. This leaves OBSI unable to fulfil an ombudsman's role of improving the industry, preventing future complaints and bolstering investor confidence.
"Because its current resources are consumed by the resolution process, OBSI has little left to help consumers, firms and regulators learn from the cases resolved or to identify more widespread issues and trends," the report notes. "[I]t's more difficult to confidently promote a service that is unable to assure and secure redress for consumers."
Ultimately, as a result of these shortcomings, the report concludes that "OBSI is not a true industry ombudsman, it is a dispute-resolution service."
Now, it will be up regulators to decide whether OBSI remains in this more limited role, the report says, or whether it should be empowered to become a genuine ombudsman.
The report concludes that OBSI is up to fulfilling a more meaningful role in the industry and it recommends that regulators pursue this by giving OBSI binding authority — along with an internal appeal process.
The report also recommends that OBSI introduce the option of making earlier decisions on complaints; that it employ an independent expert to review its approach to the aspects of its loss calculation methodology that remain contentious; and that it develop guidance for the industry on how it will implement a process for identifying systemic issues and alerting regulators.
"We look forward to working collaboratively with consumer and investor groups, participating firms, industry associations, and regulators on opportunities for improvement," says OBSI's chairman Fernand Bélisle in a statement welcoming the report. "We have successfully fulfilled our public interest mandate as the ombudsman for investments complaints and we will continue to evolve to meet the needs of investors and the industry."
In response, the Joint Regulators Committee (JRC) — which includes the Canadian Securities Administrators (CSA), the Mutual Fund Dealers Association of Canada and the Investment Industry Regulatory Organization of Canada (IIROC) — issued a statement saying it will be reviewing the report, but did not commit to following its recommendations.
"The JRC will be meeting with OBSI staff later in June, and the OBSI board in September, where we expect to learn more about OBSI's position on the report's findings and recommendations," the JRC's statement says. "In the meantime, we will begin analyzing the findings and recommendations, along with other stakeholder input, in considering next steps in response to the report."
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