From the Regulators

Firms must ensure they make adequate disclosure regarding the use of internal ombudsmen

By James Langton |

 

Securities regulators are stopping short of giving the Ombudsman for Banking Services and Investments (OBSI) the power to make binding investor compensation recommendations — instead, they are warning them that they may face increased regulatory scrutiny for resisting OBSI's recommendations.

In a joint notice published Thursday, the Canadian Securities Administrators (CSA), the Investment Industry Regulatory Organization of Canada (IIROC), and the Mutual Fund Dealers Association of Canada (MFDA), are highlighting their concerns with current industry complaint-handling practices.

Firms that refuse OBSI recommendations, or provide clients with "low-ball" settlements, may face increased attention from the regulators themselves, the notice says. While not every instance of refusing an OBSI decision will necessarily attract regulators' attention, they warn that a pattern of resistance may well.

"The likelihood that staff would conclude that enquiries or a review is warranted will be significantly higher if a firm has shown a pattern of either refusing to compensate clients after recommendations by OBSI or settling matters at discounts from OBSI's recommendations," the joint notice says. A review by a provincial regulator or one of the self-regulatory organizations could lead to enforcement action, or conditions being sought on a firm's registration, the notice adds.

Regulators are also flagging the issue of firms using "internal ombudsmen" as an additional form of dispute resolution. Earlier this year, the investor advocacy group, the Canadian Foundation for Advancement of Investor Rights (FAIR Canada) and the consumer group, the Public Interest Advocacy Centre (PIAC), warned that this practice is potentially misleading and confusing to investors, and that it could be harming their access to redress.

Read: No more internal ombudsmen?

Some of these concerns are echoed in the joint notice from regulators, which calls on firms to ensure that they are treating clients fairly and that they make adequate disclosure regarding the use of internal ombudsmen, and that disclosure about OBSI's services is given "at least equal prominence", among other things.

"It is never an acceptable practice for a firm to operate its complaint handling system in a manner in which investors are being misled or worn down," the notice says.

"We expect firms to participate in OBSI's dispute resolution process in a manner consistent with their obligation to deal fairly, honestly and in good faith with their clients and to respond to each customer complaint in a manner that a reasonable investor would consider fair and effective," said Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers, in a statement.

Last year, an independent review recommended that OBSI be given the power to make binding compensation recommendations, among a series of other proposed reforms designed to shore up the dispute resolution service. The regulators have yet to follow through on those recommendations.

In the joint notice, regulators say they are "continuing to consider options for strengthening OBSI's ability to secure redress for investors".

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