The Ombudsman for Banking Services and Investments (OBSI) has already named four firms this year that have refused to comply with its recommendations for client compensation payments. Two of those cases are particularly disturbing because the firms told OBSI in advance that their refusal to pay was final and wouldn’t be changed no matter what OBSI concluded or recommended.

In effect, these two dealers unilaterally turned OBSI’s review into an exercise in futility. This isn’t just an escalation of the standoff that’s developed over the past few years between several dealers and OBSI. It goes far beyond that, crossing the line from disagreement to non-compliance with securities laws.

Three years ago, the Canadian Securities Administrators, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada all affirmed that there was to be a single, national, independent dispute-resolution service for securities-related complaints — and OBSI was to fulfill that mandate. In this fashion the entire regulatory community served notice that it expected dealers to participate in the OBSI program and do so in a meaningful way.

In fact, more would be required than just handing over documents and answering questions in rote manner. Meaningful participation demands engagement, so it should be obvious that showing up with your fingers in your ears is not what the regulators had in mind. And likewise those who recently declared in advance that they wouldn’t even consider what OBSI had to say surely must have known they were making a mockery of the whole process.

It’s important to note that these weren’t situations in which the dealers respectfully disagreed with OBSI’s conclusions on a reasonable basis and therefore declined to accept the recommendations. These were up-front, dismissive refusals to acknowledge the basic validity of the dispute-resolution process itself.

This should not go unanswered. Not when Securities Acts, regulations and rules across the country require investment firms to deal with their clients “fairly, honestly and in good faith” — an obligation that extends to dealing with customer complaints. Dealers who refuse to participate meaningfully in a regulator-mandated dispute-resolution process, or, worse, dealers who thumb their noses at that process in advance, are fundamentally not acting in good faith. They are deliberately subverting the process.

What remains to be seen is the official response to this tactic. Will regulators enforce the law requiring dealers to act in good faith?

A failure to enforce it will likely embolden more and more dealers to say “no” from the get-go, rendering complaints to OBSI increasingly pointless. In short order investors will just stop coming to OBSI and it will wither away from lack of business.

The aftermath is bound to be stark. Those who can afford lawyers will take their claims to court or arbitration, but those who can’t afford it — far too many — will simply have no avenue to seek redress. Their complaints will never get a hearing and they’ll feel they’ve been denied justice. More broadly, consumer trust in the fairness of the financial system will be diminished.

It’s a bleak prospect; but it doesn’t have to end that way, and it shouldn’t.

Instead, immediate and strict enforcement action should be taken against dealers who deliberately subvert OBSI, sending an unmistakable message that such conduct breaches the good faith requirement of securities law and won’t be tolerated.

For the longer-term, however, a more stable atmosphere is needed and that’s something you can’t build using the cudgel of prosecution. What’s really needed is fundamental change to OBSI. If regulators truly want the investing public to have access to a workable dispute-resolution system, one that can’t be undermined, then that system must be redesigned and retooled to yield binding decisions rather than mere recommendations backstopped by an ineffective “name and shame” protocol.

Other significant jurisdictions such as the U.K., Australia and New Zealand have incorporated binding decision-making into their programs and there’s no reason why Canada can’t do so, too, if appropriate procedural safeguards are implemented.

But these measures can’t be put off. The current system is dysfunctional and in outright disarray, and leaving it in place amounts to hanging OBSI and investors out to dry. That should not be their fate. The regulators themselves have a responsibility, in good faith, to take the steps necessary to prevent it — swiftly and decisively.