investor protection / Yellow Man

Harmed investors may finally get their complaints heard by a forum that can make enforceable compensation rulings as the Canadian Securities Administrators (CSA) set out a proposed regulatory framework for independent, binding dispute resolution.

The CSA’s proposal for beefing up the current system comes on the heels of the federal government’s decision to designate the Ombudsman for Banking Services and Investments (OBSI) as the sole provider of customer complaint resolution services for the banks. Earlier this month, the Saskatchewan government introduced legislation for binding dispute resolution.

The long-awaited proposal, which is out for a 90-day comment period until Feb. 28, 2024, proposes imposing new requirements on industry firms to provide free access to binding dispute resolution to their retail clients, and to comply with final rulings.

The regulators indicated that OBSI is expected to be designated as the independent provider of binding dispute resolution, and that the new regime would be built on its existing operations.

For instance, the new model would utilize OBSI’s existing investigation and recommendation processes, with the addition of a new, optional review stage that would allow both sides to raise issues with OBSI’s initial compensation decision before it reaches a final ruling. These final decisions would be enforceable as orders of the courts.

“Implementing a binding investment ombudservice regime in Canada would improve confidence in our markets and provide retail clients who are dissatisfied with their firm’s response to a complaint [. . .] with a fully effective system of redress that is final, fair and accessible,” the CSA said in a notice outlining the proposal.

The regulators noted that, while most retail complaints are currently resolved at the firm level, when complaints are escalated beyond these internal mechanisms there have been instances where firms have refused OBSI’s compensation recommendations. It also noted patterns of “low ball” settlements where harmed investors accept modest compensation offers for fear of getting nothing, given OBSI’s current inability to force a firm to follow its decisions.

These flaws in the existing system have been repeatedly cited by independent reviews of OBSI, which have called on the regulators to introduce binding authority as a way to resolve these failings. Investor advocates have long called for such reforms, too.

“Making OBSI recommendations binding could improve investor protection and promote increased fairness for retail clients,” the CSA said.

A more conclusive regime could also bring greater certainty to industry firms, which currently face added costs and uncertainty when complaints are dragged out, it said.

As part of the effort to improve certainty, the CSA’s proposal would restrict firms from referring to their internal complaint-handling processes as an “ombudsman” or “ombudservice” to reduce potential confusion with the independent, external service.

The model proposed by the CSA would not establish an appeal process for final decisions by OBSI, but it would allow for judicial review — which is the approach Saskatchewan recently proposed in legislative reforms.

Legislative changes would be required in the various provinces and territories to implement the CSA’s proposed new model.

The British Columbia Securities Commission (BCSC) isn’t participating in the CSA’s consultation, although the regulator indicated it’s considering legislative changes that would have much the same effect as the CSA proposals. Quebec intends to maintain its existing system of mediation and resolving investor complaints.

“While we continue to develop key areas of the regime, we are soliciting feedback from industry and retail clients to help inform this ongoing work,” said Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission, in a release.