The besieged financial industry ombudservice says that if it doesn’t get the necessary government and regulatory support, its future may be in doubt.

In its annual report released Friday, the Ombudsman for Banking Services and Investments doesn’t shy away from the controversy that has dogged the service over the past year. OBSI has been meeting with increased industry resistance to its efforts, culminating with TD Bank’s withdrawal from the service late last year. An independent review of OBSI found no real merit to the industry criticism, and it recommended sweeping reforms designed to shore up the organization’s status as an independent dispute resolution service. However, governments and regulators have yet to take up those recommendations.

In the report, OBSI chairwoman Dr. Peggy-Anne Brown warns that OBSI’s very survival may be at stake. While it lauds investment industry regulators for refusing to bow to pressure to allow firms to drop out of the service, it says that without either industry, or government, support, “A small non-profit organization cannot hope to survive.”

“In the absence of sufficient industry co-operation and support, government and regulators must step in, as they have clearly done for the investment sector, to support a fair, independent and impartial reviewer of bank complaints,” it says, and, if they don’t, it suggests that it may be time to revive the original plan. “A statutory dispute resolution scheme, may be preferable,” it says.

In addition to all of the controversy over its future, OBSI also reports that it saw the first instance of a bank refusing a recommendation to improve practices and provide compensation to consumers, after it uncovered a systemic issue, last year. And, as a result, consumers won’t receive the compensation OBSI considers fair and reasonable under the circumstances.

OBSI reports that in its first full year of reviewing potential systemic issues, it identified 10 possibilities, of which seven were deemed not to be systemic concerns, and the other three (which were deemed systemic) were all with one firm and all involved a lack of disclosure in mortgage documentation.

Despite all the resistance OBSI faced from the industry last year, it also says that it saw its complaint volume go down last year, both on the banking and investments side. Banking complaints were down 14% from the previous year; and, it says, the focus of complaints has shifted from the calculation of interest rate differentials on mortgage prepayments to service issues and fraud as the top issues.

Investment industry complaints also dropped sharply, by 28%. Yet, OBSI reports that complaints about exchange traded funds, and in particular leveraged ETFs, are on the rise. “Many leveraged ETFs are complex, high-risk investments. It is important that advisors know their product and only recommend leveraged ETFs to those clients for whom they would be suitable,” it says.

In total, OBSI says it recommended compensation in 233 cases in 2011, worth almost $3.2 million in total. This represents 26% of all closed cases, it says, adding that just 15% of banking complaints were upheld, versus 37% of investment complaints. Banking complaints were also resolved much faster, with 87% of cases concluded within 180 days, compared with just 26.5% for investment files.

Still, the drop in complaints, and the clearing of a backlog of investment complaints (which was completed on time and under budget) also means that OBSI’s budget will decline for the first time ever in 2012 (by 4%).