Canada’s system for resolving investor complaints is fundamentally flawed. Now is the regulators’ chance to fix it.
Back in 2016, the most recent independent review of the Ombudsman for Banking Services and Investments (OBSI) concluded that the system is inadequate and unfair to investors. But many financial industry participants knew long before the review that OBSI’s lack of binding authority rendered the ombudservice impotent and incapable of ensuring proper dispute resolution.
Once firms were willing to be “named and shamed” rather than pay compensation to harmed investors, the jig was up. Firms then had little incentive to offer fair compensation, and clients were much more likely to accept meagre offers. The era of “low ball” settlements has cost aggrieved investors millions — and that’s not counting those who were too discouraged by the tilted playing field to bother pursuing their grievances.
As a result, Canadian investors have been abandoned to a dispute-resolution system that fails to meet international standards.
This was confirmed in the 2016 review, and despite regulators’ promises to “strengthen” OBSI since then, the organization is facing a new evaluation in much the same state as it was five years ago.
Nothing has been done to address the fatal flaw in OBSI’s design. Until that happens, no other meaningful improvements to the system are possible. There’s little point in enhancing OBSI’s loss-assessment methodology or reviewing its approach to identifying systemic issues when the regulator’s basic function — investigating client complaints and recommending compensation to harmed investors — remains hopelessly defective.
While investors are the most obvious victims of the regulators’ neglect, the industry also suffers, saddled with a system that rewards shirking and undermines investor trust.
For far too long, regulators have ignored the obvious failings in a basic mechanism of industry accountability. The new independent review must shine a light on this once again, and finally shame the regulators into action.