The investment industry’s furor over binding authority for the Ombudsman for Banking Services and Investments (OBSI) is wildly disproportionate to the threat it represents to the industry’s bottom line. The money at stake represents the smallest of rounding errors for the industry. Regulators should ignore the tantrums and do what’s right for investors.
The Canadian Securities Administrators’ long-awaited proposal to scrap OBSI’s discredited “name and shame” approach to enforcing investor compensation recommendations in favour of binding authority has sparked a backlash from various segments of the business. Those segments complain that binding authority for OBSI would entrench an inherently unfair and financially punitive regime that favours investors and punishes industry firms.
Yet the idea that OBSI is some sort of fundamental threat and is biased against the industry doesn’t fit with the facts.
Investors lose much more than they win when they bring complaints to OBSI. In the latest fiscal year, investors prevailed in less than 30% of the cases involving complaints that were resolved. And those are just the instances in which OBSI opened a case. Most complaints go nowhere.
Of the investors who brought a complaint to OBSI during the year, just 8.2% received a compensation recommendation in their favour.
For investors who succeed, the payouts typically are small. The median compensation recommendation was just over $2,100 in fiscal 2023, and the total paid during the year was roughly $1.7 million. The largest amount an investor received was $162,000, while the smallest winner took home just $16.
The notion that these modest wins for investors come thanks to unfair processes at OBSI has been repeatedly debunked by independent reviews of the service.
Moreover, OBSI is not a tool that retail investors use to take advantage of the industry. In fact, the industry itself — not regulators or investor advocates — created OBSI.
In 2002, the industry’s major trade associations and self-regulatory organizations joined with the Canadian Banking Ombudsman to create a free, comprehensive and independent dispute-resolution service for banking and investment industry clients. At the time, this deal was a source of pride for the industry, which hailed OBSI’s creation as a sign of its growing maturity and professionalism.
That the industry now lobbies against a more credible, effective OBSI is a leap in the wrong direction.
A better dispute-resolution system is good for both investors and the industry. Regulators should tune out the whining and do the right thing.
This article appears in the March issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
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