The ombudsman for Banking Services and Investments has proposed changes to its terms of reference — and what a brouhaha that has created!

The objections rival those on the point-of-sale proposals in National Instrument 81-406. Only this time, the industry and its trade associations are joined in their objections by their two self-regulatory organizations, the Investment Dealers Association of Canada and the Mutual Fund Dealers Association of Canada, who fear their turf is being encroached upon.

OBSI is a national, independent dispute-resolution service for consumers or small businesses with complaints they can’t resolve with their financial services firms. OBSI is funded by the financial services sector; its services are free to consumers and small businesses. It was established in 1996 as an alternative to the often costly and lengthy procedures of the legal system. To this end, OBSI works informally and confidentially to find fair outcomes to disputes about banking and investment services and products.

OBSI often finds itself between a rock and a hard place, drawing criticism from both complainants and financial services sector participants. To OBSI’s credit, it has worked collaboratively with the regulators of the financial services industry and the OmbudServices that make up the Financial Services OmbudsNetwork; in August 2007, this group produced an agreed-upon “Framework for Collaboration.”

The changes that OBSI has proposed are intended to bring its terms of reference into line with the framework principles. The proposals would also implement changes that were recommended by a recently completed independent review of OBSI, designed to improve its service and increase its accountability and transparency to its stakeholders.

What, then, is behind the fuss about fine-tuning OBSI’s terms of reference? Some of the words are problematic and have unintended consequences, but this can be remedied.

Why are the SROs, their members and trade associations accusing OBSI of overstepping its mandate and taking on a regulatory function? Why are they objecting to OBSI identifying systemic issues that underlie complaints? It’s interesting to note that a lot of the complaints OBSI deals with are founded on a failure to disclose information to clients, such as underlying strategies, product risks or fees — the same information that the point-of-sale proposals are aimed at disclosing. Complaints often involve the same financial services provider, the same sales representative and the same concerns about the investments held by the complainants who were the sales representative’s clients.

What’s wrong with OBSI reporting this on a no-names basis to the financial services provider, relevant regulators and SROs? Surely it is in everyone’s interest to address these issues before further harm is done?

You could argue — and they do — that this is the function of the regulators and SROs. But it is a function they have been slow in addressing. Only now, years after a standing committee on finance and economic affairs report told regulators to beef up complaint-review procedures, are proposals to do so being considered; but there still is no indication when these procedures will be approved or take effect.

The most troubling objections take aim at OBSI for assisting unsophisticated consumers who are unfamiliar with complaint-resolution processes to document their complaints. The basis for this objection is that it compromises OBSI’s neutrality. Obviously, OBSI will have to ensure that the same person does not perform both functions. It is, however, important to the complaint-resolution process that the facts on both sides be clearly presented. Most complainants do not have the resources or know-how that the financial service providers have to do this. The credibility of the industry, its trade groups and its SROs is strained by their intemperate responses to OBSI’s initiative, which is aimed at making OBSI’s dispute-resolution service more effective. Instead, the industry should make suggestions for additional or alternate ways that it could
do so. IE