An independent review of the Ombudsman for Banking Services and Investments (OBSI) called for fundamental reforms at the dispute-resolution service, yet regulators have offered only a modest change – and even that is sparking vocal opposition.
Amid a couple of tumultuous years for OBSI – during which the ombudservice has faced strident criticism from the financial services industry, the attempted withdrawal of several investment firms, the withdrawal of one of the big banks and the publication of an independent report that recommends major changes – the Canadian Securities Administrators (CSA) have been rather quiet on the subject.
Although the CSA has voiced public support for OBSI, the regulators have offered in little in the way of the significant reform recommended by an independent review published in the autumn of 2011. That review called on regulators to give OBSI the power to enforce its decisions, and to introduce an appeal process and provide greater oversight.
But thus far, all the CSA has done is propose a rule that would require all of the firms under its jurisdiction to join OBSI. Currently, only firms that belong to the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada are required to participate in OBSI. The CSA’s proposal would extend this requirement to all firms under its direct supervision, including portfolio managers, scholarship-plan dealers and exempt-market dealers (EMDs).
However, those firms are not too pleased with that idea. In comments submitted to the CSA, they maintain that: they should continue to have choice in the dispute-resolution service they use; OBSI shouldn’t be given a monopoly in this realm; and that OBSI isn’t well suited to handling complaints from their sectors.
As the Exempt Market Dealers Association of Canada (EMDA) says in its comment: “OBSI has endured years of controversy” over the application of its suitability and loss-assessment methodology. The EMDA’s comment also points out that this is in cases that typically involve straightforward, liquid securities. The comment questions whether OBSI staff will be able to deal with complaints involving illiquid exempt market securities properly, having no benchmarks to follow and more complex suitability situations.
“We believe this is a critical issue for EMDs and speaks to the incapacity of OBSI to service the complexity of EMD client complaints,” the EMDA comment says, adding that it appears that OBSI staff do not understand the exempt market and, without first developing that expertise, the CSA’s proposal is premature.
The Portfolio Management Association of Canada‘s comment says OBSI isn’t suitable to resolve complaints for portfolio managers, either: “We do not believe it is the appropriate time in [OBSI’s] business life cycle, nor in the best interest of the evolving needs of all investors, to expand [OBSI’s] mandate beyond its current scope.”
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