Laura Paglia and Jonathan Preece, who recently wrote about the downside of granting binding authority to the Ombudsman for Banking Services and Investments (OBSI), are right about one thing. Regulators should examine the costs of doing so, including any effect on the cost and availability of advice.
Binding authority will carry implementation and compliance costs. Measure them. But measure the costs of the system it would replace too.
The authors ask whether OBSI’s existing role has contributed to narrower product shelves, higher account minimums or reduced access to advice, and whether binding authority would make matters worse. Fair questions. But questions are not evidence. Their column provides no evidence connecting OBSI to those outcomes or showing that binding authority would produce them.
On the other side of the ledger, there is evidence.
Cases in which firms pay investors less than OBSI recommends are relatively uncommon. But look at where those cases occur. The regulators’ own oversight committee reports in its latest annual report that about 58% of low settlements involved OBSI recommendations exceeding $50,000. In those cases, investors received an average of $65,502 less than OBSI recommended. And 12 of the 28 firms involved in low settlements since 2018 settled below OBSI’s recommendation more than once.
None of this says binding authority is costless. Nor does it answer legitimate concerns about access to advice. It makes a narrower point. The existing system has measurable costs too, and they are concentrated among investors with the largest losses.
So do the cost-benefit analysis. Measure the implementation and compliance costs of binding authority. Examine whether it would materially affect access to advice. Then put the documented consequences of non-binding recommendations on the same ledger.
What binding authority might cost investors deserves evidence. What non-binding recommendations have cost investors already has it.
