The Canadian Securities Administrators (“CSA”) and the Canadian Investment Regulatory Organization (“CIRO”) recently published the Annual Report (“Report”) of the Joint Regulators Committee (“JRC”) of the Ombudsman for Banking Services and Investments (“OBSI”), which highlights the primary activities that the JRC conducted in 2022.
Background
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations requires all registered dealers and advisers to make OBSI available to their clients as their dispute resolution service, except in Québec where dispute resolution services are administered by the Autorité des marchés financiers. The CSA and OBSI have signed a memorandum of understanding (“MOU”), which provides an oversight framework intended to ensure that OBSI meets the standards set by the CSA. The JRC consists of representatives from the CSA and CIRO whose mandate is to:
- facilitate a holistic approach to information sharing and monitor the dispute resolution process with an overall view to promoting investor protection and confidence in the external dispute resolution system;
- support fairness, accessibility and effectiveness of the dispute resolution process; and
- facilitate regular communication and consultation among JRC members and OBSI.
Report Highlights
The JRC’s activities in 2022 included the consideration and advancement of the following matters:
- Independent evaluation of OBSI’s investments mandate: the MOU requires an independent evaluation of OBSI’s operations and practices on the investment side of its mandate every five years, and OBSI delivered the 2021 report (the “2021 Investments Report”) to the JRC in 2022. The 2021 Investments Report concluded that OBSI had met and exceeded its obligations under the MOU. It also provided 22 recommendations for improvement, including that OBSI be granted authority to make binding awards. The JRC met with the independent evaluators and OBSI’s Board of Directors and continues to collaborate with OBSI on next steps in response to the 2021 Investments Report;
- CSA’s project to strengthen OBSI: the JRC was kept apprised of the CSA’s continued policy work to strengthen OBSI as an independent dispute resolution service, including the creation of a fair, efficient and accessible binding authority framework that aligns more closely with international best practices;
- Monitoring of quarterly reports, compensation refusals and low settlements: the JRC continued to monitor data on investment-related complaints, including compensation refusals and settlements below OBSI’s recommendations. There were no compensation refusals in 2022; however, the JRC noted that low settlements continue to be an issue, particularly in cases where OBSI recommends a compensation amount higher than C$50,000. Since 2018, clients have received approximately C$1.6 million less than what OBSI recommended. The Report states that, on average, low settlement cases settled for 60% of OBSI’s recommended amount of compensation. The JRC supports the CSA’s work to provide OBSI with authority to make binding awards to mitigate such outcomes;
- Systemic issues: the Chair of OBSI’s Board of Directors is required to inform the CSA designates of the JRC of any issues that are likely to have significant regulatory implications, including issues that may affect multiple clients of one or more firms. In 2022, one issue involving an order execution-only (“OEO”) dealer was reported but ultimately resolved and determined to have been limited to two complainants. The JRC continued to monitor a previously reported issue involving a portfolio manager that was the subject of multiple complaints related to misrepresentation of risk and disregard for investor risk tolerance and which became subject to registration conditions in 2022;
- Complaint trends: the JRC worked with OBSI to identify and monitor emerging and ongoing trends in complaint volumes, in addition to the nature of complaints received. In 2022, the JRC observed an increase in complaints against restricted dealers pertaining to crypto assets, the majority of which related to fraudulent activities whereby a client was coerced or tricked into granting a third party access to its account and whose crypto assets were subsequently transferred to a third-party wallet. The Report also notes an increase in complaints regarding mutual funds and suitability that appear predominantly related to recent market conditions. Complaints against OEO dealers related to margin, transaction errors and trading platform service issues decreased significantly;
- Review and consideration of stakeholder feedback: the JRC reviewed and discussed stakeholder feedback and continues to consider opportunities to enhance the effectiveness of its oversight and implement changes where appropriate;
- Communication regarding complaint escalation processes: the JRC was apprised of firm websites that described complaint escalation processes in an unclear or confusing manner. All firms that were contacted revised their websites and other investor-facing materials accordingly;
- Proposed amendments to Investment Dealer and Partially Consolidated Rules: the JRC was updated on proposed amendments that would codify regulatory expectations on reporting to CIRO and certain complaint-handling best practices;
- CIRO arbitration program: the JRC reviewed recommendations of an external working group and provided feedback, noting the complexity of the complaint-handling landscape, potential for investor confusion and impact on consumer decision-making given the overlap between claims that might be pursued through either OBSI or CIRO arbitration. The JRC continues to receive updates following the publication of recommendations for CIRO’s arbitration program in December 2022; and
- Federal developments relating to external complaint handling in banking: in June 2022, a new financial consumer protection framework was implemented into the Bank Act to strengthen complaint-handling procedures for banking consumers. The amendments have resulted in record-high banking and investment case volumes for OBSI, and the JRC continues to monitor ongoing related developments.
For more information, please refer to CSA Staff Notice 31-364 OBSI Joint Regulators Committee Annual Report for 2022
