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”), highlighting the primary activities that the JRC conducted in 2023.

Background

As we discussed in a previous post, 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 includes monitoring the dispute resolution process with a view to promoting investor protection and confidence in the dispute resolution system.

Report Highlights

The JRC’s activities in 2023 included the consideration and advancement of the following matters:

OBSI’s 2021 independent evaluation

OBSI is required to have an independent evaluation of its operations and practices on the investments side of its mandate every five years. While the most recent evaluation, completed in 2021, concluded that OBSI generally met and exceeded its obligations under the MOU, it also provided 22 recommendations for improvements in the areas of governance, strategy, operations, additional value and awareness. In 2023, the JRC continued to receive reports from OBSI detailing its response to these recommendations and continued to review and support its related action plans. OBSI’s response in 2023 included the following changes to its governance structure: (i) the introduction of a revised skills matrix for its board members; (ii) an increase in the number of consumer interest directors from one to three; and (iii) the removal of the requirements for industry directors to be nominated by industry associations.

CSA’s project to strengthen OBSI

The JRC continued to receive quarterly updates on the CSA’s policy work to strengthen OBSI as an independent dispute resolution service. As we discussed previously, in November 2023 the CSA published for consultation a proposed framework for an independent dispute resolution service whose decisions would be binding.

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. While there were no compensation refusals in 2023, the JRC noted that low settlements continue to be an issue, particularly in cases where OBSI recommends a compensation amount exceeding C$50,000. The JRC observed that because OBSI’s recommendations are currently not binding, complainants may feel compelled to accept a lower settlement offer or be dissuaded from using OBSI’s dispute resolution process. 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 or one or more firms. In 2023, OBSI identified the potential systemic underrepresentation of risk in some mutual fund risk ratings in recent years. A follow-up review was then undertaken by a CSA jurisdiction which determined that such systemic underrepresentation of risk has not occurred. The JRC also continued to receive updates on systemic issues that were reported in previous years.

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 2023, overall complaint volumes rose significantly, driven largely by complaints from banking consumers, resulting in delays in assigning cases to investigators. OBSI advised the JRC that it has implemented initiatives to address the increase in case volume and that it expected to resume meeting timeliness benchmarks for investment cases in early 2024. There was also an increase in complaints relating to market conditions and products that experienced losses due to the changing interest rate environment and a growing number of cases relating to crypto asset fraud, although these trends moderated in the second half of 2023. The Report also noted an increase in complaints from claims management companies.

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.

Consultation regarding self-regulatory organization proposals

The JRC received updates from CIRO on a consultation pertaining to a review of the former Investment Industry Regulatory Organization of Canada’s Arbitration Program and on a proposal to distribute funds collected through disciplinary proceedings to harmed investors.

OBSI designated as sole banking complaints ombudsman

In October 2023, OBSI was designated as the single external complaints body for the banking industry and will assume such responsibilities on November 1, 2024. The JRC continues to work with OBSI to monitor and respond to related challenges, such as increases in case volume, significant anticipated organizational growth and other potential impacts on operations that may affect performance under OBSI’s investments mandate.

For more information, see CSA Staff Notice 31-365 OBSI Joint Regulators Committee Annual Report for 2023.

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