How Much Regulatory Protection do Investors Need from the Financial Sector?

Today workplace pensions are no longer the norm and the Federal government is pushing future retires to invest their savings with the private sector – it seems like we need investor protection more than ever before.

Although there is yet a glimmer of hope left for a National/Canadian Securities Regulator, for the time being the project will have to be shelved because the Supreme Court of Canada nixed it, saying it encroached on provincial jurisdiction.

To make matters worse, TD and Royal Bank have parted ways with Ombudsman for Banking Services and Investments and taken their funding with them.  Now, OBSI says it may have to close up shop entirely.

OBSI’s big banking opponents’ say that the regulator is biased in favour of consumers.  It’s one of the main reasons they want to hire their own third party regulator.  Not so, says the Ontario Securities Commission Investor Advisory Panel – a review of OBSI’s case rulings indicate they ruled in favour of the industry 69% of time.  The panel called on regulators to force RBC and TD back into OBSI although we’ve yet to see that happen.

There is already a proliferation of Industry Self-Regulatory Organizations – as many, in fact, as there are professional designations among professionals in the financial sector.  To see a breakdown of SROs, professional designations and resources, resources for help should you have a complaint or to learn more about the type of due diligence you should be doing when selecting an advisor, please read “Measures Every Investor Should Take Before Investing and Selecting an Advisor”

A guide is useful because the regulatory landscape is mighty complicated here in Canada.   But when it comes to regulation and consumer protection, more is not always better.  In fact, The World Bank recently flagged the splintering of consumer protection agencies as a problem, citing similar cases in New Zealand and Australia, where consumers face confusion over how to get disputes settled with their banks, while competition between various ombudsman organizations undermines the purpose of their function, which is to protect consumers.

But how much extra protection do consumers really need? And how much is currently in place?

“There is no government-enforced standard or mandatory professional oversight for competent, ethical and professional behaviour,” acknowledged the Financial Planning Standards Council, a not-for-profit group that oversees the Certified Financial Planner designation.

“Currently, all banks are required to have a consumer complaints procedure in place and have a third-party dispute handling body. However, there is a variation in procedures used. This is a source of concern for us and more importantly, for consumers”, Mary Ann Dewey-Plante, spokeswoman for Mr. Flaherty, said in a statement.

Ottawa wants banks to use government-approved dispute resolution services, Ms. Dewey-Plante said. The statement suggests financial institutions may be able to choose their own complaints adjudicator, as long as it is sanctioned by the government.

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