OBSI and the National Securities Regulator’s Demise

March 23, 2012 – Recent news from the banking and investment world suggests that finding yourself on the wrong side of a financial dispute will become increasingly problematic.

In December of 2011, the Supreme Court disallowed the federal government’s plans for a national securities regulator (NSR) and now, the Ombudsman for Banking Services and Investments (OBSI), Canada’s banking ombudsman, is struggling for survival.

Dashed Hopes for Investor Protection

CARP was disappointed with the December 2011 Supreme Court decision to disallow the NSR. The decision dashed hopes for better investor protection and common standards and regulations across Canada.

The NSR had been expected to include an enforcement and investigation function to provide a strengthened, more coordinated regulatory and criminal enforcement regime to better protect investors from misconduct in Canada’s capital markets.

Currently, Canada has 13 different provincial and territorial securities regulators whereas the US has one (The SEC), representing a national patchwork of regulation and enforcement. This means that perpetrators of fraud or related securities and investment crimes can be difficult to catch and even more difficult to prosecute, much less be forced to pay restitution to their victims.

Resolving Banking Conflicts May Become More Difficult

OBSI is an independent, impartial investigator of consumer complaints, and currently the only way for bank customers to get compensation outside of the courts.

OBSI was created 15 years ago as an independent mediator for bank clients to settle disputes with their financial institutions when dealing with the bank directly no longer works. Despite issues with the time it takes to resolve conflicts, OBSI is the only national banking ombudsman in Canada and has claimed that its ability to operate is being radically undermined by the Royal Bank’s withdrawal three years ago and TD’s withdrawal last year. OBSI depends on the participation of Canada’s banks for funding.

Both RBC and TD are establishing their own complaints resolution offices. But according to Tyler Fleming, OBSI’s spokesperson, “OBSI undergoes rigorous independent evaluations of our operations and we are in regular discussions with regulators, among other things. All dispute resolution providers should be subject to the same requirements”- thereby suggesting that the Banks’ dispute resolution processes should undergo the same evaluations.

The independence of the dispute resolution process – both the appearance of and the actual independence – is important to the trust relationship and this can be compromised if banks are permitted to choose their own mediation process. Indeed, this will certainly matter to CARP members since 75% of people who complain to OBSI are 50 or older — 53% of those are seniors, who may find it more difficult to pursue and receive resolution and compensation when they are unhappy with their dealings with banks.

Canadians Deserve Robust Investor Protection and Redress for Complaints

CARP has called for comprehensive investor protection. But, with the demise of the NSR and with OBSI left precarious after the TD and RBC withdrawals, investors and Canadians may now be less protected and have less recourse for their complaints against banks.

CARP strongly endorses a national initiative to protect retail investors and bank clients from fraud and financial crimes. It’s time provincial and federal government’s act together to implement common regulations, oversight, enforcement and independent conflict resolution. In this uncertain economic climate, Canadians and their hard earned money deserve the proper protections.