On October 12, 2023, the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) published Staff Notice 31-364 (the Notice) containing their Annual Report (Report) of the Joint Regulators Committee (JRC) which oversees the Ombudsman for Banking Services and Investments (OBSI).

Part of the JRC’s mandate is to facilitate information sharing and to monitor dispute resolution processes to promote investor confidence in the dispute resolution service and investor protection. The Notice highlights the CSA’s continued efforts to strengthen OBSI into an independent dispute resolution service that closely aligns with OBSI’s international ombuds service counterparts, including efforts to create a binding authority framework for OBSI that is fair, efficient, and accessible.

The annual meeting of the JRC with the OBSI Board was held on September 28, 2022. In addition to discussing operations and governance issues, the effectiveness of OBSI’s processes was a focus of the discussion, as well as OBSI’s planned public consultations for 2023, and the CSA’s work to strengthen OBSI’s powers to secure redress for investors.

OBSI provides the JRC with quarterly reports of any investment related complaints, compensation refusals and the number of low settlements which fell below OBSI’s recommendations. OBSI tracks all related compensation data as a risk-based indication of potential problems with participating firms. The data reflects whether a firm’s complaint handling practices are being carried out in good faith or raise questions about whether a firm is participating in OBSI’s services consistently with the applicable standard of care. In 2022, there were no compensation refusals.

Systemic issues: OBSI tracks significant issues as those that impact multiple clients or issues with significant regulatory implications. In 2022, there was one systemic issue reported to the JRC involving an order execution-only (OEO) dealer. The dealer in question received two complaints regarding a systems glitch that impacted the ability of two Canadian investors to purchase US derivatives. The dealer rectified the problem quickly, and it was determined only two complainants were impacted.

The Report referenced a previously reported systemic issue involving a portfolio manager who was the subject of multiple complaints. It has been alleged that the portfolio manager was misrepresenting the risk of a fund and disregarding documented investor risk tolerance levels. The matter was referred to the relevant CSA jurisdiction and conditions have been applied to the registration of the portfolio manager with the review ongoing.

Emerging and ongoing complaint trends: The JRC has worked with OBSI to continuously identify and monitor emerging and ongoing trends related to complaints received. OBSI provides aggregated complaints data on products, issues, and outcomes for trend analysis.

Despite regulatory issued warnings and alerts to the public, supplemented with fraud reduction steps taken by firms, instances of fraud continue to be high. The year 2022 saw a rise in complaints about restricted dealers and crypto assets, 85% of which related to clients being coerced or tricked into granting a third-party access to their account and crypto assets, which were transferred to the third-party’s wallet.

In the fourth quarter of 2022, OBSI informed the JRC of an increase in complaints relating to issues of suitability of mutual funds. OBSI determined that the increase in complaints had to do with the current interest rate environment that had adversely impacted fixed income mutual funds. OBSI will continue to monitor this trend and report to the JRC, as necessary.

Consultation regarding the IIROC Arbitration Program: The JRC provided the working group and IIROC with feedback, noting the complexity of the overall complaint handling landscape, the potential for investor confusion and how potential overlap between claims that can be pursued through either OBSI or IIROC Arbitration could impact consumer decision making. IIROC published the working group’s recommendations for public comment in December 2022, and the JRC continues to receive updates. OBSI discussed its concerns with the JRC, including that application of the Arbitration Program to lower value, unrepresented complainants would increase the complexity of the dispute resolution system and potentially increase investor confusion. On publishing the recommendations, IIROC encouraged commenters to address the Arbitration Program’s coexistence with OBSI within the current dispute resolution framework and indicated that consideration is being given to making the Arbitration Program available only for claims that fall outside of OBSI’s compensation limit, given the Arbitration Program is designed to be an alternative to litigation with a focus on complex and large claims.

Federal developments relating to external complaint handling in banking: On June 30, 2022, the federal government introduced a new financial consumer protection framework into the Bank Act with a goal to strengthen complaint-handling procedures for banking consumers, making the process effective and timely. Banks are now required to deal with consumer complaints in 56 days, which has resulted in record high overall banking and investment case volumes for OBSI. The impact of these federal developments and the response to various other initiatives will be closely monitored.

November 30, 2023