The decade-long battle to establish a binding regime for investment-related disputes in Canada is nearing its end.
On Tuesday, the Canadian Securities Administrators (CSA) – a national umbrella group of provincial and territorial market watchdogs – unveiled refinements to a new framework first proposed in late 2023 for the non-profit Ombudsman for Banking Services and Investments (OBSI).
Currently, OBSI is only allowed to recommend that Canadians who have been mistreated by banks and investment companies receive up to $350,000 in compensation.
Not only are companies free to simply ignore those recommendations under the existing framework, but investor and consumer advocates have long argued complainants are routinely shortchanged whenever they do receive compensation.
“The reality is there are a significant number of lowball or low-offer settlements,” Grant Vingoe, chief executive officer of the Ontario Securities Commission and chair of the joint regulatory committee that oversees OBSI, said in an interview.
“When you don’t have a binding decision, and financial institutions are lawyered up, there is a significant amount of pressure to settle.”
The latest version of the proposed framework that would make OBSI decisions legally binding is open for public comment until Sept. 15. Chief among the refinements is the introduction of a two-stage resolution process for how OBSI would resolve complaints.
In the first stage, OBSI would conduct an investigation and issue a recommendation. If both parties accept that recommendation, it becomes binding.
Should either side object to the recommendation made in Stage 1, Stage 2 would involve OBSI conducting a review and issuing a final decision.
“A final decision may be filed with the courts as a court order if a firm fails to comply,” the CSA notice said.
In cases where Stage 1 results in a recommendation of $75,000 or more in compensation, OBSI would automatically be required to “appoint external decision makers to conduct the processes” in Stage 2, according to a CSA notice outlining the latest proposal.
From 2020 through 2024, CSA data show more than half of OBSI compensation recommendations over $50,000 met that threshold. Out of 39 OBSI recommendations for compensation worth $50,000 or more during that period, four were between $75,000 and $99,999, while 16 were for $100,000 or more.
During the first round of consultations, CSA chair Stan Magidson said in an interview that several commenters expressed concern that there should be some sort of appeal option for the first-stage recommendation.
“We have looked at that and thought about it carefully and we are content to bring in that third-party review,” said Mr. Magidson, who is also CEO of the Alberta Securities Commission.
“But we felt it was best done within the OBSI framework where you bring external decision makers into the review. We thought that was a better way to go and not go down the avenue of appeals to courts, which can be very time-consuming and expensive.”
The external decision makers would not be employees of OBSI but instead would be retained on a part-time basis, the CSA notice said.
“They would be appointed to a roster that would be maintained by OBSI and approved by the CSA. We anticipate that this roster would largely comprise industry experts, lawyers and relevant technical experts.”
Mr. Magidson said it was too soon to specify who might qualify as an external decision maker, but he suggested retired industry insiders could be suitable.
“We are at a point where these baby boomers, a number of them are extremely experienced and they are retiring and I’m not sure all of them want to go to the beach,” he said. “Some would like to act in the public interest.”
Mr. Vingoe, who has been personally involved in the initiative to reform OBSI since first joining the OSC as vice-chair in 2015, said the latest consultation period represents one of the last steps of the process.
“My hope is that this would come to a conclusion next year, and hopefully not at the end of the year,” he said. “But it is a long process.”
Once the new framework has been finalized, it will be up to provincial and territorial legislatures across Canada to decide whether a binding OBSI regime should be enacted.
The idea of granting OBSI binding authority has been fiercely opposed by industry groups who argue it would drive up the cost of liability insurance. For example, the Private Capital Markets Association of Canada told The Globe and Mail in early 2024 that the proposal was “unfair by design.”
While Mr. Vingoe did not refer to any specific industry groups by name, he said “in some parts of the financial industry, unfortunately, there has been an attitude of just say no when it comes to OBSI.”
“Some trade associations have viewed this as a win in their advocacy on behalf of industry,” Mr. Vingoe said. “Those objections are hard to overcome because they are very entrenched and not fair-minded.”
From 2015 through 2020, an analysis conducted by a coalition of 11 investor and consumer advocates found investment firms paid out nearly $3-million less than the aggregate amount OBSI recommended.
That analysis followed a 2016 evaluation by Deborah Battell, who was previously the banking ombudsman for New Zealand. Ms. Battell’s analysis found 18 per cent of complainants in 2015 who OBSI determined should receive compensation ended up receiving, on average, $41,927 less than OBSI recommended.
“The process can go on for a very long time and investors get very worn down,” Mr. Vingoe said. “There has to be light at the end of the tunnel through a binding process. If you don’t have that, it both deters Canadians from making complaints at all.”