Thursday, December 14, 2017

It’s time to review OBSI’s practices and Terms of Reference

On its website  OBSI states “OBSI can look at your complaint if: ..your firm [Emphasis added] gave you its final response on your complaint but you are still unsatisfied. Once you receive the final response, you have 180 calendar days to bring your complaint to OBSI.” This is not entirely accurate. OBSI will actually allow additional time if a complaint is against an IIROC ( or MFDA) dealer and the complainant used the services of the firm’s internal “ombudsman”. We do not support this policy as we regard it as potentially harmful to investors.

Sections 13.16(3) and (4) of National Instrument NI 31-103 REGISTRATION REQUIREMENTS AND EXEMPTIONS require registered firms within 90 days of receipt of a complaint to provide a written notice of a decision and/or written information about the steps the client must take to access OBSI’s independent dispute resolution services (which steps the client must pursue within 180 days of receipt of the written notice of the firm’s decision). [Emphasis added]

Our concern centers on OBSI’s practices and Terms of Reference as well as the provisions of applicable IIROC Rules (and MFDA) Policies incorporated therein:

Section 19 of OBSI’s Terms of Reference, which details Complaint Procedures (including a 90 day internal review and delivery of a substantive written response requirement), provides in part:

All Participating Firms are expected to have in place an effective complaint-handling system. Participating Firms that are members of the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA) are required to follow complaint-handling rules established by IIROC or the MFDA, as applicable, and are not subject to this section 19[Emphasis added]

In IIROC’s complaint-handling rule, Rule 2500B, the use of internal ombudsman services beyond NI 31-103’s 90 day period is expressly contemplated. We have already filed an official complaint about rule 2500B with the CSA. Andrew Teasdale CFA has analyzed the deficiencies in this rule Fairness and balance in the complaint process where interests of the dealer and registered representative must be considered!  and so has our analysis team IIROC Complaint handling rule needs an Update

The IIROC 2500B rule states “Dealer Members must respond to client complaints as soon as possible and no later than ninety (90) calendar days from the date of receipt by the firm. The ninety (90) days timeline must include all internal processes (with the exception of any internal ombudsman processes offered by an affiliate of the firm) [Emphasis added] of the Dealer Member that are made available to the client. The client must be advised if he/she is not to receive a final response within the ninety (90) days time frame, including the reasons for the delay and the new estimated time of completion…”

It is therefore clear that OBSI’s TofR agrees to follow IIROC protocol via sec 19 and therein lies the issue. OBSI is indirectly allowing firms to extend the time for permitting a complainant to bring a complaint to OBSI . It appears that the OBSI board feel that investors should have additional time to file a complaint if they have utilized an internal "ombudsman" ( unregulated) even though the internal "ombudsman" does not provide a binding decision and is not a registered “firm” or even a representative of the firm. Indeed, the internal ombudsman specifically state they are independent of the firm. Although well intentioned ,accepting internal "ombudsman" complaint responses is not in keeping with NI31-103 which has a higher order of precedence than IIROC rule 2500B.

In addition, the complaint brochures of all the banks nudge complainants away form OBSI. For example , TD’s If You Have A Problem brochure  states under the heading Additional resources – external agencies states “If you require further assistance after the decision of the TD Ombudsman [Emphasis added], the following independent services can provide you with information and a further review of your complaint. Please use the information below to contact the agency that deals with the TD business group where your concern arose. These agencies may contact TD’s internal complaint resolution staff – including the TD Ombudsman’s Office – to facilitate their investigation and work toward the earliest possible resolution of your complaint”. This is incorrect – investors with complaints DO NOT have to engage with TD’s “ombudsman” before they can access OBSI. The brochure also does not warn investors that the statute of limitations time clock continues to count down while the investigation is in progress.

Investor advocates encourage OBSI to proactively call out these diversions and to establish countermeasures.

It is our view that accepting responses from internal "ombudsman" can have adverse consequences :

1.   It unofficially recognizes internal "ombudsman" as the firm by acting on their reports although they are an unregulated entity

2.   It creates a  unregulated “competitor“ for OBSI 

3.   It can undermine the regulatory intent behind the CSA 90-day Rule

4.   It leaves complainants exhausted after 3 or 4 stages of  complaint manipulation by firms and their so-called internal “ ombudsman”-This exhaustion reduces their will to proceed on to OBSI  

5.   The complaint may exceed the 2 year statute of limitations timeline leaving complainants without any legal rights of redress

The benefits  of internal " ombudsman" to firms are however great:  (a) It keeps complainants away from independent OBSI (b) It allows a second chance to low ball (c) It avoids any risk of Name and Shame (d) It converts a binding offer from the regulated dealer to a non- binding recommendation and (e) It wears down the will and energy of complainants so they are more willing to settle for less than a fair amount. Few will have the drive to file a complaint to OBSI after passing over so many hurdles. 

We therefore call on the OBSI board of directors (a) respect the provisions of  NI31-103 and (b) amend section 19 of the Terms of Reference so that more complaints are directed to the sole CSA-designated Ombudsman, OBSI. Regulators also have a role here in educating investors as to the true status of internal "ombudsman".This will be a WIN-Win for all who support investor protection.

Related materials

FAIR Canada  Letter to OBSI Joint Regulators Committee re Use of " internal Ombudsman" by Registered Firms When Responding to Investment Complaints 

CSA Notice on Complaint handling/ OBSI sets the bar for complaint handling Joint CSA Staff Notice 31-351, IIROC Notice 17-0229, MFDA Bulletin #0736-M Complying with requirements regarding the Ombudsman for Banking Services and Investments. The issues are articulated  in a joint Notice  from the Canadian Securities Administrators (CSA), IIROC and MFDA . The Notice  claims that some registered firms’ complaint handling systems fall short of the requirements of the Ombudsman for Banking Services and Investments (OBSI) and there are also concerns about the use of an internal ‘ombudsman’ by the bank-owned dealer’s.

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