CSA refines plan for binding authority at OBSI

In an effort to give the Ombudsman for Banking Services and Investments (OBSI) the authority to make binding decisions on disputes between investors and their dealers, Canadian securities regulators are launching a new consultation that includes a proposed external review process for larger cases and a model of regulatory oversight for the mechanism.

On Tuesday, the Canadian Securities Administrators (CSA) published a revised proposal to introduce binding authority for OBSI amid concerns that its “name and shame” enforcement powers have proven ineffective, and investors have been shortchanged by accepting low-ball settlement offers for fear of getting nothing, given OBSI’s inability to enforce its compensation recommendations.

“It’s fundamental to the trust and confidence the public has in the financial markets that there’s an avenue for independent redress for investors,” said Grant Vingoe, CEO of the Ontario Securities Commission (OSC), in a release.

In 2023, the CSA proposed changes to introduce binding authority for OBSI — something investor advocates have long sought and independent reviews of the service have recommended. Now, in response to feedback received on that consultation, it’s also proposing a new oversight model for OBSI and a mechanism to review larger compensation decisions before they become final. The aim is to address concerns about the lack of an appeal process for OBSI’s decisions.

Specifically, the regulators are now proposing that OBSI be required to use external arbiters to review compensation recommendations worth $75,000 or more before reaching a final conclusion on those decisions.

Previously, regulators had proposed that OBSI personnel review contested recommendations before they are finalized. Now, the review would be made more independent by requiring OBSI to use external reviewers, without introducing a formal appeal process that would make the service more complex, costly and slower.

“The proposed refinements are intended to address stakeholder concerns in a more economical way than a statutory right of appeal to a securities tribunal or a court,” the CSA said in its notice.

“Under this approach, OBSI’s processes will continue to apply, and parties would not need to retain legal counsel for assistance navigating formal judicial or quasi-judicial procedures to have their matter resolved,” it said.

The notice also sets out the proposed framework for enhanced oversight of OBSI by regulators — which would consist of a designation order that outlines the terms and conditions under which OBSI would be formally recognized as the industry ombudservice, and a memorandum of understanding (MOU) between CSA members to establish how the provincial regulators would oversee OBSI.

The CSA said the proposed oversight framework and appeal mechanism aim to “strike an appropriate balance between maintaining OBSI’s level of independence and ensuring a level of accountability that is commensurate with the authority to make final and binding decisions for compensation up to $350,000.”

The new proposals also address another issue raised in the initial consultation — the limitation period for investor complaints to OBSI.

Some feedback on the 2023 proposals suggested adopting a two-year deadline for investor complaints, matching the civil limitation period in certain provinces. However, the CSA is maintaining its proposed six-year limit, saying this approach “would provide uniformity across CSA jurisdictions for accessing OBSI’s dispute resolution services and is in line with the proposed framework’s policy goal of providing an accessible alternative to court.”

The consultation period on the latest set of proposals will close on Sept. 15.

Implementing the proposals will also require legislative change in many provinces, which leaves the ultimate fate of the reform project in the hands of provincial governments.

Saskatchewan led the way in adopting legislative changes to facilitate the introduction of binding authority last year, but others have not yet followed. The CSA noted that the contents of its notice — and the decision to publish it — should not be considered an indication of whether the required legislative amendments will be made.

In the meantime, regulators are seeking to advance the effort, which they say will benefit both investors and the industry.

“Introducing binding authority for investment complaints is important to ensure investors have the ability to seek access to an impartial, fair and efficient dispute resolution process, and to give more certainty to businesses over the outcome of claims,” said Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission, in a release.

“The CSA’s proposal will help modernize the structure of Canada’s capital markets and simplify the complaints process for investors and businesses alike,” he added.