Comment letter calls attention to long-standing issues of investor protection
While the Ombudsman of Banking Services and Investments (OBSI) recently took a step in the right direction with the decision to include a financial consumer interests director on its board, there’s still much work to be done, according to a vocal investor protection advocate.
“No doubt you have read the OBSI case study where a widow reluctantly accepted a last minute $40,000 low-ball settlement vs. a $226,497 OBSI recommendation,” Ken Kivenko of Kenmar Associates said in a letter addressed to Grant Vingoe, chair of the Canadian Securities Administrators Joint Regulators Committee (CSA/JRC). “We are astonished and dismayed that such an avoidable tragedy can occur in Canada.”
To help wronged investors avoid the life-altering consequences associated with many low-ball settlements, Kenmar reiterated its plea for the CSA to provide OBSI with binding decision-making authority. Specifically, it said the CSA/JRC should endorse a binding-decision mandate subject to a provision that in the event that either party disagrees with an OBSI ruling, they may go through the reconsideration process provided by OBSI, for which the decision would be binding.
“COVID-19 has demonstrated how fast the CSA can move when there are industry protection issues that need to be addressed,” the letter said. “It is now time to show that same determination, speed and respect when dealing with serious retail investor protection issues.”
Turning to the issue of board composition, the letter noted that OBSI’s current governance rules provide for a two-year cooling-off period for former financial-services industry participants to be qualified as an “independent director.” Since that would theoretically allow the OBSI board to be represented entirely by former industry participants, Kenmar called for the cooling-off period to be lengthened to at least five years for persons who have been directly or indirectly involved with the financial services industry.
“Kenmar recommend that there should be disclosure of the process by which the Board’s Governance Committee will identify candidates for the Board and for Committees,” the letter said.
The letter further recommended the establishment of an investor redress fund to account for shortcomings in compensation for wronged investors, proposing that IIROC and MFDA registered dealers use the applicable investor protection funds. Specifically, it cited the case of Beckley Capital, which OBSI has publicly named and shamed for its refusal to compensate an investor $33,055 for losses resulting from the firm’s sale of unsuitable investments.
“The Ontario Securities Commission (OSC) has suspended the Firm after alleging it had a capital shortfall following a series of other compliance issues,” the letter said. “This effectively leaves [the investor] with no avenue for compensation.”
Kenmar also called for transparency in different areas, including OBSI’s conclusion that there were no systemic issues in banking and securities in Canada in its 2019 annual report; cases of low-balling of OBSI decisions; and the deliberations and recommendations of OBSI’s Consumer and Investor Advisory Council (CIAC).
The letter also spoke out against bank-owned dealers’ use of unregulated internal ombudsmen to address customer complaints, noting that such ombudsmen are not independent and ostensibly just wear down complainants’ determination to pursue a complaint.
“We recommend that the CSA take affirmative action, either by banning the use of these unregulated bodies or, as a second choice, requiring that any time spent with the internal ombudsman fall within the CSA defined 90 calendar day response time,” Kenmar said.
The letter also asked that the CSA/JRC counteract the “asymmetry in power and knowledge between Main Street and Bay Street,” by upgrading complaint-handling policies and rules for dealers. “This would be entirely consistent with the CFR initiative to improve conduct in the wealth management industry,” it said.
