Report highlights how some firms have fallen short in ensuring wronged investors are treated fairly
The Joint Regulators Committee (JRC) of the Ombudsman for Banking Services and Investments (OBSI) has identified several areas of concern in how client complaints are handled within the investment industry.
In its recently released Annual Report for 2020, the JRC noted that over the fiscal years 2018 to 2020, 31 out of 456 cases that ended with monetary compensation were settled below the amounts recommended by OBSI.
A small majority of those cases, 58%, involved recommendations over $50,000 with an average settlement rate of 62%. And of the 18 firms that were involved in low-ball settlements, nine settled below OBSI’s recommended amount more than once.
“Overall, since its fiscal year 2018, clients received approximately $1.3 million less than what OBSI recommended,” the JRC said.
Beyond the lowball settlements, the report said OBSI saw two compensation refusals in 2020, resulting from two firms – both of which are no longer registered under securities laws – who refused to follow OBSI’s recommendations to compensate clients for a total amount of $83,865.
“The JRC recognizes the impact on complainants when firms refuse to compensate clients consistent with OBSI recommendations, or settle for lower amounts than recommended … especially in the midst of the COVID-19 pandemic,” the report said. “Settlement refusals and low settlements erode confidence in the fairness and effectiveness of the dispute resolution process for investors.”
The JRC also noted that a firm’s refusal to settle, or decision to make a lower settlement offer, may discourage complainants from pursuing a matter further as they would have to take on additional time and costs, particularly from obtaining legal representation and initiating a civil action against the firm.
The report also made note of a 2020 review conducted by the Ontario Securities Commission (OSC) and the self-regulatory organizations (SROs), which looked at whether a sample of registered firms’ websites presented their complaint escalation processes and timelines consistent with NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and applicable SRO rules.
Focusing mainly on firms with internal ombudsmen, staff identified several issues. In particular, they noted how instead of advising clients that they can go to OBSI if they aren’t satisfied with the firm’s response to their complaints, the websites direct clients to the firm’s internal ombudsman. That practice, the JRC said, could mislead clients into thinking that turning to the internal ombudsman is a required step before escalating to OBSI.
“As well, staff observed that the availability of OBSI services was not given at least equal prominence to the information about the firm’s internal ombudsman, which could significantly affect a client’s ability to access OBSI services in a timely manner,” the report said.
After the review, the JRC said that OSC and SRO staff sent a joint letter to the firms requesting that they revise their disclosure relating to internal ombudsmen so it’s in line with securities laws.
“The JRC understands that the firms have provided their responses and are taking corrective action,” the report said.
