Industry livid over OBSI’s move toward advocacy

The Ombudsman for Banking Services and Investments is set to expand its role in dispute resolution, and that has some members of the investment industry worried.

Letters from the Investment Funds Institute of Canada and the Investment Industry Association of Canada made their way to OBSI over the last couple of days — the period to comment on the changes ends Friday — and neither organization is happy with what’s being proposed.

IFIC says the potential changes “create a high degree of overlap with the mandates of regulatory organizations,” while the IIAC states that its members have expressed “serious concern” over OBSI’s new role.

Both organizations are concerned that OBSI’s new rules would result in it becoming less of an impartial body and more of an actual regulator “with the ability to audit firm practices, make findings and direct restitution, without the procedural safeguards and due process required of statutory agencies,” says IFIC’s letter.

“Our main concern is that there appears to be a real change in the mandate of the Ombudsman,” explains Joanne De Laurentiis, IFIC’s president and CEO.” They are moving away from the more independent objective group and moving more into an advocacy role, and they appear to be moving into quasi-regulatory mode.”

IFIC lists a number of ways the new OBSI rules overlap existing regulation, starting with its proposal to investigate “potential systemic issues.” That would give OBSI the power to ask firms to provide privileged and non-privileged information for an investigation even if that firm isn’t the subject of a complaint. “[These] are substantial powers which duplicate, and even exceed, regulatory mandates,” says the letter. “Our industry does not view it appropriate that OBSI, which is not held to the high standards of due process that are required of a statutory body, have such a mandate.”

The IIAC explains that investigating systemic issues of a complaint appears to go “beyond the intent of the Joint Forum recommendations, which we understand were to be restricted to administrative and mechanical types of issues. We are particularly concerned that OBSI is able to effect such a material change to the scope of its authority without a review by a regulatory or independent body.”

Also worrisome to the IIAC is that OBSI’s proposal doesn’t explain how it would actually conduct a systemic investigation. If there aren’t any clear guidelines, the investigation could end up being a “fishing expedition” that would ultimately end up encroaching on regulators’ jurisdiction.

“The ability to investigate firm processes without being confined to a particular context or complaint … a particular firm against whom a complaint has been lodged, with a view to compliance with an undefined OBSI or regulatory standard, and the subsequent compensation recommendations beyond what has actually been claimed by specific investors goes well beyond the mandate of a complaint resolution body,” says the IIAC. “In fact, it extends beyond the powers granted to regulators, as it includes the ability to award compensation through the use of threat of publication.”

“The proposed mandate … has no other statutory underpinnings,” says IFIC in its letter. “The consumer advocacy role is directly in conflict with your principal powers and duties.”

IFIC’s comments go on to say that OBSI’s proposed mandate would allow it to assist complainants with the complaint process, while removing the clause that prevents the organization providing general information about a firm. That would turn OBSI into more of a “consumer advocate than an impartial arbiter.”

“OBSI should be concerned about the perception of a conflict of interest that would arise in the assessment of a complaint that it helped prepare,” says IFIC.

The major issue atop both organizations’ lists is that these proposed changes will turn OBSI into a client advocate. The IIAC points out that while being a client advocate is already contrary to OBSI’s current mandate, it would also have to become “judge and jury without leaving the firm with any opportunity to appeal.”

IFIC adds that changing the word “investigation” to “evaluation” in OBSI’s terms of reference “further confuses OBSI’s role from that of an independent mediator to one of an auditor or monitor of the activities of firms.”

Another area that IFIC and the IIAC are struggling with is that OBSI wants to launch an investigation 90 days after a complaint is filed. Currently, the Mutual Funds Dealers Association of Canada allows its members 180 days to internally investigate a complaint, so OBSI would essentially be forcing firms to cut that time in half.

“A 90-day threshold may result in severely undermining a firm’s internal process, especially since many complaints are not simple enough to be resolved in such a period,” says IFIC.

Why OBSI feels the need to change its mandate is anyone’s guess. De Laurentiis says that she thought the current system was “working pretty well,” and she questions why OBSI would need to make a change. “Clearly, they think there has to be some changes,” she says. “We think it’s going too far.”

OBSI’s proposal came as a surprise to many in the industry. De Laurentiis knew that the organization would be making some changes but didn’t think they’d be as wide reaching as this. “There was an indication that there would be some changes back in August, when the Joint Forum issued a framework paper,” she says. “But we think the Ombudsman has taken those principals … much farther than we had expected.”

IFIC and the IIAC aren’t the only two organizations that have issues with this proposal. Worldsource said simply in its letter to OBSI that it “supports the current terms of reference of OBSI. Worldsource does not support any of the proposed changes.”

Since the comment deadline is Friday, OBSI is keeping mum on what it thinks about the letters. Diane Bélanger, manager of public affairs at OBSI, says all the comments will be reviewed and taken into consideration by the board, and in about a month, the industry will find out what the Ombudsman plans to do going forward.

De Laurentiis hopes that a fruitful discussion between all the parties will take place, so they can sort out everyone’s differences. “We hope they’ll see our point,” she says. “We want to talk about how we can readjust those terms in a way that meets their needs and responds to the legitimate concerns the industry has.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(01/31/08)

Bryan Borzykowski