Regulators report rise in crypto complaints

KEY TAKEAWAYS

Crypto-related complaints to the Ombudsman for Banking Services and Investments (OBSI) were up last year, but gripes about discount brokers were down, according to the latest report from the regulators that oversee OBSI.

The Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO), which comprise the Joint Regulators Committee (JRC) that oversees OBSI, published their latest annual report, detailing ongoing complaint trends and other developments at the industry dispute resolution service.

According to the report, the regulators “observed a rise in complaints regarding restricted dealers pertaining to crypto assets,” in 2022.

The vast majority of these cases (85%) involved allegations of fraud, with investors being tricked into granting access to their accounts only to see their crypto assets stolen.

“To date, OBSI has observed that despite warnings and fraud reduction steps taken by firms, such instances of fraud continue to be common,” the report said.

Additionally, the report noted OBSI saw an uptick in complaints involving mutual funds and suitability concerns in the fourth quarter of 2022, which appear to be driven primarily by market conditions.

“For example, CIRO has noted an increase in complaints relating to certain fixed income mutual funds, some of which have recently experienced losses due to the current interest rate environment,” it said.

At the same time, the regulators reported that the volume of complaints involving discount brokers — which surged in 2020 and 2021 when retail investors ramped up their use of these services —  declined significantly this past year.

The report also reiterated the regulators’ long-standing concerns with low-ball settlement offers.

While there were no firms that refused OBSI compensation recommendations outright in 2022, the report indicated that, since 2018, approximately 5% of its cases settled for amounts below OBSI’s recommendation, representing $1.6 million in foregone compensation to harmed investors.

“Low settlements continue to be an area of concern for the JRC,” it said, noting that 24 firms made low-ball offers over the past five years, and that 10 of those firms did this more than once (although, after regulators intervened, two firms made additional payments to investors to bring their payouts up to meet OBSI’s recommendations).

The report also said most of the low-ball cases (57%) involve amounts over $50,000, and that these cases typically settle for about 60% of the amount recommended by OBSI.

“Where OBSI made a recommendation for compensation above $50,000, the complainant received an average of $59,373 less than what OBSI recommended,” it said.

For complaints below the $50,000 mark, investors received an average of $8,373 less than what OBSI recommended.

“Settlement refusals and low settlements erode confidence in the fairness and effectiveness of the dispute resolution process for investors,” the report said.

“The JRC continues to monitor low settlements and supports the ongoing work of the CSA to provide OBSI with the authority to make binding awards.”

Just over a year ago, the CSA said it was working on an approach to providing OBSI with binding authority, and that its proposed policy would be published within the coming year. That proposal has yet to be released.