The Evolution of OBSI
The Effect of Recent Events
James Sasha Angus
Senior Deputy Ombudsman and COO
Regulatory Changes
Proposed and otherwise
31-103
Mandate changes
Terms of Reference
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Proposed Regulatory Changes
Change to 31-103 proposed by CSA
– would require all registered dealers and all
registered advisers to use OBSI to resolve
complaints
– Idea is to provide a clear dispute
mechanism for those clients buying any
investment product
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– The CSA chose OBSI because:
• No perceived conflicts of interest;
• Can handle complaints to a uniform
standard; and
• Investor confusion is reduced
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• Registrant numbers:
– 1500 registered firms in Canada, 1293 of them in
Ontario
– 1180 are non-SRO firms, directly registered by CSA
members (978 of these are in Ontario)
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• Individual registrants:
– Sole EMD:
• 1242 dealing representatives
– PM firms:
• 3966 advising representatives (including advising only
or advising and dealing representatives)
• 697 dealing representatives (not an advising
representative, but registered under EMD or MFD
categories)
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• Fees:
• Principles
– fees reflect the cost of service
– no cross-subsidization
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• Training
– We are sometimes criticized as lacking
industry knowledge
• however, almost all our investigators and
managers are from industry
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• of the 1500 registered firms in Canada,
320 are SRO firms, with a registration in
some other category, including EMDs
• OBSI has also been dealing with exempt
market cases through that group for
some time
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• Mandate changes
• The new mandate is to provide dispute
resolution to all registered dealers and all
registered advisers
• This new mandate requires consideration of
further issues:
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Oversight
• Who will oversee OBSI’s process?
• What will be the roles of IIROC,
MFDA, CSA?
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• Will governance changes be required?
– Will board representation be required for new
classes of members?
– What will that do to the need for more
community (independent) directors?
– Our present governance rules require a certain
balance on our board as it is.
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Public Consultations
• Loss Calculations and Suitability Analysis
– we looked at our suitability analysis and how we
calculate losses with respect to suitability complaints
– our methods of calculation were already noted as
“world class” by an independent reviewer
– our changes were designed to make our loss
calculations more predictable and understood
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• The five changes to our Investment suitability
and loss assessment process are as follows:
– 1. Use common indices as performance
benchmarks in most suitable performance
comparisons.
– 2. Take fees and trading costs into account in all
cases when making suitable performance
comparisons.
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– 3. As a general rule, add interest on compensable
losses only if an Investigation Report (a final
report where we recommend compensation) is
issued, but not add interest on facilitated
settlements.
Generally, interest on recommended
compensation would be calculated from the date
the investor complained to their firm and is
intended to compensate the investor for not
having access to the compensation during lengthy
delays in resolving the complaint.
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– 4. Implement a self-imposed limitation period of
six years from the time when we believe the
investor knew or ought to have known there was a
problem with their investments.
– 5. Provide working or at minimum clear and
transparent printed versions of our loss
calculation spreadsheets during our investigation.
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• Changes to Terms of Reference
– our terms of reference are presently being revised
to accommodate the changes we are anticipating,
mainly from the 31-103 proposals and the
requirements of the Federal Consumer Agency of
Canada
– the TORs will be reviewed by the OBSI board and
the CSA, before going out for public comment
– I am unable to say at present when that public
consultation period will start
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• Changes to Not For Profit Legislation
• There are new legislative requirements from
the Federal government
• membership requirements for all non-profits
will change
• We are enacting a new by-law to conform with the
legislation
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Publication of Cases
• OBSI had 21 cases that had reached stalemate: the
“Stuck Cases”
• Variety of cases, spread among IIROC and MFDA
members
• Most had suitability issues, though some were off-book
• The stalemate was that a firm would have refused to
pay a client in whose favour OBSI had made a
recommendation
• OBSI’s ultimate power is to publish cases naming the
firm that refuses to pay
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• Publishing cases:
– Publishing cases is REQUIRED under our TORs
• So-called “name and shame”
– It is an extraordinary step to publish cases
– Meant to be the nuclear deterrent and never used
– If firms refuse payment, then we have no choice
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• OBSI’s general record is that of all complaints, about
69%, are resolved in favour of the firm and 31% in
favour of the client.
• while OBSI had only had to publish a refusal once in
the first 16 years of its existence, it has now
published 8 more cases since late last year.
• We have 2 cases remaining of the original 21. They
may be published soon.
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• If firms refuse our recommendations, we will
see another build-up of cases and we will face
more decisions about naming firms that
refuse to pay clients in appropriate cases
• This will likely lead to another round of
discussions of the best way to resolve such
disputes.
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Conclusion
• OBSI continues to evolve, as does the market
and all of you. New products, new ideas, new
market conditions challenge all of us.
• We will continue to conduct investigations of
client complaints that will lead to quick and
satisfying resolutions for both sides to
disputes.
• We need and appreciate your cooperation
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• THANK YOU
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