The Canadian Securities Administrators (CSA) has proposed to reshape the existing Ombudsman for Banking Services and Investments ("OBSI") regulatory framework by making its decisions final and binding, without a right of appeal. This blog will highlight some of these changes and the impacts they could have on investors and dealers.
OBSI is a free, independent, consumer-friendly dispute resolution
service for investors who have a complaint against their advisors
and their dealers for financial losses. The OBSI has the authority
to investigate each complaint and recommend a non-binding outcome
up to a maximum of $350,000. If a dealer refuses to accept the
OBSI's recommendation, and the parties do not settle, the OBSI
will "name and shame" the dealer by publishing the
dealer's name and the result of its investigation.
Some critics of the current OBSI framework have articulated that the best-case outcome for retail investors is a settlement that is less than the OBSI recommendation. That is because if a dealer rejects the OBSI's recommendation, retail investors negotiate directly with the dealer and usually settle the matter by accepting a lesser amount, to avoid expensive, protracted, civil litigation. If there is a settlement, even one for an amount lesser than what the OBSI recommends, the dealer avoids the "name and shame" notice. Therefore, the result of the perceived power imbalance and the motivation of clients to settle their matter is that about 45% of all OBSI recommendations over $50,000, and 67% of OBSI's recommendations over $200,000 settle for lower than the recommended amount.1
These statistics have motivated the CSA to propose changes to the OBSI's regulatory framework, and in particular, that it be given authority to make final and binding decisions. Accompanying this new power is a proposed two-stage process for resolving OBSI complaints, which we describe below.
Stage 1: Investigation and Recommendation
OBSI would maintain its current inquisitorial approach to investigations. The primary change under this stage is that OBSI's recommendation would be final and binding, unless:
- either party objects (within a certain period) and triggers a review under the second stage; or
- the complainant withdraws from the process.
Stage 2: Review and Decision
If either the dealer or complainant objects to the OBSI's first-stage recommendation, the OBSI will engage another OBSI, more senior, staff member (who was not involved in the first stage) to consider only the specific objections raised by the parties.
During this second stage, the OBSI investigator may implement new procedural mechanisms to resolve the objections ranging from inquisitorial to adversarial (i.e. a limited discovery process or cross-examination of the complainant), provided these mechanisms are necessary to fairly and proportionately resolve the dispute.
Once the second-stage review is complete, the OBSI issues a final and binding decision with no further right to contest the decision, including any right of appeal (although the parties may apply for judicial review which is described briefly below).
Process and procedure
The CSA is contemplating excluding the OBSI from legislation that sets out procedural requirements for tribunals, to introduce a more flexible approach and avoid procedures required of most administrative tribunals. As such, the OBSI may not be subject to the Statutory Powers Procedures Act (SPPA), which sets out basic minimum procedural rules that must be met in conducting hearings and supporting decision-making.
While an appeal is not an option, judicial review will be available to challenge the OBSI's decisions. Judicial review is a process by which courts consider whether a decision by an administrative body is "reasonable" or, in some limited cases, "correct." It is not an appeal, nor is it an opportunity to re-argue the case. Rather, the court's function on judicial review is to consider whether a decision, or the process for arriving at that decision, is procedurally fair,2 or that a decision-maker properly exercised its discretion-making powers.
This creates two problems. First, how will a judge, on judicial review, consider and resolve allegations of procedural unfairness when there is no set "judicial" process, and where it is the investigator who will determine and implement the procedural mechanisms to resolve the dispute. Presently, the OBSI is not an administrative tribunal and is not subject to any of the basic rules that a tribunal is subject to and required to follow. A second problem is that because the standard of review for (most of) OBSI's decisions will likely be reasonableness, courts are likely to be deferential to the OBSI's decisions, particularly given its expertise in the financial services industry.
Doing away with OBSI's prior "naming and shaming" method means that dealers will be required to pay (likely greater) compensation to aggrieved clients. The OBSI suggests this is the fair result it seeks. However, the CSA has acknowledged that the current OBSI maximum monetary jurisdiction could be subject to review and increased in the future. Therefore, will the OBSI have even more authority with no obligation to follow a judicial or quasi-judicial process?
Additional concerns
In addition to the above concerns, what is not mentioned in the proposal is whether the OBSI's decisions and its reasons for decisions will be available to the public. Its decisions are currently not public unless a dealer refuses a recommendation and is "named and shamed." If the OBSI wants to be treated as a quasi-judicial tribunal, its process, and all of its decisions should be transparent, consistent, and available to the public.
Further, while the OBSI wants to have enforceable decision-making powers, and therefore be elevated to a quasi-judicial tribunal, without set administrative rules, there may be no ability to ensure actual fairness in the OBSI's procedures or outcome. That includes no right for any party to test the evidence. We understand that complainants would not necessarily have the skills to conduct cross-examinations on their own, and would likely be required to retain counsel to assist them (which would make the procedure lengthy and expensive), but without this right, it is difficult to have confidence in the process, especially where there is no right of appeal.
Conclusion
Many retail investors may be complaining about sums of losses that do not make financial sense for them to retain a lawyer to pursue a civil claim. However, the $350,000 threshold is significant, so it is concerning that the CSA may provide the OBSI with quasi-judicial decision-making authority where there is no guaranteed right to test the parties' evidence or the right to appeal. We suggest that if the CSA intends for the OBSI's decisions to be final and binding, then it should significantly lower OBSI's monetary jurisdiction.
The CSA invites feedback to be submitted by industry participants during a 90-day comment period, which is set to end on February 28, 2024.
Footnotes
1. CSA Notice and Request for Comment – Registered Firm Requirements Pertaining to an Independent Dispute Resolution Service, November 30, 2023: https://www.osc.ca/en/securities-law/instruments-rules-policies/3/31-103/csa-notice-and-request-comment-registered-firm-requirements-pertaining-independent-dispute at pg. 6
2. The level of procedural fairness owed varies depending on the nature of the decision, the relevant statutory framework, the importance of the decision to the affected party, the legitimate expectations of the party, and the procedural choices made by the decision maker. See Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 at para 77.
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