Canadians mistreated by financial firms routinely accept less compensation than independent mediators say they deserve, according to a coalition of investor and consumer advocates.
The new analysis, detailed in a comment letter submitted Wednesday to securities regulators across the country, represent the latest salvo in a decade-long battle to establish a binding regime for investment-related disputes. Currently, the non-profit Ombudsman for Banking Services and Investments can only recommend compensation up to $350,000, which firms can simply refuse to pay.
In late 2023, the Canadian Securities Administrators – a national umbrella group of provincial and territorial market watchdogs – proposed a new framework that would force banks and investment firms to comply with OBSI decisions. The proposal has faced strong resistance from industry groups, who argue a binding regime would drive up the cost of liability insurance, but proponents claim a binding regime is the only effective way to level the playing field between large financial entities and individual investors.
From 2015 through 2020, an analysis contained in the comment letter found investment firms paid out nearly $3-million less than the aggregate amount OBSI recommended. Another analysis in the letter found payments made between 2018 and 2022 totalled roughly $1.6-million less than OBSI’s recommendations.
On average, the letter cited CSA data in stating that “consumers who accepted lowball offers settled for 60 per cent of OBSI’s recommended compensation amount.”
“Binding decision-making will put an end to this harmful practice and should, instead, encourage firms to work harder to resolve client complaints fairly and honestly when they are first brought to their attention,” the letter said. The 11-member coalition that submitted the letter included the Canadian Foundation for Advancement of Investor Rights (FAIR Canada), the Public Interest Advocacy Centre, the Consumers Council of Canada and the Canadian Association of Retired Persons.
There have been 22 instances since 2007 where financial firms have refused to abide by an OBSI recommendation. In those cases, OBSI publishes the name of the offending organization on its website, though such a “name and shame” system has been repeatedly criticized as ineffective.
“OBSI’s inability to universally secure redress for consumers through the name and shame system continues to limit its effectiveness, as it provides an economic incentive for both parties to settle for amounts below OBSI’s recommendation,” Poonam Puri, a professor at York University’s Osgoode Hall Law School said in an independent evaluation of OBSI’s mandate published in 2022.
Her report came to many of the same conclusions as a 2016 evaluation by Deborah Battell, who was previously the banking ombudsman for New Zealand. Ms. Battell’s analysis found 18 per cent of complainants in 2015 who OBSI considered should receive compensation ended up receiving, on average, $41,927 less than OBSI recommended.
“The real mischief, however, is not that some consumers receive less, but that OBSI’s current mandate allows this to happen,” Ms. Battell said. “It, in effect, tilts the playing field in favour of firms.”
OBSI records confirm the vast majority of its decisions are in favour of the company responding to a complaint. According to its 2022 annual report (the 2023 report has not yet been released), only 33 per cent of investment-related complaints and 21 per cent of banking-related complaints ended with a recommendation for compensation.
Still, several of Canada’s largest banks have opted out of OBSI amid disagreements over resolution timelines and the size of settlement recommendations. Royal Bank of Canada, Toronto Dominion Bank and Bank of Nova Scotia pulled out of OBSI for consumer banking complaints in 2008, 2012 and 2018 respectively, moving instead to for-profit arbitration firm ADR Chambers.
In 2012, after the departures of RBC and TD, OBSI contemplated shutting down its operations entirely. Its 2011 evaluation also recommended binding authority, calling the present system “unworkable if participating firms can simply reject an Ombudsman decision.”
The CSA proposal, however, also seeks to expand the definition of “complaint” to include “any expression of dissatisfaction,” which according to the Private Capital Markets Association of Canada runs the risk of dramatically increasing the number of complaints that could potentially be made against its members.
The PCMA, which represents roughly 400 exempt market dealers, portfolio managers and investment advisers, launched a website detailing the various reasons why it opposes granting OBSI any binding authority. In an interview, PCMA chair David Gilkes said the proposal was “unfair by design” and that, if implemented, it could become impossible for some firms to access a common form of liability insurance known as errors and omissions – or E&O – insurance.
“The insurance industry is telling us, the underwriters and brokers that we have spoken to, have said you might have trouble underwriting E&O insurance in the investment industry in the future if this is the type of settlements that will be given out with binding authority,” Mr. Gilkes said.
Proponents counter that binding recommendations are the norm internationally, with Canada being an outlier among peers such as the United Kingdom, Australia, New Zealand, Ireland, the Netherlands, the Czech Republic, South Africa, Singapore and Taiwan. However, Mr. Gilkes said none of those countries have the power to make binding recommendations for payments as high as the OBSI limit of $350,000, with most being limited to a fraction of that amount.
Support for granting OBSI more authority has been growing in recent months. Ontario Securities Commission chief executive officer Grant Vingoe said in a Feb. 5 interview that legislation related to OBSI that creating “a stronger framework for investor compensation in cases of wrongdoing could be very valuable”
Ontario finance ministry spokesperson Scott Blodgett said via e-mail that “the government supports the OSC’s ongoing work to modernize the dispute resolution framework available to Ontario investors” but added that “the ministry does not speculate about future government legislation.”
In the meantime, federal finance minister Chrystia Freeland selected OBSI in October 2023 as the sole ombudsman for banking complaints in Canada. That means RBC, TD and Scotia must leave ADR Chambers and rejoin OBSI before the end of this year.
Whether or not OBSI will have expanded powers by then remains to be seen. CSA spokesperson Ilana Kelemen said via e-mail it would be “premature to comment on the timeline for implementation as the proposed framework is still under development.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
