The independence of ‘community’ directors is a key point of differentiation between the submissions of consumer organizations and the submissions of financial services industry groups to the governance review underway from Canada’s leading financial services arbiter.
The Ombudsman for Banking Services and Investments (OBSI) undertook the review following the recommendations published in five-year reviews last summer. Those reviews, authored by Professor Poonam Puri, described a frayed relationship between OBSI’s Consumer and Investor Advocacy Council (CIAC) and the overall board, and recommended OBSI transition to a board without specific categorical representation, but rather a matrix of qualifications from different sources, along with periodic roundtables with industry and consumer advocacy groups.
Four of five CIAC members resigned following the report’s release, and OBSI suspended CIAC operations.
The OBSI board is comprised of 10 members, three from a short list of nominees from designated industry bodies, and seven from the ‘community,’ including one designed consumer representative.
As the next step of the review, OBSI sought market input, posing five questions around board composition. More than 20 submissions were made public on the OBSI web site, though OBSI noted other submissions were not publicly posted.
The submissions from consumers and consumer groups differed significantly from those of financial services organizations. One key point of differentiation was the independence of the community representatives. Although some industry participants supported the ‘skills matrix’ approach to board composition, Federation of Mutual Fund Dealers, Investment Funds Institute of Canada, Investment Industry Association of Canada and Private Capital Markets Association all favoured retaining or even expanding the number of board positions designated for industry participants.
Investor advocates and individual investors commonly argued that the current community directors were not truly independent. While there is a requirement that those directors be at least two years removed from working in the industry, multiple submissions noted that the industry experience associated with those positions would bias the board. Consumer group Public Interest Advocacy Centre’s submission noted “consumers cannot be expected to view OBSI’s processes as fair or trust them when nine of the 10 directors with responsibility to steer the organization effectively represent the industry.”
Consumer advocate Ken Kivenko’s Ken-Mar Associates noted that even with a skills matrix approach, “it is possible for every Director to be an industry or ex-industry participant. Ken-mar considers this an unacceptable and unnecessary risk to consumer protection.”
While Ken-Mar recommended retaining CIAC with a better defined role, PIAC called it “an attractive nuisance” that allows the board to make anti-consumer decisions while still claiming to “consult” with consumers. “We know, as we had a representative on the CIAC, and it became clear that no CIAC recommendations were ever heeded. Remove it and put consumers in an equal position to the industry on the board.”
The four resigned members of the CIAC made a joint submission which took the opportunity to address some other weaknesses that have kept OBSI from evolving from a dispute resolution service to an ombudsman service implied by its title. Their submission is critical that OBSI lacks the authority to properly address systemic issues, and must be constrained to individual complaints. It also notes that it cannot effectively secure redress for harmed complainants.
“If regulators do not trust the OBSI as an ombudsman, why should consumers?” is a point made throughout the ex-CIAC members’ submission.
Established to resolve disputes between consumers and securities firms at no cost to the consumer, OBSI only has the power to recommend settlements, and then just for amounts up to $350,000. Numerous independent reviews, including the Puri review, have highlighted this as a barrier to achieving true ombudsman status. Puri’s report noted the “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.”
OBSI also provides independent dispute resolution services for two of Canada’s largest banks. The federal government has signalled its intent to eliminate banks’ ability to choose their own arbiter, but has taken no action.