Industry backlash stalls investor-friendly reforms – again

The hope of fixing a glaring flaw in the Canadian investor protection system is fading fast.
A year ago, securities regulators seemed determined to finally push ahead with binding dispute resolution, which would force banks and dealers to compensate victims of adviser misconduct.
But the investment industry wasn’t on board. Several firms and industry groups pushed back, warning of entrenching a process that is unfairly tilted in favour of investors.
That pressure seems to have succeeded. Nearly a full year later, the Canadian Securities Administrators, the umbrella group for provincial and territorial regulators, now says it plans to make a new proposal in the second half of 2025, starting yet another round of consultation.
It’s hard not to see this development as yet another delay in a never-ending fight the industry always seems to win.
For well over a decade, binding dispute resolution has been discussed and studied, proposals shelved in the face of vigorous resistance.
“There is no more near-term prospect of this basic and widely supported step today than there was five, 10 and perhaps even 20 years ago,” said Harold Geller, a lawyer who has represented investors in complaints against financial advisers for more than two decades.
“Politicians respond to dealer lobbying and there is no investor lobbyist.”
Aggrieved investors are on their own. Most clients who have suffered undue losses at the hands of their advisers need to advocate for themselves through multiple layers of complaint handling at the bank and dealer levels.
Investor advocates say plenty of legitimate claims are effectively stifled at the firm level. Other claimants may receive offers for pennies on the dollar.
The persistent sort can then escalate a grievance to the Ombudsman for Banking Services and Investments (OBSI). Most complaints are dismissed at this stage as well.
Last year, OBSI received more than 1,800 complaints about investment firms. A little more than one-third of them were deemed worthy of investigating. From that, 175 cases ended with recommendations for monetary compensation. The average amount was about $10,200.
But OBSI is powerless to enforce its own decisions. Sometimes, albeit rarely, firms simply refuse to pay. Lowball offers are much more common.
Between 2015 and 2020, investment firms paid out nearly $3-million less than the total compensation recommended by OBSI, according to an independent review of the watchdog’s mandate by Poonam Puri, law professor and chair in corporate governance at Osgoode Hall Law School, published in 2022.
Investors who accept lowball offers typically settle for 40 per cent less than OBSI’s recommended amount, according to CSA data.
How is this tolerated? These are investors who have been harmed and who have often spent years navigating the complaint system. Their claims have finally been validated by an industry watchdog, yet there still is no guarantee they will be fairly reimbursed for what they have lost.
There have been three independent reviews of OBSI’s mandate since 2011, all three of which recommended granting OBSI the power to issue binding compensation orders.
“It is difficult to confidently promote a service that is unable to assure and secure redress for consumers,” Deborah Battell, the former banking ombudsman for New Zealand, wrote in a 2016 review.
For all the industry’s bluster on the matter, one would think OBSI was sapping investment firms of vast fortunes. But the money at stake is modest. Over the past five calendar years, OBSI has recommended total repayment to complainants of $1.7-million a year, on average.
That’s less than a rounding error by any measure of the industry’s size. Canadian mutual funds and exchange-traded funds have $2.7-trillion in investor assets under management. Last year, management expense ratios on those funds generated $31-billion in revenue.
Despite this, the industry has consistently claimed that OBSI is biased in favour of consumers and investors. None of the independent reviews of OBSI, mind you, have been able to substantiate these claims. In fact, they have all concluded the watchdog is doing its job well – its processes are sound and its decisions are fair.
After the CSA laid out a framework for granting OBSI binding authority last November, the letters of protest still poured in.
“There is continued concern regarding the procedural fairness of the OBSI,” wrote the Investment Industry Association of Canada, citing concerns such as “investigatory bias.”
A letter from Getz Prince Wells LLP, a Vancouver-based corporate and securities law firm, which a number of financial firms wrote in support of, said OBSI is “far from perfect.” Binding authority should be conditional on an overhaul of OBSI’s process and a five-year period of data gathering, it said.
And the Private Capital Markets Association of Canada set up a website detailing its concerns with the proposal it calls “unfair by design.” The group suggested that OBSI’s settlement limit be reduced to a maximum of $10,000 per case under a binding regime, rather than the current cap of $350,000.
This is typical of the industry’s reflex whenever meaningful regulatory change is proposed. Investor-friendly reforms are commonly met with a chorus of objections detailing why the initiatives cannot or should not be done.
It often does the trick. In a 2021 review of the Ontario Securities Commission, the province’s auditor-general at the time, Bonnie Lysyk, reported “intense” lobbying of provincial officials by financial industry stakeholders. That push helped weaken and water down the client-focused reforms that were introduced in 2021, Ms. Lysyk said.
The CSA said in an e-mail that it is working through the “extensive, detailed and varied feedback” but that it “remains committed to introducing binding authority for an independent dispute resolution service.” Perhaps this time is different, and regulators will fix this at last. Or maybe the industry will get its way and we will still be discussing this in a decade’s time.