FAIR Canada
FAIR Canada Newsletter

November 2011

Canada Needs a Single Provider of External Dispute Resolution Services

Since our last newsletter on OBSI, FAIR Canada has written an open letter to Minister Flaherty, Canada's Minister of Finance, in support of OBSI as the single external dispute resolution (EDR) provider for complaints arising from the banking sector. We pointed out that one single EDR provider is necessary in order to avoid fragmentation, inconsistencies, serious potential conflicts of interest, consumer confusion, and to enable the detection of systemic or widespread issues.


As stated by OBSI's Board, OBSI cannot survive without either: a) the voluntary support of the banking sector, or b) mandatory participation through designation by regulators or legislation. TD Bank's recent withdrawal from participating in OBSI's services for its banking clients, which followed RBC's withdrawal on the banking side in 2008,  has threatened OBSI's survival. The use of for-profit EDR providers poses problems in terms of consumers' perception of a lack of independence and impartiality and will likely increase confusion due to fragmentation. A news release from OBSI's Board, issued in late October, stated:


In the wake of TD Bank's withdrawal from OBSI for banking complaints, the Board of Directors would like to strongly express our complete support of and confidence in OBSI management and staff... How the complaint handling system functions is essential to maintain that trust when the consumer feels he or she has been wronged or treated unfairly.  For many individual consumers and small businesses navigating the bureaucratic maze of many large financial institutions can be a daunting prospect and baffling ordeal.  When a consumer cannot satisfy his or her complaint with a firm, there must be a fair, impartial and efficient alternative to costly and lengthy legal action...OBSI's Board of Directors believes we should simplify the redress system for consumers, not allow more fragmentation.


Even TD Bank agrees that a reformed OBSI is the answer: Paul Huyer, TD Bank's internal Ombudsman, was quoted in the Financial Post on October 26, 2011 as saying "We agree with the regulators that one single, independent dispute services is preferable and that should be OBSI".


During a speech at the OSC Dialogue 2011, OSC Chair Howard Wetston, on behalf of the CSA, publically endorsed a single system of EDR, although he did not mention OBSI specifically: "The CSA strongly supports the existence of a single system of informal dispute-resolution to which investors can have recourse as an alternative to litigation or binding arbitration. From our perspective, a principal benefit of such a system is that it permits quicker resolution of complaints in a cost-effective manner. It also contributes to investor protection and confidence in the regulatory system."


The CSA, IIROC and the MFDA have acknowledged that they are carefully reviewing an expert's recent independent review of OBSI, which found that OBSI compares favourably with international EDR services. These regulators wrote a letter to OBSI stating that they were reviewing the report with a view to "ensuring a sustainable system of independent dispute resolution to which investors can have recourse as an alternative to litigation or binding arbitration." They also stated that they intend to work with OBSI to improve and enhance the current system to ensure that investors have the best complaint handling system available.


As stated by OBSI's Advisory Council, "[i]t is the consumer who loses when OBSI does not have the power and resources it needs to work effectively." FAIR Canada believes it is incumbent on government and regulators responsible for the banking and investment industries to ensure that Canadian consumers are protected through a single, EDR provider, namely a reformed and strengthened OBSI.
 

See below for recent media articles on OBSI:

Globe and Mail - Time for Canadians to stand up for investment ombudsman (Rob Carrick)

Financial Post - Big banks for the little guys (Barry Critchley)

Financial Post - Canada's financial consumers left out in the cold (Theresa Tedesco)

 

FAIR Canada Cites Concerns about Maple Transaction

 

FAIR Canada submitted a comment letter in response to consultation papers issued by securities regulators in BC, Alberta, Ontario and Qu�bec about the proposed acquisition of the TMX Group and CDS, and Alpha by a consortium of large banks and investment firms (Maple Group).


FAIR Canada recommends that if regulators determine that it would be in the public interest to make the requested orders, the orders be conditional on the implementation of sound mechanisms to manage conflicts of interest, particularly existing TSX and TSX-V conflicts of interest and conflicts with respect to the owner-dealer interests versus the public interest. We note that the business and regulatory conflict of the TSX and TSX-V is aptly demonstrated by their marketing efforts to attract China listings and recent events involving Sino-Forest and other troubled emerging market listings that have resulted in huge losses for investors.

 
We also recommend that two-thirds of the board of directors be independent of Maple Group, with one-third representing investors and one-third representing the public interest along with a materiality threshold for independence at five percent.
 

With respect to CDS, we state that if the regulators approve the conversion of CDS into a for-profit entity, then they should regulate fees in a manner similar to a public utility and that, in the alternative, any decision regarding CDS should be deferred until such time as a more fulsome consultation can be undertaken, given the critical role that CDS plays in the Canadian markets. A regulatory decision on CDS should not be rushed.
 

The Canadian Coalition for Good Governance provided a submission regarding the proposed Maple transaction. In its letter, the Coalition states its belief that approval of the application "should be contingent on the TSX finally addressing the conflicts of interest inherent in its business model", citing the problems identified in FAIR Canada's 2010 report "Managing Conflicts of Interest in TSX Listed Company Regulation".

 

Marc J. Ryan of Independent Investor also provided a submission to the AMF in which he raised concerns about the changes to CDS's business model if a takeover occurs, including how to ensure equitable treatment of investors with respect to custody/safekeeping charges, commissions and other fees; recommends requiring that the AMF have oversight and the right to intervene to ensure investors (of ETFs and mutual funds in particular) are treated fairly; and asks for verification and assurance that the Maple Proposal will not interfere with the possible establishment in Canada of the ability of small investors to buy Government of Canada bonds directly (i.e. without going through a broker).

 

FAIR Canada Concerned about CSA's Permitted Use of Fund Facts  
FAIR Canada has submitted comments to the CSA opposing elements of the proposed implementation of Stage 2 of the point of sale initiative. FAIR Canada is disappointed and concerned that the CSA has lost sight of the core objective of the Fund Facts document. FAIR Canada has expressed its concern over the CSA's proposal to replace delivery of the simplified prospectus with delivery of the Fund Facts document, which we view to be flawed in several respects, and to deliver the Fund Facts after the sale (which will not assist investors in making their investment decisions). We are also concerned that the CSA has already begun granting exemptions to permit this substituted delivery prior to a full consultative process. 
FAIR Canada views the Fund Facts document to be flawed with respect to a) deficient risk disclosure; b) a lack of benchmark information; c) inadequate conflicts of interest provisions; and d) a lack of currency and hedging policies.
 
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