The Internal Bank �Ombudsman� Versus Obsi

Ken Kivenko Investment dealers are required to respond to an investor’s complaint within 90 calendar days. The intent of the Canadian Securities Administrators (CSA) so-called 90-day rule is to ensure investor complaints are not dragged out for more than 90 days as they used to be before the rule came into force. Offers for compensation are binding on the dealer. Once you receive the final response from the dealer, you have 180 calendar days to bring your complaint to the Ombudsman for Banking Services and Investments (OBSI) if you are unsatisfied with the investment dealer’s offer. OBSI is the sole CSA approved Ombudsman for investments; it can recommend compensation up to $350,000. Complaint handling can get more complicated when dealing with a bank-owned (or insurance-owned) dealer. It is here we meet a banking industry creation, something they call an “ombudsman”.

After you receive a final response letter to your complaint from the dealer, you have a few choices. You can accept the decision, abandon the complaint altogether, use the Investment Industry Regulatory Organization of Canada (IIROC) binding arbitration process (if the dealer is an IIROC-regulated dealer), take legal action, refer the complaint to the (OBSI ) or the firm may “encourage” you to use their internal "ombudsman". According to the IIROC Publication How can I get my money back? A Guide for investors http://www.iiroc.ca/industry/member-resources/Documents/IIROC_How_Do_I_Get_Money_Back_Brochure_en.pdf the use of an internal “ombudsman” is entirely voluntary, notwithstanding any statements from the banks. Navigating the complaint process can be daunting for investors, while dealing with the financial and emotional effects resulting from investment losses, without unnecessary diversions. Investor advocates view the diversion from regulator-approved OBSI as an unnecessary and potentially harmful step.

According to published records, no bank-owned dealer has ever been publicly Named and Shamed by OBSI for rejecting an OBSI recommendation. It is, however, possible some bank-owned dealer client restitutions were low- balled by investment dealers—OBSI does not Name and Shame if a complainant accepts an offer lower than the OBSI recommended compensation. You can only imagine the degree of investor abuse that could occur when there is no OBSI recommended compensation figure to benchmark.

If the internal “ombudsman” confirms the dealer position, most complainants will not have the will or fortitude to start all over again with dealer-independent OBSI. This “complaint exhaustion” could cause a complainant with a very valid compensation claim to just give up. In 2011, the U.K. Financial Services Authority did away with two-stage complaint handling by financial institutions to ensure firms resolve complaints fairly and do not dismiss them the first time, requiring persistence from the customer to pursue the complaint. They can now directly access the statutory, industry-independent national Financial Ombudsman Service after receiving the firm’s response.

A self-appointed internal “ombudsman” is run quite differently than an Ombudsman authorized by regulators or governments. Such self-appointed entities lack the transparency, real and perceived independence and defined practices as compared to true institution-independent ombudsman services such as OBSI. Investors are confused and misled by this “ombudsman” terminology.

All these bank “ombudsmans” assert they are independent but clearly they are part of the same corporate family. The TD “ombudsman”, a Vice President, has worked at TD for over 18 years in increasingly senior roles in a wide variety of areas, including Direct Channels and Branch Banking. Does this “ombudsman” have colleagues and even friends among the staff to be investigated? The TD “ombudsman” is located at TD Centre in Toronto, co-located with senior TD executives—this is generally regarded as an indicator of non-independence. On the banking side, in 2011, TD was the first bank to disengage with OBSI and hire their own external “ombudsman”, for-profit ADR Chambers Banking Ombudsman, as permitted by controversial federal bank laws.

In 2011, TD Securities, RBC Capital Markets and Manulife Financial Corp. filed an application with IIROC for an exemption from the mandatory provision that requires dealers to resolve disputes through OBSI. It was denied but the dealer-OBSI relationship remains less than warm. Common sense says you should also assume the internal bank “ombudsman”- complainant relationship is adversarial and ignore the comforting PR.

The Forum of Canadian Ombudsman (FCO) www.ombudsmanforum.ca/en/ is an organization that lays out the basic principles of an ombudsman. They require, among other demanding criteria, that the ombudsman should be clearly and visibly independent in purpose, administration and decision-making, from the institution about which it has the mandate to receive complaints. It does not take a genius to see that the independence criterion is not met by an internal “ombudsman”. In a series of email exchanges, CIBC told us they were not even a member of the FCO, a surprising statement given their claim they are a real ombudsman.

Despite our best efforts, our polite inquiries to these entities were not addressed unambiguously and forthrightly. We were not able to obtain specific dollar compensation settlement limits from any internal “ombudsman” websites. We asked the internal “Ombudsman” for several banks to direct us to information regarding their basis for compensation, sources of funding, method of appointment and reporting rules – i.e. where is this information publicly available? No response was received. As to transparency, these entities refuse to disclose their governance, loss calculation methodology and core policies that a true ombudsman would readily reveal. They are not regulated or overseen by any securities commission, government agency, the Mutual Fund Dealers Association (MFDA) or IIROC.

There does not seem to be consistency between the banks regarding the roles of their internal “ombudsman”. For example, the RBC ombudsman complaint resolution process is voluntary, confidential. It provides within RBC an independent and final review of unresolved issues and customer concerns about the fitness of RBC service, products and administration, and when appropriate, may make recommendations to resolve issues where investigation finds actions or inactions by RBC contribute directly to client costs or losses. RBC state “RBC Ombudsman has no resources from which to award damages but may recommend the reimbursement of financial losses or costs”. Recommendations are therefore non-binding and parties are free to pursue other dispute resolution avenues if agreement is not reached. Other banks imply that the use of their internal “ombudsman” is mandatory and decisions may be binding.

While internal bank “ombudsman“ do not appear to have published time standards for resolving complaints we found (after some digging) that most complaints are investigated within 90 calendar days. If the time spent with this “ombudsman” causes a complaint response to exceed 180 days from the date of the final dealer response, you could lose your right to access OBSI.

When we asked if a complaint with the internal “ombudsman “stopped the statute of limitations time-clock, as it does with OBSI , we never received a response. Investigations by bank “ombudsman” do not appear to stop the statute of limitations time-clock, putting complainants at risk of running out of time to take civil action. Complainants are not even warned that they are running on the limitations time-clock.

We asked what complaint handling standards they actually adhered to. No definitive response was received but a few banks did say that they follow industry “best practices”. The RBC Ombudsman claims to adhere to the spirit of the Statement of Ethical Principles of the Forum of Canadian Ombudsman http://www.ombudsmanforum.ca/en/?page_id=157 . Typically, the standard for an ombudsman would be ISO 10003 Quality Management – Customer Satisfaction – Guidelines for Dispute Resolution External to Organizations or the Forum of Canadian Ombudsman. We do not believe that any of the internal “bank ombudsman” fully comply with the overall criteria of either of these accepted standards.

A February 2016 Privacy Commission ruling concluded that an insurance company’s internal ombudsman office is not a “formal dispute resolution process” under Personal Information Protection and Electronic Documents Act (PIPEDA). Second, on the refusal to release personal information related to dealings with the ombudsman, our view is that while the ombudsman provides a means for resolving complaints, it lacks the framework and structure that would qualify it as a “formal process.” As a result, the company's use of the exemption in paragraph 9(3) (d) was not justified. The same principles apply to internal bank ombudsman.

https://www.priv.gc.ca/en/opc-actions-and-decisions/investigations/investigations-into-businesses/2016/pipeda-2016-006/ The case arose because the internal “ombudsman refused to release personal information it said it had used in its investigation.”

In fact, we hear from many complainants that these internal “ombudsman “will not disclose documents they cite in their investigation reports, reveal calculation details or comply with complaint handling rules established by securities regulators.

The Canadian Securities Administrators (CSA), Mutual Fund Dealers Association (MFDA) and IIROC made their position clear in a Joint CSA Staff Notice 31-351; IIROC Notice 17-0229, MFDA Bulletin #0736-M. issued in December 2017. It said that the CSA, IIROC and MFDA will:

Require investment dealers to comply with their regulatory obligation to notify investors of their right to utilize OBSI’s services upon the earlier of being provided with the firm’s substantive response or after 90 calendar days.
Require dealers to disclose clearly to complainants that they may submit a complaint to OBSI without using an internal “ombudsman” – if either no substantive response is received from the dealer within 90 calendar days or the client is not satisfied with the response received within 90 calendar days.
Not permit dealers to mislead complainants into thinking that they must exercise the option of using an internal “ombudsman” before they can access OBSI’s free services.
Require dealers to disclose clearly to their clients that any internal “ombudsman” is employed by the firm and, unlike OBSI, is not an independent dispute resolution service.
Require dealers to disclose clearly to clients that the use of an internal “ombudsman” is voluntary specifying the estimated length of time the internal ombudsman process is expected to take, based on historical data; that statutory limitation periods continue to run while using that process which may impact the complainants right to commence a civil action in the courts.

The regulatory rules for investment complaint handling are defined under IIROC Rule 2500B – Client Complaint Handling. The use of the bank internal “ombudsman” is NOT a mandatory part of the IIROC defined complaint-handling process. However, IIROC can be faulted for their wording in the Rule where they say: “The ninety (90) days timeline must include all internal processes (with the exception of any internal ombudsman processes offered by an affiliate of the firm) of the Dealer Member that are made available to the client.”. This statement gives the bank-owned dealers the legitimacy to argue that they are not barred from using an “internal ombudsman” process to adjudicate a customer complaint. IIROC have made it clear that they have no jurisdiction over the operation of the bank’s “internal ombudsman”, yet IIROC allows the bank complaint publications to nudge customer complainants to the self-serving internal bank “ombudsman” and away from OBSI. The act of the investment dealer directing the complainant to the bank affiliate internal “ombudsman” takes on the appearance of an independent impartial adjudicator. In reality, it systematically serves the bank’s purpose as one more opportunity to try to dissuade the complainant that they have a valid case for compensation. Investor advocates have requested that IIROC amend their Rule which has several other important deficiencies.

The use of the term “ombudsman” is reassuring for investors but the fact is they are not ombudsman in the commonly understood meaning of the term. The banks have hi-jacked the term for their own purposes. Complainants are directed to the make-believe ombudsman and thereby placed in harm’s way given the ombudsman’s lack of independence, unknown governance, legalistic consent terms and general opaqueness.

The permitting of further delay by unregulated internal ombudsman offices issuing non-binding (on the dealer) recommendations undermines public policy objectives, the CSA 90-day rule and has the potential outcome of placing investors in harm’s way. It is a well-established fact that the more stages in a complaint-handling process, the less likely a complainant is to see it through to completion. That is why investor advocates suggest going directly to OBSI after the investment dealer has had its chance at satisfying the complainant rather than an internal “ombudsman”.

Before consenting to use an internal “ombudsman” read all agreement language carefully. In one case, a bank reserved the right to review all a complainant’s accounts with the bank even though they were irrelevant to the case! As explained in this article, there are several risks and pitfalls to consider when giving consent. The decision is simple—choose OBSI for a fair, unbiased, professional investigation of your investment complaint. While OBSI is imperfect, it’s the best deal complainants have until regulatory reforms kick in.

Ken Kivenko, PEng, President , Kenmar Associates, Etobicoke, ON (416) 244-5803, kenkiv@sympatico.ca, www.canadianfundwatch.com.