On June 5, 2015 the Ombudsman for Banking Services and
Investments ("OBSI") and ADR Chambers
Banking Ombuds Office ("ADRBO") were
approved as External Complaint Bodies
("ECB") for the banking sector by the
Minister of Finance. The approval will take effect 60 days
following the announcement. The practical significance of this
announcement is the establishing of Canada's bifurcated banking
external complaints system under a new regulatory framework.
This announcement marks a significant step in a series of
regulatory reforms that began in 2010 with amendments to the
Bank Act (the "Act") requiring
Schedule I banks, Schedule II banks and authorized foreign banks
(collectively, "Banks") to become
members of an ECB. Bank client complaints that could not be
resolved internally would be referred to the ECB for non-binding
alternative dispute resolution.
OBSI was created in 1996 as a quasi-judicial independent
non-profit arbitrator for disputes between consumers (including
entities) and financial institutions. While Bank membership in an
ECB is mandatory, they may choose between OSBI and other complaint
bodies. OBSI can issue recommendations to Banks including
recommending compensation to customers, however, it does not have a
mechanism to enforce such recommendations.
Several Banks have withdrawn from OBSI membership, using instead
ADRBO, a private mediation firm, to serve as their ECB. The
resulting bifurcated banking complaint system has been the subject
of much public and legislative debate.
On September 2, 2013 certain regulations under the Act, the
Complaints (Banks, Authorized Foreign Banks and External
Complaints Bodies) Regulations (the
"Regulations"), came into force and were
intended to bolster consumer protection in the banking sector. The
Regulations brought the previously self-regulating ECB system under
the mandate of the Financial Consumer Agency of Canada
("FCAC") which would provide oversight
and ensure compliance with the Regulations. A new ECB approval
framework was established, requiring all entities seeking to
operate as an ECB in the banking sector to satisfy a series of
prerequisites before being recommended by FCAC to the Minister of
Finance for final approval.
Now that OBSI and ADRBO have been approved as ECBs under the new
regime, these ECBs will face regulatory scrutiny and can no longer
rely exclusively on their self-determined terms of reference.
Specifically, the ECBs will be required to meet ongoing conditions
set out in section 7 of the Regulations in order to maintain their
approved ECB status.
Banks should be aware of the now salient section 7 obligations
imposed on their ECB and how these duties might affect each Bank.
ECBs are required to advise the Commissioner of FCAC (the
"Commissioner") without delay if a
complaint raises a systemic issue. ECBs must submit a comprehensive
annual report to the Commissioner covering essentially every aspect
of their activities. This report must be made available to the
public, along with information about the all sources of the
ECB's funding, its terms of reference, constitution, governance
and the identity of its members.
Banks should also be aware that since the Regulations came into
force in 2013, it is more onerous to switch membership from one ECB
to another. Section 10 requires Banks to give their ECBs and the
Commissioner written notice of a request, or an intention to make a
request, to become a member of another ECB at least 90 days before
doing so. The use of the word "request" in section 10,
suggests that the Commissioner will have discretion to disallow a
Bank from changing its ECB.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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