Canada's investment landscape is on the cusp of transformation in how disputes between investors and their dealers are resolved. The Canadian Securities Administrators (CSA) has released a proposal for comment that would grant the Ombudsman for Banking Services and Investments (OBSI) the authority to make binding decisions in investment-related disputes.
The move reflects a series of initiatives by Canadian capital market regulators aimed at strengthening protections and restitution rights without forcing aggrieved investors to take costly and time-consuming action through the courts. (See Osler's recent summary of the Ontario Securities Commission's new framework to distribute funds from disgorgement orders to harmed investors.)
CSA's proposed framework
Currently, OBSI serves as an independent dispute resolution service for banking and investment complaints, but its recommendations are non-binding. This means that while OBSI can recommend compensation of up to $350,000 for a single complaint, firms are not obligated to follow these recommendations. Firms are instead subject to a "name and shame" protocol, where OBSI makes public the names of firms that refuse to comply. As a result, many investors have historically accepted "lowball" settlements out of concern that they might otherwise receive nothing, and some firms have simply ignored OBSI's recommendations altogether.
The CSA's latest proposal aims to change this by introducing a two-stage process for resolving disputes: an investigation and recommendation stage (stage 1) and an optional review and decision stage conducted by OBSI (stage 2).
Stage 1
At the first stage, OBSI would investigate the complaint and issue a recommendation, which carries forward OBSI's current investigative process. After OBSI makes a recommendation, the complainant or the firm could object to the recommendation within a specified time. A recommendation would become final and binding after one of the following:
- the OBSI receives acceptance of the recommendation from both the complainant and firm
- the end of the acceptance period if the firm did not object to the recommendation and if the complainant accepted the recommendation or did not object to it
Stage 2
If either party objects, the dispute moves to a second stage, where OBSI would conduct a review and issue a final, binding decision. The process at stage 2 depends on the amount of monetary compensation recommended at stage 1.
- $75,000 and higher: For cases involving compensation recommendations of $75,000 or more, an external decision maker (approved by the CSA and independent of OBSI) would be appointed to ensure impartiality and address concerns about fairness and the lack of an appeal process.
- Less than $75,000: If the stage 1 recommendation is less than $75,000, OBSI has discretion in assigning the stage 2 decision maker. OBSI may choose a senior internal decision maker, an external decision maker or a panel comprising both internal and external members, depending on the nature of the dispute and the skills and experience required for an efficient resolution.
At the conclusion of stage 2, a senior OBSI decision maker issues a written decision to both parties. The binding nature of this decision depends on who initiated the stage 2 review:
- If the complainant initiated the stage 2 review, the decision is final and binding on both parties once it is issued.
- If the complainant did not initiate stage 2, the complainant is given a further specified period (the post-decision period) to accept or reject the decision. If the complainant accepts or does not object within this period, the decision becomes final and binding on both parties.
Once a decision is final and binding, the firm is required to comply promptly. If a firm fails to comply, the final decision may be filed with the courts and enforced as a court order.
Can a binding decision be imposed without firm participation?
A binding decision can be imposed on a firm even if the firm does not actively participate at certain stages of the OBSI process. Specifically, if a firm fails to respond or object within the designated acceptance or post-decision periods, the process allows for a decision to become final and binding, provided all procedural steps are followed.
However, the process is designed to ensure that firms are given a fair and meaningful opportunity to participate at every stage:
- Firms are notified of the complaint and have the right to respond during the investigation.
- If dissatisfied with the recommendation, firms can object at stage 1 and trigger a second-stage review.
- For significant monetary cases, an external, independent decision maker reviews the matter before a binding decision is finalized.
Previous recommendations called for OBSI authority
The push to provide OBSI with binding authority is not new. The Ontario Capital Markets Modernization Taskforce (Taskforce), in its comprehensive 2020 report, specifically recommended that Ontario create a statutory framework allowing for a dispute resolution service with the power to issue binding decisions. The Taskforce highlighted that the lack of binding authority for OBSI left harmed investors with limited recourse, often forcing them to accept less than what OBSI recommended because of the likelihood that they would receive nothing if OBSI's recommendations were ignored, or to pursue costly and time-consuming court actions. The Taskforce also noted that comparable jurisdictions, such as the U.K. and Australia, already have binding ombudsman schemes, and that providing such authority in Canada would bring the country in line with international best practices.
The Taskforce further recommended that any framework for binding decisions should include oversight, procedural fairness and a limited right of appeal to ensure accountability and maintain confidence in the dispute resolution process. These recommendations have clearly influenced the CSA's current proposal.
Osler has previously written about OBSI and the surge in complaint volumes.
Conclusion
The CSA's proposal to grant OBSI binding authority is meant to be a significant step forward in investor protection and the modernization of Canada's capital markets. However, the proposed approach is not without controversy: the challenge, as noted by the Taskforce, is to ensure that the procedure, which can be seen as putting OBSI in the position of investigator, advocate, decision maker and decision enforcer, is fair and legitimate. As the proposal moves through the consultation and legislative process, it will be important for investors, industry participants and other stakeholders to engage and provide feedback to help shape the final framework. The proposal notice requests comments until September 15, 2025.
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