WINDSOR, Ont. — The agency responsible for resolving disputes Canadians have with their banks and investment firms is at a critical point.

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This article was published 11/6/2011 (3618 days ago), so information in it may no longer be current.

WINDSOR, Ont. — The agency responsible for resolving disputes Canadians have with their banks and investment firms is at a critical point.

And the Ombudsman for Banking Services and Investments hopes consumers are paying attention. The future of Douglas Melville’s office hangs on the outcome of a public consultation about the way it determines if a firm gave an investor unsuitable advice and how it calculates the losses for which a client should be compensated.

The review stems from complaints by the investment industry, which has been required to offer unhappy clients the option of using the OBSI since 2002.

"Part of our challenge is to come up with what’s fair and reasonable under the circumstances when faced with a lot of these really tough cases, because we get the small proportion of those that can’t be resolved with the firms," Melville said.

Last year, the OBSI opened investigations into 1,024 cases, of which 55 per cent had to do with investments. (It also handles complaints about other banking issues.) It recommended monetary compensation in 38 per cent of the investment cases totalling $3.3 million, or an average of $19,121 per case.

The trouble is that in at least 15 of those cases the firms are refusing to pay in a stalemate that is threatening to bog the whole system down, Melville said. His office, set up as an independent mediator by the industry, has no powers to enforce its conclusions. Its only recourse is to go public and try to shame a firm into compensating a client the ombudsman feels has been treated unfairly — a stick it has only used once in the past.

This time the standoff is bigger. The investment arms of three major financial firms — Royal Bank, Toronto Dominion and Manulife — earlier this year asked regulators to exempt them from using the ombudsman’s office to settle disputes, Melville said. They were later joined in making their case by Investors Group and Macquarie Group. If regulators agreed, it would open the door for investment firms to hand-pick the companies they use to settle disputes.

The Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada have so far stood firm on requiring all investment firms to use the OBSI.

FAIR Canada, a non-profit group that advocates for investors, is urging the regulators to stick with the OBSI and strengthen its mandate.

"Given the multi-jurisdictional nature of Canada’s system, it’s already very difficult for consumers or investors to navigate the system in order to get redress," said associate director Marian Passmore. "The idea of having multiple dispute-resolution services, instead of one central ombud-service, would not improve that system. It would likely make it much worse."

Banks and investment firms, which fund OBSI, already have a great deal of power in their dealings with clients, FAIR says in a letter it sent to regulators last week.

While the OBSI could be tweaked to make it better, it "remains a simple, inexpensive alternative for retail investors," says the letter. Having one service also makes it possible for the ombudsman to identify larger problems in the industry, it says.

— Postmedia News