OBSI reports rise in investment industry complaints

The Ombudsman for Banking Services and Investments (OBSI) reported a surge in the number of investment-related complaints in the second quarter of 2019 – well above its recent average.

OBSI’s second quarter results

In its Q2 2019 Statistics, OBSI announced that the number of new investment sector-related cases opened during the quarter represented a 19% increase compared to the average for the past eight quarters. In addition, OBSI announced that banking sector cases for the quarter represented a 7% increase from the adjusted eight-quarter average.^[1]

Almost all of the increase in investment sector cases was the result of an increase in fund dealer firm-related cases (which were 20% higher than the eight-quarter average) and cases involving Investment Industry Regulatory Organization of Canada (IIROC) firms (24% higher than the eight-quarter average). Newly opened cases involving other investment sub-sectors – portfolio managers, exempt market dealers, and scholarship plan dealers – were in line with historic averages.

Among newly opened investment sector-related cases for Q2 of 2019, suitability remained the most common issue, followed by fee disclosure. However, there was a dramatic increase in complaints concerning service issues (the third-most common issue leading to newly opened cases), representing a 57% increase compared to the eight-quarter average.

For banking sector-related cases, the most common issues leading to newly opened cases remained fraud, followed by service issues and chargebacks. Notably, the number of fraud cases opened in Q2 of 2019 increased by 50% compared to the adjusted eight-quarter average, while cases concerning complaints about service issues rose by 60% compared to that average.

Combining together all newly opened cases concerning the investment and banking sectors, the total number of cases opened in Q2 of 2019 by OBSI represented a 14% increase compared to the adjusted eight-quarter average.

Wider events affecting the financial industry

The increase in investment and banking industry complaints comes after heightened scrutiny of the financial industry’s practices in the wake of the revelations surrounding Wells Fargo’s sales practices.

In September 2016, Wells Fargo was hit with a US$185 million fine by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the City and County of Los Angeles for the creation of 1.5 million unauthorized deposit accounts and 500,000 unauthorized credit card accounts. Then in  February 2019 (as we previously reported), the San Francisco-based bank’s executives and directors reached a $240 million settlement with their U.S. shareholders regarding the creation of unauthorized accounts by bank employees.

The news about Wells Fargo’s sales practices had reverberations across the border. As we previously reported, Canadian regulators launched numerous reviews of the financial industry in the aftermath, including: IIROC’s compensation-related conflicts review; the House of Commons Standing Committee on Finance’s study of bank sales practices; and the Financial Consumer Agency of Canada and the Office of the Superintendent of Financial Institutions’ review of bank sales practices.

The action taken by Canadian regulators suggest that the reported Q2 of 2019 increase in investment and banking industry complaints could be a harbinger (rather than an outlier) of future complaints concerning the financial industry.

OBSI’s updated terms of service

OBSI’s statistics for Q2 of 2019 follows its December 2018 update to its terms of reference [PDF], i.e., the document setting out OBSI’s powers, duties, process, and dispute-resolution mandate. OBSI announced that it modernized its terms of reference to “ensure they are current, clear and easy to use.” For example, the updated terms of reference (blackline available) [PDF] make clear that discussions and correspondence with OBSI as part of the dispute resolution process may be shared with a complainant or participating firm’s representatives who agree to comply with the confidentiality requirement.