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The federal government is forcing Canada’s big banks to take unresolved customer complaints to a single independent dispute-resolution body — one that three of the country’s largest financial institutions have stopped using over the years as a result of disagreements over how it dealt with complaints.

The choice of the Ombudsman for Banking Services and Investments (OBSI), announced Oct. 17 by Finance Minister Chrystia Freeland as the sole external complaints body for Canadian banks, was cheered by investor advocates, including FAIR Canada and the Public Interest Advocacy Centre, which noted its established reputation for fairness over the past 25 years.

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However, FAIR Canada is pushing for more, urging Ottawa to beef up OBSI’s powers by giving it the power to make binding rulings in customer disputes. Without binding powers for its decisions, the dispute resolution body can only enforce compensation of up to $350,000 by “naming and shaming” banks that ignore its decisions.

“FAIR Canada and other consumer groups have repeatedly pointed out how Canada’s approach to banking complaints fell short of international standards and best practice,” said Jean-Paul Bureaud, executive director of the investor advocate.

In a news release, the investor advocates said the lack of binding authority for OBSI “means that some investment firms simply ignore its recommendations for resolving investor complaints in a fair and impartial manner.”

“More commonly, it means some investment firms pressure customers to accept less compensation than OBSI considered appropriate for the circumstances,” FAIR said.

Canada’s banks are required to have an outside body adjudicate complaints from customers that the parties are not able to resolve. Justin Trudeau’s Liberal government had pledged to put the banks under a single non-profit external body to address such complaints as part of its April 2022 budget. The federal government also said it would introduce “targeted legislative measures” to strengthen the external complaints handling system.

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However, the selection of OBSI to handle all bank complaints that can’t be resolved internally does not change the fact that the dispute settling body does not have binding powers.

Royal Bank of Canada and Toronto-Dominion Bank withdrew from OBSI in 2008 and 2011 after complaining about a number of issues, including the methodology used to determine compensation recommendations. Among the arguments was that the dispute resolution body should not be awarding compensation based on hindsight and its own choices about where and how money could have been better invested.

Both began to use a for-profit dispute resolution agency called ADR Chambers Banking Ombuds Office, with Bank of Nova Scotia also joining the breakaway group in 2018.

Consumer advocates have argued that allowing the banks to hire a for-profit entity to mediate complaints amounted to a conflict of interest, allowing the banks to essentially “shop” for the most favourable treatment.

Information published by ADR Chambers Banking Ombuds Office in 2015 showed that more than three-quarters of client complaints against the country’s two largest banks, Royal Bank and TD, in the prior year had been resolved predominantly in favour of the financial institutions.

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While banks were able to pull out of OBSI and select their own dispute resolution bodies, investment firms and brokerages, some of which operate inside the country’s biggest banks, were bound by their regulators to fund and use OBSI.

Maureen Jensen, OBSI’s chair and a former chair and CEO of the Ontario Securities Commission, said the non-profit dispute resolution agency is “deeply honoured” to be chose as exclusive external ombudsman for banking complaints in Canada.

“This decision validates our ongoing efforts to provide consumers and financial services firms with an effective process for addressing their disputes and to offer a world-class complaint resolution service that all Canadians can have confidence in,” she said.

“The OBSI team is dedicated to upholding the highest standards of integrity and fairness, and we are committed to facilitating efficient resolutions that benefit both consumers and the financial industry.”

Sarah Bradley, the Ombudsman and CEO, said OBSI will be working with the returning banks as well as the Canadian Bankers Association and the Financial Consumer Agency of Canada over the coming year to ensure a smooth transition.

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