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Regulators raise concerns about some wealth management firms – The Globe and Mail

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Canada’s investment regulators are raising the alarm over wealth management firms that fail to follow the industry-funded ombudsman’s recommendations to compensate clients after a dispute.

In a joint statement released Thursday, the Canadian Securities Administrators (CSA), Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association of Canada (MFDA) raised concerns about the complaint-handling systems at some registered investment firms. The notice also highlighted concerns the regulators have with some firms’ participation in services provided by the Ombudsman for Banking Services and Investments (OBSI).

OBSI is an industry-funded dispute-resolution service that allows Canadians to file a complaint within 180 days of a dispute with an investment firm or bank. But the process is voluntary and there are no repercussions for investment firms that do not follow through on a recommendation by OBSI to compensate clients.

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“Investor confidence in the integrity of Canada’s capital markets is built on a foundation of trust, supported by a fair and effective dispute resolution process,” said Andrew Kriegler, president and CEO of IIROC, in a statement. “IIROC expects its Dealer Members to deal with client complaints, including during the OBSI dispute resolution process, effectively, fairly and expeditiously.”

OBSI can make a recommendation for a firm to compensate a client, up to $350,000, if it determines that the client has been treated unfairly, but OBSI’s compensation recommendations are not binding on investment firms or clients. In the notice, regulators state that refusals to compensate clients consistent with OBSI recommendations, or repeatedly settling for lower amounts than recommended by OBSI, may be an indication of problems with a firm’s complaint-handling practices.

“As part of our risk-based reviews, we will particularly take note of patterns involving these activities,” the regulators said. “Such activities could suggest the possibility that the firm may not have participated in the OBSI process in good faith, complied with the applicable standard of care, or implemented and maintained effective complaint handling procedures.”

In such cases, regulators may look closer at the firm, which could lead to further regulatory actions. If a firm refuses to pay a client compensation, OBSI is required to publish a statement on its website that informs the public of its recommendation, the firm’s refusal to compensate the client and the details of the complaint. Since 2012, there have been 19 refusal publications.

“We expect firms to participate in OBSI’s dispute resolution process in a manner consistent with their obligation to deal fairly, honestly and in good faith with their clients and to respond to each customer complaint in a manner that a reasonable investor would consider fair and effective,” said Louis Morisset, CSA chair and president and CEO of Quebec’s securities regulator, the Autorité des marchés financiers.

Last year, an independent evaluator recommended strengthening OBSI’s ability to secure redress for investors. Regulators say they are continuing to consider options in this area.