Retail investors, who are of course key stakeholders in the financial services industry, have long expressed frustrations about the difficulty in obtaining restitution and redress and the reluctance of the regulators to intervene on their behalf when wrong-doing is found on the part of financial firms and their staff.
The Expert Panel Report had the following assessment of the current system for redress and complaint handling:
Investors whose money has been compromised by error or wrongdoing on the part of market participants expect the system of complaint-handling and redress to be accessible and responsive. The current system, however, requires significant knowledge, resources, and persistence to navigate properly. It all too often leaves investors frustrated and angry.
In 2001-02, the OSC’s Regulatory Burden Task Force heard complaints about the IDA’s arbitration program and in their December 2003 report, pointed out that “Arbitration between parties of widely different means is not a satisfactory mechanism for resolving investors disputes.” They suggested that
the Commission recommend to the IDA that it review its arbitration procedure with a view to correcting its perceived flaws and making it more helpful and less costly to investors. In particular, we recommend that the maximum claim be raised to at least $350,000 and that arbitration decisions be published without naming the clients involved in the proceedings.
The recommended changes were never made.
The Ontario Legislature’s Standing Committee on Finance and Economic Affairs heard further complaints about retail investor issues, including access to restitution, during the hearings held in August 2004 as part of the five-year review of the Securities Act (mentioned above in relation to oversight and accountability issues involving the OSC).
SCFEA recommended that
the government work with the Ontario Securities Commission to establish a workable mechanism that would allow investors to pursue restitution in a timely and affordable manner and that the government report on its progress in this regard within 12 months.
There is a note of urgency in this recommendation, given the incorporation of a reporting mechanism. Almost five years later, the necessary changes still have not been implemented by the Commission.
The Expert Panel made the following recommendation with respect to redress and complaint handling:
We recommend the following to improve investor complaint-handling and redress mechanisms:
A securities regulator with the power to order compensation in the case of a violation of securities law so that the investor would not be required to resort to courts;
Establishment of an investor compensation fund funded by industry to allow the securities regulator to directly compensate investors for a violation of securities law; and
Mandatory participation of registrants in the dispute resolution process of a legislatively designated dispute resolution body.
FAIR Canada recommendations:
(1) The Ontario Government and OSC give serious consideration to implementing the recommendations of the Expert Panel Report with respect to complaint handling and redress by:
- granting the OSC the power to order compensation in the case of a violation of securities law so that the investor would not be required to resort to the courts;
- establishing of an investor compensation fund funded by industry to allow the securities regulator to directly compensate investors for a violation of securities law and;
- mandatory participation of registrants in the dispute resolution process of a legislatively designated dispute resolution body.
(2) Pending implementation of legislative changes which often takes many years, the Committee should ask the OSC to follow up on the recommendation that IIROC review its arbitration procedure with a view to making it more helpful and less costly to investors and more transparent. The maximum claim should be raised to $350,000 or higher.
