The Evolution of OBSI

1. The Evolution of OBSI The Effect of Recent Events James Sasha Angus Senior Deputy Ombudsman and COO

2. Regulatory Changes Proposed and otherwise 31-103 Mandate changes Terms of Reference

3. Proposed Regulatory Changes Change to 31-103 proposed by CSA • would require all registered dealers and all registered advisers to use OBSI to resolve complaints • Idea is to provide a clear dispute mechanism for those clients buying any investment product

4. The CSA chose OBSI because: • No perceived conflicts of interest; • Can handle complaints to a uniform standard; and • Investor confusion is reduced

5. Registrant numbers: • 1500 registered firms in Canada, 1293 of them in Ontario • 1180 are non-SRO firms, directly registered by CSA members (978 of these are in Ontario)

6. Individual registrants: • Sole EMD: • 1242 dealing representatives • PM firms: • 3966 advising representatives (including advising only or advising and dealing representatives) • 697 dealing representatives (not an advising representative, but registered under EMD or MFD categories)

7. Fees: • Principles • fees reflect the cost of service • no cross-subsidization

8. Training • We are sometimes criticized as lacking industry knowledge • however, almost all our investigators and managers are from industry

9. of the 1500 registered firms in Canada, 320 are SRO firms, with a registration in some other category, including EMDs • OBSI has also been dealing with exempt market cases through that group for some time

10. Mandate changes • The new mandate is to provide dispute resolution to all registered dealers and all registered advisers • This new mandate requires consideration of further issues:

11. Oversight • Who will oversee OBSI’s process? • What will be the roles of IIROC, MFDA, CSA?

12. Will governance changes be required? • Will board representation be required for new classes of members? • What will that do to the need for more community (independent) directors? • Our present governance rules require a certain balance on our board as it is.

13. Public Consultations • Loss Calculations and Suitability Analysis • we looked at our suitability analysis and how we calculate losses with respect to suitability complaints • our methods of calculation were already noted as “world class” by an independent reviewer • our changes were designed to make our loss calculations more predictable and understood

14. The five changes to our Investment suitability and loss assessment process are as follows: • 1. Use common indices as performance benchmarks in most suitable performance comparisons. • 2. Take fees and trading costs into account in all cases when making suitable performance comparisons.

15. 3. As a general rule, add interest on compensable losses only if an Investigation Report (a final report where we recommend compensation) is issued, but not add interest on facilitated settlements. Generally, interest on recommended compensation would be calculated from the date the investor complained to their firm and is intended to compensate the investor for not having access to the compensation during lengthy delays in resolving the complaint.

16. 4. Implement a self-imposed limitation period of six years from the time when we believe the investor knew or ought to have known there was a problem with their investments. • 5. Provide working or at minimum clear and transparent printed versions of our loss calculation spreadsheets during our investigation.

17. Changes to Terms of Reference • our terms of reference are presently being revised to accommodate the changes we are anticipating, mainly from the 31-103 proposals and the requirements of the Federal Consumer Agency of Canada • the TORs will be reviewed by the OBSI board and the CSA, before going out for public comment • I am unable to say at present when that public consultation period will start

18. Changes to Not For Profit Legislation • There are new legislative requirements from the Federal government • membership requirements for all non-profits will change • We are enacting a new by-law to conform with the legislation

19. Publication of Cases • OBSI had 21 cases that had reached stalemate: the “Stuck Cases” • Variety of cases, spread among IIROC and MFDA members • Most had suitability issues, though some were off-book • The stalemate was that a firm would have refused to pay a client in whose favour OBSI had made a recommendation • OBSI’s ultimate power is to publish cases naming the firm that refuses to pay

20. Publishing cases: • Publishing cases is REQUIRED under our TORs • So-called “name and shame” • It is an extraordinary step to publish cases • Meant to be the nuclear deterrent and never used • If firms refuse payment, then we have no choice

21. OBSI’s general record is that of all complaints, about 69%, are resolved in favour of the firm and 31% in favour of the client. • while OBSI had only had to publish a refusal once in the first 16 years of its existence, it has now published 8 more cases since late last year. • We have 2 cases remaining of the original 21. They may be published soon.

22. If firms refuse our recommendations, we will see another build-up of cases and we will face more decisions about naming firms that refuse to pay clients in appropriate cases • This will likely lead to another round of discussions of the best way to resolve such disputes.

23. Conclusion • OBSI continues to evolve, as does the market and all of you. New products, new ideas, new market conditions challenge all of us. • We will continue to conduct investigations of client complaints that will lead to quick and satisfying resolutions for both sides to disputes. • We need and appreciate your cooperation

24. THANK YOU