24 Private Capital Markets | Spring 2014 | www.pcmacanada.com
release it for public review and comment. This will incorporate some
of the approaches we have used in the past when investigating
exempt market complaints while also addressing some of the big
questions that we know exempt market dealers have. Among these
are how to value losses on illiquid products, whether dealers can
always rely on client representations when determining accredited
investor status, and whether all exempt market products should be
assumed to be high-risk.
It’s important to note that while we will consult with industry
and the public on our proposed approach going forward, the
financial regulators who provide oversight for OBSI’s mandate
also have an interest in whatever approach is proposed and we
must be responsive to their concerns.
PCMA: How were OBSI’s budget and fees set for EMDs?
Firstly, it’s important for EMDs to know that OBSI sets its
budget, and thus its membership fees, on the principle that no
sector or registrant category should subsidize another. Each
category pays only for the costs associated with resolving their
category’s complaints, as well as their proportional share of
management and administration costs. OBSI’s Board of Directors
engages our external auditor each year to verify compliance with
this “no cross-subsidization” policy.
What this means for EMDs (and Portfolio Managers) being
brought into OBSI as a result of NI 31-103 is that there will be
dedicated resources assigned to resolving complaints from the
sector. Because the number of complaints that will come in the
door is as yet unknown, OBSI’s Board of Directors established a
budget using moderate complaint assumptions; we do not want to
be overwhelmed when complaints materialize, but nor do we want
to incur more cost than is necessary. This budget was then divided
by the number of registered dealing or advising representatives at
EMD and PM firms captured by NI 31-103, resulting in the $165
per representative fee that was announced.
Our Board and financial regulators agree that, once we have
a history of complaint volumes to go by, in two years’ time we will
revisit the fees for both EMDs and PMs so that they accurately reflect
the relative amount of work generated by each of those sectors.
PCMA: How will the exempt market be represented in OBSI’s
Right now, industry perspectives are represented in OBSI’s
governance structure through three out of ten seats on our Board
of Directors: one director is elected from amongst nominees put
forward from each of the banking industry, IIROC members, and
MFDA members. Our Board values industry’s input, and recognizes
that EMDs (as well as Portfolio Managers and Scholarship Plan
Dealers) should have the opportunity to participate in OBSI’s
governance given they are mandated to participate in our service.
But, the exact form that will take is yet to be determined.
OBSI’s Board and securities regulators have agreed that, in
two years’ time, a review of our governance structure will take
place. This may result in an overall increase in the size of our
Board, both industry and community directors, but this would
result in corresponding increases in overall governance costs to
participating firms. An alternative may be that the three current
industry director positions are not reserved for any specific
industry groups, allowing all participating industry sectors the
opportunity to put forward nominees for election to the Board.
Regardless of the preferred approach, any proposed change will
be the subject of stakeholder consultation by OBSI’s Board prior
to being implemented.
PCMA: Some of your existing members have complained
the process is too slow. How will you ensure the timely
resolution of EMD complaints?
Well, first you should know that our Board has a commitment
that 80% of new investment cases that come in the door will be
resolved in 180 days. This will include all EMD cases that we see. The
dedicated team responsible for EMDs and PMs also ensures that the
proper resources are in place for the timely resolution of complaints.
The reasons that older complaints took a long time to resolve
are many, but include the fact that a backlog built up after the
economic and market meltdown of 2008-09 which we were not
sufficiently resourced to handle at the time. Sometimes, poor
cooperation from either firms or complainants is the cause. As
you may be aware, we were also engaged in lengthy discussions
with some investment firms to avoid having to announce refusals
of OBSI recommendations. Now that we are moving regularly to
announce the refusals, case files are moving through to conclusion
much more quickly. We are tightly managing our own internal
processes as well as the inputs required from outside parties in
order to speed up the resolution of those older complaints, in
addition to the new ones that come in each day.
PCMA: What are the nest steps for EMDs?
OBSI has developed a membership kit for new participating
firms, available on our website
https://www.obsi.ca/en/resource-room/resources-for-firms. EMDs should familiarize themselves
with the documents and provide us with a completed Company
Information Form as soon as possible. If EMDs have any questions
about this process, please don’t hesitate to reach out to us and ask.
We recognize that there will be a period of transition as EMDs
get used to having an external dispute-resolution body. OBSI will
be pleased to provide any assistance that they need during the
transition. We are committed to making this an effective complaint-resolution process for both EMD firms and their clients, and we
look forward to working with the PCMA and EMD firms over the
coming months to make this happen.
For more information please visit: www.obsi.ca