Financial industry under fire

He said 15 to 18 per cent of cases are handled in the consumer's favour. "The number should be low," he said. "If it's high, the industry isn't doing its job.

The Globe and Mail
May 13, 2003

Financial industry under fire
Complaints up 50 per cent: ombudsman
Karen Howlett

TORONTO — The number of individuals lodging formal complaints about their financial service providers has soared in recent months, says banking ombudsman Michael Lauber.

The ombudsman's office conducted about 175 investigations in each of the past four years, he said yesterday at a compliance conference sponsored by the Investment Funds Institute of Canada.
Complaints are up about 50 per cent this year, he said in an interview.

"We have to watch it a while longer to determine whether this is just a short-term blip or whether we're moving to a new plateau of complaints coming to us," he said. "It may be just the climate out there. The war, SARS, I think people are stressed."

Mr. Lauber said his office's expanded role does not explain the increase, because most of the complaints are against the banks. His office took on new duties last year with the creation of a single service called the Ombudsman for Banking Services and Investments to serve clients of banks, stock brokerages, mutual fund dealers and most federally regulated trust and loan companies.

The spike in complaints about financial services industry players is not confined to the ombudsman's office. Mark McManus, manager of the Ontario Securities Commission's contact centre, told the conference that the regulator received 23 complaints last week alone about alleged fraudulent or scam activities.

This compares with only 99 complaints in the fraud and scam categories for all of fiscal 2003 (year ended March 31), up slightly from 93 the previous year, he said. "There is no logic to it," he said following the conference. "It just comes and goes."

The increase in complaints comes as the industry is attracting increasing scrutiny from self-regulatory agencies. Sandra Brown, a senior officer at the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, told the conference that it will rely on the OSC and self-regulatory agencies for stock brokerage firms and mutual fund dealers to carry out field reviews on its behalf.

FINTRAC has been up and running since last October to help combat money laundering. Financial institutions are required to report any suspicious transactions to the agency. Ms. Brown said the agency could also do its own compliance reviews of firms.

She also said a lot of smaller firms do not see themselves at risk of illegal fund transfers, but it is often these types of entities that money launderers target. "They're always looking for the weakest link," she said.

The nascent Mutual Fund Dealers Association of Canada, a self-regulatory agency, started doing field reviews of firms last November. So far, the agency has done 26 reviews of firms across the country, John Smeeton, Prairie Regional Director of the MFDA, told the conference attended by mutual fund industry compliance officers.

The agency has uncovered a number of compliance deficiences at many of these firms, including account opening documents for clients that have not been approved by branch managers, no evidence that anyone is reviewing the trading blotters and inadequate supervision by branch managers, Mr. Smeeton said.

He said after the conference that the MFDA has found problems in both large and small firms. "One might think in a smaller dealer more can go wrong but that's not necessarily the case," he said.

The agency spends an average of one-to-two weeks reviewing a bank-owned dealer's head office and three to four days in each branch, he said.

In all, the MFDA has 198 members, representing about 95 per cent of mutual fund assets under management by dealers.

Mr. Lauber said the ombudsman's office has been forced to hire more investigators because of the increase in complaints.

He said 15 to 18 per cent of cases are handled in the consumer's favour. "The number should be low," he said. "If it's high, the industry isn't doing its job.

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