As Much as We Talk About Financial Fraud, too Many People are Getting Sucked In

Richard Irwin |

It’s normal for complaints about banks and investment dealers to jump in hard economic times, but this year’s numbers are still an eyeful.

Banking complaints have roughly quadrupled year-over-year and investment complaints look like they’ll be up 70 per cent by year’s end, said Sarah Bradley, CEO of the Ombudsman for Banking Services and Investments.

There are a lot of moving parts in the rising complaint trend, but fraud is the one that stands out for OBSI. “Fraud is a scourge that has been our No. 1 banking issue for many quarters, and it’s huge right now,” Ms. Bradley said in a recent interview.

As much talk as there is about fraud risk in the financial world, too many people are getting sucked in and losing money. We’re at a point where every finance-related e-mail, text, phone call or door-to-door contact must be challenged. When in doubt, back away, delete or say no.

On the banking side of OBSI’s work, Ms. Bradley singled out fraud in credit card transactions, e-transfers and wire transfers. Fraud was never a big factor in the investing side of OBSI’s business, but that changed in 2023.

“We went from seeing a handful of fraud complaints every quarter to them being like our No. 2 issue,” Ms. Bradley said. “And those complaints are mainly coming from the crypto space. It’s a really unfortunate trend, but on the positive side we’ve seen it drop in the last quarter.”

The Canadian Anti-Fraud Centre has reported that crypto was involved in most of the $161-million in investment fraud losses reported in the first six months of this year. A typical crypto scam would use the promise of big returns to lure people into downloading a trading platform and transferring in money that eventually disappears.

There are legitimate crypto dealers authorized by regulators to do business with Canadians, and some crypto dealers are members of OBSI. But there’s a get-rich aspect to crypto that makes it a petri dish for fraud.

OBSI is where you go for compensation after trying the complaint process at your bank or investment dealer with no success. OBSI investigates complaints with merit and in roughly one-third of cases rules in favour of compensating the complainant.

Beyond fraud, there are two big drivers in the rise of complaints to OBSI this year. One is the introduction of new rules for banks that keep more complaints from being dropped.

Another reason for the spike in complaints is the precarious state of the economy and volatile financial markets. “Complaints about interest rates have been a rising issue this year, where they were fairly negligible in recent years,” Ms. Bradley said. “These complaints often relate to miscommunication or misunderstandings about interest rates, and sometimes miscalculations.”

The No. 1 investing complaint in recent months, ahead of fraud, is unsuitable investments. This is standard – people tend to review the suitability of their investments more carefully when markets are volatile and they’re losing money.

OBSI was in the news recently because the federal government has made it the sole external complaints body for banking, effective Nov. 1, 2024. Over the years, several big banks have dumped OBSI in favour of a complaint adjudicator they themselves chose.

For clients of banks and investment companies, one of the criticisms of OBSI is that member companies can ignore its recommendations to compensate complainants. However, this happens rarely. There have been 22 refusals out of 3,611 recommendations for compensation since 2007, all of them concerning investments.

The built-in conflicts in our financial system mean there will always be complaints for OBSI to look at. Most sellers of banking and investing products are rewarded for selling products or advice, not getting the best outcome for clients. Only with fraud is there hope for meaningfully reducing complaints.

OBSI itself offers tips that can help reduce fraud. A few key examples:

  • Don’t use weak passwords.
  • Check your bank and investing statements regularly.
  • Avoid accessing bank and investment accounts when using public WiFi.

Of course, OBSI also urges people to be cautious about clicking on links in texts and e-mails. These so-called phishing scams can be alarmingly realistic, which means you need to be hyper-skeptical. The default move when in doubt is to delete.

Author: Rob Carrick for The Globe and Mail