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Mediation in the Financial Services Industry

Expanding the Use of Mediation in the Financial Services Industry

Interest based mediation or facilitation is becoming more broadly accepted in business as a tool to address workplace conflict such as disputes around job performance issues, wrongful dismissal, or harassment, for example. However, mediation as applied to other types of disputes involving the businesses’ external stakeholders such as its suppliers, customers, partners, borrowers or investors has not been as quickly integrated.

Some industries such as financial services are leading the way through the successful adoption of mediation in dealing with customer disputes. The Financial Services Commission of Ontario provides mandatory accident benefits mediation to customers in motor vehicle accident claims, paid for by the insurance industry and provided free of charge to the public. In Quebec, the Autorité des Marchés Financiers, after having reviewed a customer complaint, can offer mediation services at no cost to clients. While these programs have been successful, other areas within financial services have been slower to adopt mediation as an approach to resolving disputes? Why?

The financial services industry is involved in commercial disputes with various stakeholders, for example: with partners in joint ventures or equity investments; with borrowers or lenders in loan or security agreements; or with suppliers in contractual arrangements.

Frequently disputes arising under these types of agreements are referred to the lawyers or law firms involved in drafting the original agreements. Those who drafted the documents have an interest in defending the drafting of the provisions. Both the corporate culture
and the legal culture have been traditionally aligned in a rights based framework, where legal rights and remedies have been the focus in settling conflict and resolution of the conflict has been assigned to in-house counsel and/or external legal counsel, while the business folks get on with the business of generating more revenues. In addition, agreements drafted by the legal community typically incorporate rights based mechanisms for resolving disputes. Although arbitration is increasingly incorporated into agreements, references to settling disputes through a mediation mechanism is still absent from most agreements.

Another obstacle to the broader adoption of mediation in financial services has been a lack of familiarity with or visibility of mediation. In dealing with client complaints, the Canadian Securities Administrators (CSA) and the self-regulatory bodies (Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association) have chosen to adopt more evaluative and adjudicative processes such as an ombudsman

service or arbitration, not mediation. Recently the CSA has proposed amendments to National Instrument NI 31-103 requiring exempt market dealers and members of the Portfolio Management Association of Canada (PMAC) to provide customers, at the dealer’s or member’s expense, with an ombudsman service (specifically the Ombudsman for Banking Services and Investments) in lieu of mediation.

As well, in the past, financial institutions have not necessarily sought quick settlements to disputes due to concerns over establishing unnecessary precedents. However these jattitudes are changing, as cost containment and risk management have become key
drivers of business. Similarly, reputational risk is driving all sizes of financial service businesses to find less adversarial and quicker solutions to disputes with key stakeholders.

What can be done to accelerate the use of mediation?
While mediation has been adopted in some sectors of the financial service industry such as in insurance, what can the ADR community do to encourage the broader use of mediation in other sectors and other commercial applications? There are several steps
that must be taken and there is strong evidence that the ADR industry is beginning to take those steps.

Financial service regulators and associations need to be “lobbied” to be made aware of mediation as an alternative to litigation or arbitration in dealing with stakeholder disputes. Arguments of cost and time saving should be persuasive as corporations are focusing on reducing costs in all areas of the organization. Financial service businesses
and their associations need to be approached and assisted with the development of rosters to access qualified mediators that can be used to address disputes before they reach court.

There needs to be greater disclosure of successfully mediated cases. Parties to the mediation must find avenues to disclose the fact that the mediation was successful without disclosing the details of the outcome, which should remain private and confidential.

Mediation needs to be seen as an effective business solution. The process needs to be differentiated from a legal or more evaluative process and the value clearly articulated. This may mean incorporating a more innovative fee structure than charging at an hourly billable rate.

Agreements must be drafted to include not only arbitration provisions but mediation clauses that would result in parties attempting a mediated settlement prior to engaging in the steps to a legal solution.

Although these ideas are not necessarily new or innovative, they are prerequisites to obtaining wider adoption of mediation in the financial services industry as an alternative to litigation and arbitration.

Brief Biography
Joanna Robertson, MBA, is a certified mediator and Associate at Sadowski Resolutions Group (www.srgllp.com). While she has convened a wide range of Corporate & Commercial Disputes, her main focus is providing investigation, evaluation and mediation of investment and financial disputes. Joanna has over twenty-five years of experience in financial services