The regulations "create a stronger, more independent consumer complaint system," Finance Minister Jim Flaherty said in a statement issued Wednesday.
The rules will require banks to belong to a federally approved external complaints body, starting in September, where consumers can go if they are unable to resolve their issues directly with the bank.
But that doesn't mean there will be a single, national body to field such complaints.
New Democrat consumer critic Glenn Thibeault said the new rules will instead create a free-for-all complaints system, allowing the banks to pick and choose who fields the grievances.
The rules permit the banks to select whomever they want to work as a complaints overseer, so long as that body is approved by the Financial Consumer Agency of Canada (FCAC), Thibeault said.
"Rather than having an independent kind of third-party single banking dispute resolution, you have what we're calling the Wild West of providers," he said.
"The banks can now hire whoever they see fit to actually be their dispute resolution mechanism."
The Public Interest Advocacy Group has also warned that having multiple complaints structures will lead to confusion among consumers and lead to inconsistent results.
Until recently, last-resort consumer complaints about the banks were heard by the Ombudsman for Banking Services and Investment (OBSI), a non-profit complaints agency financed by industry members after its creation in 1996.
But the two biggest banks, RBC and TD, pulled out of the agency and instead hired a private mediation firm, ADR Chambers, to handle their consumer complaints.
It was that action that effectively allowed the banks to select their own external complaints body, with no minimum standards and no guarantees for consumers, leading to uncertainty and uneven expectations of outcomes, said Flaherty.
“This new oversight, in tandem with additional compliance monitoring of the complaint system by FCAC, brings needed transparency and rigour to the complaint-handling process, so Canadians can expect faster, more effective recourse when issues arise."
The banking ombudsman expects to be granted approval as a complaints service provider to the banks, agency spokesman Tyler Fleming said Thursday.
"We already meet or exceed all of the requirements," he said. "We'll be submitting our application in September."
OBSI also deals with complaints about the investment sector, representing consumers on behalf of about 600 firms including mutual fund dealers and group scholarship providers, and is hoping to expand its reach through provincial securities regulators.
The new regulations, taking effect Sept. 2, will require banks and other federally regulated financial institutions to maintain staff and procedures to handle consumer complaints through internal processes.
If a complaint is not resolved, consumers will be given the option to contact an external complaints body associated with the financial institution.
The banks, and the external complaints bodies, will also be required to publicly issue annual reports detailing the number and nature of complaints they received and investigated.