The Bank of Nova Scotia will no longer use the Ombudsman for Banking Services and Investments to mediate disputes with its customers, leaving the banking watchdog with just two of Canada's five big banks under its thumb.

Scotiabank has advised OBSI that it will no longer use its services to mediate complaints with its retail banking customers as of Nov. 1, and will instead choose to resolve them via other means.

"We are disappointed with the bank's decision, but we understand that, under current banking rules, they have the right to make the choice," OBSI spokesperson Mark Wright said.

When it was founded more than 20 years ago, OBSI was pitched as a more efficient way for the financial industry to resolve relatively small disputes with its customers, and handle complaints that are best processed outside the legal system.

When bank customers have a gripe about a bank, they will most likely first complain to the bank itself, but OBSI gets involved once it has been escalated up the chain, and needs an impartial mediator to decide on an appropriate remedy.

Last year, OBSI recommended that a total of $165,023 be given to people with complaints about banks, with an average finding of $2,089 and the largest single recommendation coming in at $17,653. While its rulings are non-binding, it can levy individual awards of up to $350,000 and can name and shame financial firms who choose to ignore their decisions on its website. Last year, none of the big banks ignored an OBSI ruling, the watchdog said.

Even though it is funded by industry (the big banks paid more than $1.1 million last year to fund OBSI's operations) the watchdog is considered to be an independent agency, and it's a free service for upset consumers.

In its most recent annual report, OBSI says it handled 370 investigations from consumers about their banks last year, or a little more than one per day. That was up from 290 complaints filed in 2016.

Last year, OBSI ruled in favour of consumers roughly one out of every five times it heard a case. In 2017:

OBSI got 131 complaints about Scotiabank, and the ombud sided with the customer in 23 of those cases.

OBSI got 77 about CIBC, and ruled with the customer in 13 of them.

OBSI heard 52 complaints about the Bank of Montreal, and sided with the customer in 13 of them.

Those numbers don't include complaints from Canada's two biggest banks, Royal Bank and Toronto-Dominion, which both opted out of using OBSI years ago. Instead, they use another third-party firm to resolve disputes, called ADR Chambers Banking Ombuds Office or ADRBO.

John Lawford, executive director of consumer rights group the Public Interest Advocacy Centre, said Scotiabank's decision to leave the group is disappointing, because it's another body blow to an agency that could be powerful tool for consumers.

"It's not perfect but it's open, it's transparent, it's independent and it's fair to the extent it can be," he said.

"It's not toothless," Lawford said, "if people gave it a chance it wouldn't be."

While Lawford said he'd be in favour of a banking dispute resolution body that's fully funded and controlled by government and not beholden to the industry, the government has repeatedly shied away from taking that step.

"The best we can do is shove everybody back under the one umbrella [so] people will know where to take their complaints," he said.

In the absence of a fully independent body, Lawford said he is in favour of giving more powers of enforcement to OBSI, because he doesn't like the lack of transparency at alternatives such as ADRBO, which "doesn't adhere to the same openness principles," and isn't always transparent about decision details, he said.

"For those customers of Scotiabank, they will unfortunately I believe have less success with their banking complaints and be dissuaded from bringing them."

Scotiabank's decision also affects customers of Tangerine, the online bank that Scotiabank bought in 2012, when it was known as ING.

The move also means that of the big five banks, only Bank of Montreal and CIBC will remain under OBSI's umbrella for their retail banking operations as of November — although customers of Scotiabank's investment arms would still be free to complain to OBSI.

"I'm concerned because I don't see any rational reason ... why BMO and CIBC wouldn't follow them out the door within months," Lawford said.

"We still think OBSI is independent and a proper place to do it and everybody should be going there."

Scotiabank declined to comment to CBC News for this story, or provide any indication how they plan to mediate escalated consumer disputes on its retail banking side in future.