Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Financial Services, February 2011
The Task Force on Financial Literacy (the Task Force) was established by the federal Minister of Finance in the 2009 budget. The mandate of the Task Force was to provide advice and recommendations to the Minister on a national strategy to strengthen the financial literacy of Canadians. After a period of public consultation, the Task Force report and recommendations were made available to the public on February 9, 2011 (the Report). To view the full Report, click here.
The Task Force has defined "financial literacy" as: having the knowledge, skills and confidence to make responsible financial decisions. The Task Force has made 30 recommendations to the Minister of Finance as part of its proposed National Strategy to promote the financial literacy of Canadians. The recommendations are organized around the five priorities of the National Strategy which are identified in the Report as: shared responsibility; leadership and collaboration; lifelong learning; delivery and promotion; and accountability.
This bulletin highlights the aspects of the Report that are particularly relevant to our clients who provide financial products and services to individuals and the recommendations which, if implemented, could affect their businesses. Federally regulated financial institutions that do not provide financial products and services to individuals should remain involved in this process to ensure, to the extent possible, that any legislative changes made in response to these recommendations do not extend to their relationships with business customers.
A recurring theme throughout the Report is the need for stakeholders to work together and to share the responsibility of improving the financial literacy of Canadians. Financial services providers are a key stakeholder. The Task Force has placed an emphasis on the need for participation by the financial services sector, including representation on a proposed national advisory council, the leader of which would be directly accountable to the Minister of Finance.
In addition, the Task Force has called for stronger financial literacy initiatives by financial services providers and in some cases has recommended additional regulation of the sector, discussed further below.
The Task Force calls for financial literacy to be a subject of lifelong learning. It has recommended the inclusion of financial literacy programs in formal education curricula across the country and for other stakeholders to participate in the ongoing development of the financial literacy of Canadians over their lives at key events, such as buying a first house, starting a business or planning for retirement.
The Task Force sees financial services providers as particularly well placed to contribute to consumer education. One of the Task Force recommendations is that "financial services providers put a strong emphasis on delivering educational information and ensuring that it is understood by Canadians at 'teachable moments' so that Canadians can make responsible financial decisions".
Two illustrations are included in the Report (see page 42) to demonstrate how front-line staff can help clients grasp financial information. One example is that loans, mortgages and credit be made available to consumers only after a face-to-face meeting with the creditor in which the borrowing details and cost of credit can be carefully explained. The Report does not include a formal recommendation that this become a required practice. If regulation does evolve in this direction, it would represent a huge step away from the current trend towards electronic delivery of financial products and services and, clearly, it would impact the business of many financial services providers in Canada. If similar requirements were not also implemented by the provinces, those financial services providers that could would likely look to moving to a provincially regulated platform.
The Task Force has proposed ongoing monitoring and reporting of the implementation of the National Strategy by a national advisory council and financial literacy leader. In addition, the Task Force recommends that financial services providers report directly to Canadians on their financial literacy initiatives and contributions as part of their annual Public Accountability Statement. Public Accountability Statements are currently required only for Canadian financial institutions with equity of C$1-billion or more.
The Task Force has recommended that the federal government "amend the Public Accountability Statements Regulations ... to include disclosure on financial literacy initiatives ...". Specifically, it has been proposed that financial literacy initiatives be added to the list of "what statements must contain" in section 3(1) of the regulations and that a definition of "financial literacy initiative" be specified for reporting purposes.
Delivery and Promotion of Financial Information
The Task Force has considered how to reach and engage Canadians in financial literacy initiatives and has recommended that the federal government create and maintain a single source website. The website would be positioned as the place for Canadians to go for financial information.
The Task Force has also emphasized that a key component of effective delivery is clear communications, which the Task Force considers to be about more than plain language. They have called for simple documents with easy-to-understand content and user-friendly design features.
The Report refers to recently adopted regulations regarding the language and presentation of credit card statements (this is a reference to the recent amendments to the Cost of Borrowing Regulations under federal financial institutions legislation). The Task Force recognizes that progress has been made by financial institutions in providing clear communications. However, the Task Force comments, on page 70 of the Report, that "[d]espite the abundance of products and marketing materials offered by financial institutions, much of what exists is too complex for the average consumer to understand, and is not expressed in clear, plain language".
Therefore, the Task Force has called for further regulation in the financial services sector that would apply to all consumer products and services including bank accounts, mortgages and lines of credit, life and health insurance policies and payday loans. The Task Force has recommended that all levels of government "require all financial services providers ... to simplify their informational materials and disclosure documents".
This recommendation raises the question of whether the Report might contribute to regulatory changes that will require the simplification of products that financial services providers may offer to the public. Such a regulatory development would have a major impact on the business of many financial services providers.
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