Canada: Amendments To PIPEDA Give Financial Institutions New Artillery In Fighting Financial Abuse

The CCCA Subcommittee on Financial Literacy is dedicated to educating members of the CCCA about financial literacy and its impact on the corporations and organizations those members represent.  Not only is financial literacy important if you want to properly represent your organization, but your organization may have obligations to clients and customers you need to keep in mind.

One area where an awareness of financial literacy is becoming increasingly necessary is where corporations deal with seniors and/or vulnerable persons.  Financial institutions in particular are interacting more and more with elderly clients who are beginning to experience deteriorating mental capacity, making them more vulnerable to abuse.  Clients of all ages are vulnerable to a wide array of Internet scams and other types of financial abuse.  However, one challenge that financial institutions face is the need to respect the privacy of their clients.  As a general rule, most financial advisors must attempt to address suspected financial abuse directly with their clients because the Personal Information Protection and Electronic Documents Act (Canada) ("PIPEDA") does not generally allow for the disclosure of personal information without the client's consent.  In cases where the client is not capable of understanding the severity of the situation, the financial institution may contact the client's power of attorney ("POA"), assuming one is on file.  Unfortunately, the sad reality is that despite repeated attempts to emphasize to clients the need to have the recommended legal documents (a POA and will in particular), many choose not to execute such documentation.  It is when the client's capacity is in question and the financial institution does not have the authorization to contact a family member that things become tricky.

Recently, PIPEDA was amended to include new provisions which will allow financial institutions to contact "a government institution...or the individual's next of kin or authorized representative" where:

  • the organization has reasonable grounds to believe that the individual has been, or is or may be the victim of financial abuse;
  • the disclosure is made solely for purposes related to preventing or investigating the abuse, and
  • it is reasonable to expect that disclosure with the knowledge or consent of the individual would compromise the ability to prevent or investigate the abuse.

This provision has been criticized by commentators as being discriminatory against seniors and potentially increasing the level of risk to them, as in many cases the perpetrator of the financial abuse is unfortunately the next of kin.  It has been suggested that if a financial institution is aware of a client potentially being the victim of financial abuse that the institution contact the police.  However, law enforcement agencies often will not accept a report of abuse by a third party, and insist that the complaint come directly from the victim.  Where the client cannot appreciate that they are potentially the victim of financial abuse, these new provisions will provide financial institutions (and all organizations) with the ability to reach out to family members who may be able to advocate for the client, or convince them to file a police report. 

A bigger issue for many financial institutions revolves around situations where a client is not necessarily the victim of financial abuse, but is starting to make bad decisions.  In some cases this may be because of advanced age, but in others it may simply be a result of other pressures they are experiencing and/or mental health problems.  In these cases the financial institution is still in a precarious position if no POA is on file.  As a result, the issue of educating clients of the need to update their POA or at least provide the financial institution with consent to contact a particular individual in the event of a concern regarding their decision making capacity would be helpful.  It is questionable if legislation would ever be passed that would allow financial institutions to unilaterally contact next of kin without pre-approval of the clients where no financial abuse is involved, so the issue of educating employees and clients of the benefits of having such documentation on file will continue.

Christine Van Cauwenberghe, Assistant Vice-President, Tax & Estate Planning, Investors Group Financial Services Inc.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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