Canada: FSCO's Draft Guideline For Financial Services: 8 Principles For Fair Treatment

The Financial Services Commission of Ontario (FSCO) recently requested industry feedback on a proposed Superintendent Guideline, titled Treating Financial Services Consumers Fairly (Proposed Guideline). The purpose of the Proposed Guideline is to ensure there is common understanding between FSCO and the businesses and individuals it regulates (Licensees) as to what it means to treat consumers fairly. To that end, the Proposed Guideline sets out eight broad principles to guide Licensees when dealing with consumers. While many of the principles build upon existing legal requirements, Licensees should pay close attention to enhanced sales practice requirements, and in particular, the suggestion that Licensees bear an ethical duty to their customers.

The Proposed Guideline is published at a time when major changes are under way at FSCO. In 2016, the Minister of Finance recommended replacing FSCO with a new, independently funded authority: the Financial Services Regulatory Authority (FSRA). The FSRA is expected to be more proactive than FSCO and may take a more aggressive stance regarding enforcement. The Proposed Guideline may be the start of a new supervisory regime.

Coming on the heels of the Financial Consumer Agency of Canada's (FCAC) sales practice review, the Proposed Guideline is part of a trend of greater regulatory scrutiny regarding market conduct (see our March 2018 Blakes Bulletin: FCAC Concludes No Widespread Mis-Selling by the "Big Six" Banks). The Canadian Council of Insurance Regulators is also developing its own market conduct guidance for the insurance industry. While other Canadian regulators have stopped short of imposing a fiduciary duty on financial services providers to consumers, in its news release, FSCO states that it expects Licensees to look beyond legal requirements because treating consumers fairly "is about an ethical way of conducting business that places the consumer at the centre of all business decisions." This potentially places a material burden on Licensees.

Acknowledging that its Licensees range from sole proprietors to large corporations, FSCO states that compliance can be proportionate to the Licensee's size, complexity of products and services and the nature of the risks it engages in. The Proposed Guideline expressly states that any Licensees working with non-licensed employees, contractors and intermediaries engaged in providing financial services to consumers will be responsible for ensuring they know and comply with FSCO's expectations. Licensees will therefore need to consider whether they have appropriate oversight and controls over these individuals and service providers. Consumers are simply defined as financial services consumers and members of credit unions/caisses populaires and Ontario farm mutuals, and includes both actual and potential customers of Licensees. Licensees should take note that some of the principles also apply to prospects.

The eight principles set out in the Proposed Guideline are not law, but FSCO clearly expects Licensees will integrate the principles into their organizations. However, the principles are broad and permit some variation by different Licensees. A brief summary of the eight principles are as follows:

1. FSCO expects that a core component of a Licensee's business governance and culture is fair treatment of consumers.

FSCO expects that senior management will create and drive a Licensee-wide culture of treating consumers fairly. Licensees should also design, implement, communicate and monitor compliance with the various codes of conduct, policies and procedures that encourage treating consumers fairly and incorporate such policies and procedures into any arrangements with third-party service providers. Having and monitoring compliance with consumer protection policies may no longer be sufficient. Licensees should also have mechanisms in place that measure the effectiveness of such policies, such as regularly soliciting consumer feedback.

2. FSCO expects Licensees to act with due skill, care and diligence at all times, but especially when dealing with consumers or designing financial services or products for consumers.

FSCO states that Licensees involved in sales, service and advice to consumers should consider a consumer's personal circumstances and financial needs. This may entail greater due diligence than many Licensees have performed in the past when recommending products and services. FSCO also expects Licensees involved in the design and governance of products and services to consider the needs of their target market. This includes considering the appropriateness of the distribution methods for the target market. Although the Proposed Guideline does not single out any particular distribution methods, it will be interesting to see if mobile and other electronic channels will face additional scrutiny. Overall, Licensees should be wary that this principle may give rise to new negligence liability in product design and sale.

3. FSCO expects Licensees to promote financial services and products in a manner that is clear, fair and not misleading or false.

Licensees must already comply with applicable legal requirements to give consumers product information and illustrations that are accurate, clear and not misleading or false. In addition, FSCO proposes that any information given to consumers should:

  • Be easy to understand
  • Be clear regarding any risks, exclusions or limitations of a product
  • Not hide or diminish important statements or warnings
  • Be based on the disclosed personal circumstances and financial needs of consumers. 

If a Licensee is not subject to any statutory requirement regarding the format of disclosure or timing for disclosure, the Proposed Guideline states that industry best practices should be adopted. Licensees should also consider the information that would be most useful to the consumer during the consumer's decision-making process. The same level of transparency and disclosure should be applied when providing products and services electronically.

Licensees designing and governing products and services should establish controls to ensure that the target market for products and services is understood and that those selling, soliciting or providing advice do not sell outside this market. This may have implications for products that tend to be sold incidentally, such as creditor's insurance products, and may be met with resistance by sales forces.

4. FSCO expects Licensees to recommend products that are suitable, taking into account the consumer's disclosed personal circumstances and financial condition.

The Proposed Guideline states that the Licensee and the consumer should have a common understanding of the nature of the products or services to be provided. When an understanding is reached, it should be documented, in theory for the protection of both parties. If a consumer chooses not to accept the advice, that decision should also be documented.

FSCO proposes Licensees follow a three-step process to ensure that the product or service being offered is in the best interest of the consumer, having regard to the consumer's needs and circumstances. In particular:

  • Licensees should get to know the consumer, including their financial knowledge, what they can afford and their risk appetite. The discussion should be documented.
  • Licensees should understand their own products fully.
  • Licensees should conduct a thorough needs analysis to fully understand the consumer's objectives and needs.

Only after those steps are completed should the Licensee provide any recommendation or advice.

Although implementation rests largely with sales representatives, the Proposed Guideline will also require that the Licensees who have responsibility for the products should establish controls to monitor sales representatives and how they interact with consumers. Licensees should provide continuous training programs and monitor mandatory education to ensure employees and intermediaries are aware of market trends.

5. FSCO expects Licensees to disclose and manage any potential or actual conflicts of interest.

In the Proposed Guideline, FSCO advises that actual or potential conflicts of interest are best managed by avoidance. When conflicts do arise, FSCO gives Licensees some liberty to choose how to best manage conflicts on a case-by-case basis. However, Licensees should develop, implement, monitor and communicate a conflict of interest management policy throughout the organization, including to the intermediaries distributing the Licensee's products and third-party contractors involved in the product life-cycle. Perhaps in response to FCAC's recent sales practice review, the Proposed Guideline suggests that sales incentives in particular, should be addressed in the policy and recommends that Licensees develop incentives that take into account the fair treatment of consumers rather than product-specific sales targets or sales volumes only.

6. FSCO expects Licensees to provide continuing service and keep consumers appropriately informed, through to the point at which all obligations to the financial services consumer have been satisfied, including claims handling or the diligent provision of benefits.

Licensees must comply with the record-keeping requirements for claims handling set out in legislation. In addition to these legal requirements, Licensees should also have agreements in place that clearly define the scope and limits of the services being provided, and clearly designate who is responsible for different aspects of the relationship with the consumer. If the consumer has any post-sale responsibilities, the consumer should be informed of those responsibilities. The Licensee should also take all reasonable steps to disclose contractual and legislation changes and any other information relevant to the consumer. This expectation that consumers should be kept continuously informed is quite broad.

7. FSCO expects Licensees to have policies and procedures in place to handle complaints in a timely and fair manner.

FSCO states that it considers any complaint, including those that do not need to be reported to FSCO, to be "a key indicator of how a Licensee's business is conducted". Given the wide breadth and frequency of complaints Licensees must report to FSCO, it seems the Proposed Guideline is asking Licensees to take a holistic view of any consumer dissatisfaction and points of tension. Licensees should then analyze complaint data to identify individual and systemic issues and take corrective action accordingly. In addition to statutorily prescribed complaints policies and procedures, when a Licensee is not otherwise required to be part of an independent claims body, a Licensee will be expected to consider what alternative dispute mechanisms it could use. Complaints handling processes and outcomes should be monitored to ensure their ongoing effectiveness.

8. FSCO expects Licensees to protect the private information of financial services consumers and inform them of any privacy breach.

This principle generally takes existing requirements under applicable privacy laws and should not be controversial. In addition to complying with applicable privacy legislation, Licensees should have policies and procedures in place for the protection and use of personal and financial data. This includes creating safeguards to prevent misuse, inappropriate access to, or communication of, personal information and creating a safe online community for consumers. Cyber risk management, resilience and crime prevention should also feature in policies and procedures.


FSCO intends to publish a final version of the Proposed Guideline in 2018. Interested parties can provide comments on the Proposed Guideline up until May 8, 2018 by submitting written comments to FSCO via email at:

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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