Financial advertising in Canada is primarily regulated by the federal, provincial and territorial governments, which have enacted advertising laws of general and more specific application.
The Competition Act is the main federal advertising law of general application, while some of the provisions of the Credit Business Practices Regulations and the Cost of Borrowing (Banks) Regulations under the Bank Act1 govern the sector-specific advertising of financial products and services. Financial advertising in the provinces and territories is typically governed by their respective consumer protection legislation.
In addition to federal, provincial and territorial legislation, financial advertising is also governed by codes of conduct. Ad Standards - Canada, a self-regulatory organization, oversees the Canadian Code of Advertising Standards, which is an advertising code of general application, while the Financial Consumer Agency of Canada (FCAC) is responsible for overseeing financial advertising in the context of the Code of Conduct for the Credit and Debit Card Industry in Canada.
In recent years, financial advertising has been an increasing area of focus for regulatory authorities around the world. The International Financial Consumer Protection Organization (aka FinCoNet)2 recently issued its much-anticipated report on the supervisory challenges and approaches related to financial advertising.
The report is based on survey responses collected from 203 participating jurisdictions and provides analysis on how supervisors oversee financial advertising in their respective jurisdictions. The report also explores challenges, trends, emerging issues and innovations through the analysis of the survey results and the use of case studies.
The report is organized in six main sections: Legal and regulatory framework, Supervisory authority and approach, Challenges in financial advertising oversight, Innovative oversight tools, Conclusions and Takeaways. Our concluding paragraph runs through where Canada stands compared to its international peers.
- Legal and regulatory framework
Frameworks – the report notes that all of the jurisdictions surveyed have some form of legislation, rules or guidance related to the advertising of banking products and services, with more than half (65%) having specific legal or regulatory rules applicable to the advertising of specific banking products or services. The regulations related to financial advertisements typically ensure that ads use information that is clear and easy to understand and disclose all fees, interest rates and terms.
Ninety-five percent (95%) of the supervisors surveyed say they have implemented general, technology-neutral financial advertising legislation, while a quarter of respondents indicate having implemented, or being in the process of implementing, specific guidance for certain advertising channels, such as social media. For example, new legislation in Brazil, the Netherlands and Spain is broadly similar to financial advertisement legislation for traditional advertisement channels but include updated provisions that are specific to digital channels. Some of these changes require advertisements with moving images to be presented in a manner that allows viewers to read all the necessary information.
In terms of product-specific advertising rules, the results reveal that 85% of those surveyed have rules in place for the advertisement of credit products, 55% for the advertisement of deposit products and 35% for the advertisement of payment services.
Approaches - Most (80%) supervisors use an approach that is a mix of rules/principles-based regulatory approaches. In Canada, the report refers to recent legislative changes that have included a series of high-level principles complemented by more prescriptive rules in regulations, such as those pertaining to disclosure requirements.4
Twenty percent of responding jurisdictions use a regulatory approach to financial advertising that is primarily rules-based, while no jurisdiction uses a principles only-based approach.
Instruments – A variety of instruments are used to regulate financial advertisements. The most popular instruments used are:
- Supervisory letters/notices (80%)
- Guidelines (60%)
- Codes of Conduct (40%)
- Best practices (25%)
- Instruments not captured by survey (25%)5
- Supervisory authority and approach
Supervisory authority - the oversight of financial advertisements is administered in most jurisdictions (75%) by several supervisory authorities, bodies, and organizations within a same jurisdiction. Unique combinations of oversight authorities exist, with the mandate of each authority, body, and organization also varying by jurisdiction. While some jurisdictions with multiple authorities have clear and distinct mandates, others have overlapping mandates. Existing supervisory models in responding jurisdictions include:
- Financial services market conduct authority - Ten jurisdictions (50%) indicate that responsibility for financial advertisement regulation is carried out, at least in part, by that jurisdiction's financial services market conduct authority. The precise scope of financial services market conduct authorities varies between jurisdictions.
- Financial services self-regulatory organization (FSRO) – Twenty percent of respondents mention that financial advertising is overseen by an FSRO, who rely on institutions to meet best practices. The report provides Spain as an example. Its FRSO is limited to reviewing ads before publication by institutions and has no regulatory power. The Central Bank of Spain, however, can require institutions to modify or suspended ads even if a prior review was conducted by the FSRO.
- Separate advertising standards body - In six jurisdictions (30%), the oversight power is carried out by a jurisdiction's advertising standards body. Canada is one of those jurisdictions where financial advertisements are administered, at least in part, by a body dedicated to maintaining advertising standards and best practices. Ad Standards - Canada oversees a Code of advertising standards directly for a broad range of consumer products, including financial services.
- Shared oversight - In 10 jurisdictions (50%), oversight power of financial advertising is shared between different bodies, for example by a central bank, the competition authority,6 a dedicated securities and investment regulator, and a combination of local or state authorities. Examples of such structures exist, for example, in Italy and Ireland.
Supervisory approach - All respondents indicate that their oversight authority is triggered, at least in part, once advertisements are published. No respondent reports a framework exclusively based on pre-authorization. That said, Japan and Mauritius report that some elements of advertising campaigns require a degree of authorization prior to being published.
According to survey results, respondents monitor compliance with advertising rules by:
- Direct/proactive monitoring (80%)
- Complaints monitoring (80%)7
- Self-reported non compliance by institutions (30%)
- Third-party referral reviews (20%)
- Market participant referral reviews (30%)
- Reports from FSROs (20%)
The report describes that Canada receives consumer complaints through its consumer contact centre and its online complaints submission process and that all federally regulated institutions are required to report consumer complaints in aggregate to the FCAC. These complaints, which include those related to financial advertising, are reviewed according to FCAC's supervision framework and supervisory action may be taken when appropriate.
Enforcement tools - In terms of enforcement tools, jurisdictions report using a set of diverse tools to enforce and sanction institutions in violation. However, the findings confirm that it is difficult at this time to assess the effectiveness of these tools because of the insufficiency of data available. Among the tools cited are infringement notices (60%),8 public warning notices (50%),9 warning letters (70%),10 educational letters (45%),11 and "other tools" (50%).12 In Canada, the supervisor can avail itself of notices of breach, action plans, compliance agreements, notices of violation, notices of non-compliance, commissioner's decisions and proceeding summaries, Commissioner's direction and court enforcement.13
Results indicate that respondents use a range of enforcement measures to bring institutions into compliance with financial advertising rules. The measures outlined in the report include requiring modifications to the ads (80%),14 monetary penalties (70%),15 suspensions of campaigns (55%), prohibiting campaigns (55%) and licence revocations (30%). Five percent of jurisdictions report using consumer focus groups to test advertising campaigns, while forty-five percent indicate that their whistleblowing program is used as a tool to oversee financial advertising as well.
With Canada's new whistleblower regime introduced by Bill C-86,16 whistleblowers will be able to report non-compliance with the consumer provisions, including those related to financial advertising.
- Challenges in financial advertising oversight
According to survey results, the most challenging issues for financial supervisors are those related to the misconduct of supervised institutions who promote and market misleading ads (70%).17 Another significant challenge is the lack of monitoring capacity in comparison to the large volume of advertising information in the marketplace that is disseminated through a variety of different channels (55%). The respondents also mention the difficulty in keeping pace with the rapid development of innovative and changing advertising methods and channels (45%).
Challenges in overseeing digitalized financial advertisements - Sixty-five percent of jurisdictions indicate that the digitalization of financial advertising is intensifying existing challenges related to the oversight of financial advertising by supervisors. Contributing to this intensification is the use of platforms such as social media as a means of institutions interacting with consumers and their customers. The report explains that because digital campaigns can be customized for a specific audience, be available for a short period of time, or be available only in restricted areas, this may make campaigns difficult to identify and therefore supervise.
Authorities also cite technology challenges related to the management of information technology and the requirement for specialized skills to be increasing. This includes the development of advanced monitoring systems such as SupTech solutions.
- Innovative approaches to oversight and insights gleaned from behavioural economics
About a third (30%) of responding jurisdictions have developed innovative tools to oversee financial advertising, with an additional 15% in the process of doing so. The tools that have been developed thus far are aimed at improving clarity in financial ads, providing monitoring efficiencies and helping consumers understand the content of financial ads. One jurisdiction18 is currently piloting the use of Natural Language Processing (NLP) to monitor financial advertising.
The report remarks that it will become increasingly necessary for supervisor to explore the use of supervisory technology (SupTech) and regulatory technology (RegTech) to handle the large volume of data that need to be captured and analyzed.
The application of behavioural economics also factors in the supervisory approaches that are being considered by a number of countries.19 The research conducted has led to a number of important findings, some of which include:
- Consumer mistakes are common, and the quality of decision-making is often questionable
- Products with multiple key attributes (for example loans) are particularly difficult for consumers to understand
- Errors are often related to the context in which they are made, such that whoever determines the decision-making context (usually the seller) can influence the outcome of consumer decision
- Full disclosure of information is unlikely to ensure that consumers fully understand the product they are purchasing
- Consumers are influenced by the way numbers are presented. Monetary amounts are more easily evaluated by consumers than percentages. Absolute numbers are more easily understood and could potentially present an alternative to percentages in advertisements.
The report further suggests that supervisory authorities continue to explore behavioural economics as they apply to their oversight activities, specifically how it can help guide the supervision of financial advertising.
The report concludes that jurisdictions should invest in tools and continued research to improve oversight for financial advertising and that they should also consider how new supervisory technology should be deployed to complement traditional tools to adequately respond to the rapid digitalisation of financial services. The report reaches several other interesting conclusions including that whistleblowing is now considered part of financial advertising oversight by a number of jurisdictions and that some of the challenges experienced by supervisors involve the lack of monitoring capacity to address advertising volumes and keep up with new advertising media.
- Key Takeaways
The report offers a handful of key takeaways and next steps for consideration. In a nutshell, they offer that:
- authorities should continue to conduct research and develop new approaches to keep pace with evolving market practices;
- the digitalization of financial advertising presents similar benefits/challenges across jurisdictions, allowing for best practices to be leveraged;
- supervisory technologies (SupTech) will become increasingly important to the work of supervisory authorities owing to the large volume of data that require analysis for proper monitoring, particularly as the monitoring activities relate to financial advertising;
- behavioural economics research should continue to understand how it can enhance the supervision of financial advertisements. For example, evidence suggests that consumer mistakes are common and even well-designed disclosure of information is no guarantee that that consumers fully understand the products they are purchasing.
- How Canada Compares
Generally, Canada finds itself alongside the majority of the other countries surveyed in terms of legal frameworks and approaches. It has specific rules applicable to the advertising of defined categories of banking products or services and a hybrid of rules/principles-based regulation.
For the most part, Canada also follows the "norm" in terms of how supervisory authorities carry out the monitoring of financial advertising compliance (e.g. direct/proactive monitoring, complaints monitoring, self-reported non compliance by institutions, etc.). And, once the new financial consumer protection framework20 comes into force, it will also largely mirror their enforcement of financial advertising rules (e.g. directions to comply, court enforcement).
The challenges expressed in the report by responding authorities appear to be shared across jurisdictions, including Canada. They involve institutional misconduct, a lack of monitoring capacity, large volumes of advertising information, an increasing number of dissemination channels and the rapid development of innovative advertising technologies. These challenges precipitate the need for supervisors to recruit specialized skills and develop advanced monitoring systems capable of capturing and analyzing large amounts of data.
Finally, Canada also finds itself among the majority of countries not currently using innovative SupTech tools such as artificial intelligence and natural language processing to conduct monitoring activities related to financial advertising.
Most Common Complaints Received By Authorities
- Misleading financial information (misrepresented promotions and unclear conditions of the product or service)
- Missing required disclosure
- Non-receipt of benefit or promotion advertised
- Headline claims for the product that are inconsistent with the fine print;
- Inadequate supply or provision of information regarding products and services;
- Information pertaining to rates associated with products advertising containing information that is not clear, simple or misleading;
- The type of credit card that consumers receive is not suitable;
- Promotion promises that are not received when credit cards are activated (cash back, vouchers);
- Imposition annual fees,
- Rejection of credit life insurance claims,
- Prominence of key information including certain key risks,
- Accelerated repayment penalty fees, interest and principal on inappropriate credit facilities,
- Lack of a statement confirming the firm is a broker not a lender, and
- Changes in accelerated repayment penalty fees, interest and principal on credit facilities.
1 Bill C-86 introduces new requirements for the advertising of financial products and services, which will replace the advertising provisions in the Business Practices Regulations.
2 The FinCoNet mandate is explained in our blogpost of November 24, 2020.
3 Australia, Brazil, Canada, China, France, Germany, Indonesia, Ireland, Italy, Japan, Luxembourg, Mauritius, Netherlands, Norway, Peru, Portugal, Russia, South Africa, Spain and United Kingdom.
4 Bill C-86, Division 3, Disclosure and Transparency for Informed Decisions.
5 For example, in the U.K., case studies have been published to highlight concerns with firms' advertising practices and make note of relevant rules for consideration. In Indonesia, an advertising monitoring system is regularly used to directly notify or warn financial service providers who violate regulations.
6 In Canada, oversight of advertising falls generally under the Competition Act, and financial advertising more specifically under the Bank Act. As such, the supervision of financial advertising could be considered "shared" between the Competition Bureau of Canada and The Financial Consumer Agency of Canada.
7 For a list the types of complaints received by authorities, refer to Appendix A.
8 Official notices from a supervisory authority notifying regulated firms that they have violated a rule that is under the supervisory authority's purview and will face enforcement action.
9 Information notices issued by the supervisory authority to the general public to alert about credit institutions practices that do not comply with rules in force.
10 Official letters from a supervisory authority notifying firms that they have violated a rule under the supervisory authority's purview and that failure to remedy the violation may lead to enforcement action.
11 Official letters from the supervisory authority meant to inform firms about the applicability of relevant legislation, rules, or guidelines. They explain how the legislation, rules and guidelines should be interpreted or applied in specific situations, and, depending on the jurisdiction, may be considered strictly informational or used as an oversight tool.
12 "Other tools" referenced in the report largely consist of referring the matters to the court system.
13 FCAC Supervision Framework.
14 Applies to Canada.
16 Part XVI.1.
17 Results point out that, in Canada, misleading financial advertisements are the most common financial advertisement issue faced by the FCAC.
19 Indonesia, Ireland, the Netherlands and the UK.
20 Bill C-86.
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