A new financial consumer protection framework (the Framework) is set to come into force on June 30, 2022. The Framework will consolidate and strengthen the existing consumer protection regime applicable to Canadian incorporated banks and foreign banks carrying on business in Canada through a branch (AFBs). The Framework will also reinforce the powers of Canada's financial consumer protection agency, the Financial Consumer Agency of Canada (FCAC). This bulletin focuses on the applicability of the Framework to AFBs only.
What you need to know
- The Framework introduces new responsible business conduct provisions which will also apply to business customers of an AFB.
- AFBs will be expected to comply with the Framework's onerous complaint management requirements and a new whistleblower regime.
- The accountability of AFBs in relation to third parties who sell or further the sale of AFB products will be more onerous under the Framework given its increased scope.
- New FCAC powers provide for increased penalty amounts and the naming of AFBs that are issued a notice of violation.
While the existing Bank Act (the BA) consumer protection provisions have limited impact on AFBs, several new obligations introduced in the Framework will impact their operations.
Application to Business Customers
The existing consumer protection regime under the BA is largely disclosure-based and focuses on retail customers. However, the Framework will introduce new responsible business conduct provisions which will also apply to business customers of an AFB, including:
- a general prohibition (added to the existing restriction on tied selling) on imposing undue pressure on a customer for any reason or taking advantage of a customer;
- the obligation to obtain a customer's express consent to an agreement and to provide the customer with a copy of the agreement prior to providing the product or service to the customer;
- the obligation to disclose certain prescribed fees and penalties in an agreement; and
- the right for Eligible Enterprises (business customers with authorized credit of less than $1,000,000, fewer than 500 employees and annual revenues of less than $50,000,000) to cancel an agreement with the AFB within 14 business days after the day on which the agreement was entered into (if the agreement was entered into by mail or by telephone), or within 3 business days where the agreement is entered into any other manner.
AFBs will be expected to comply with the Framework's onerous complaint management requirements. This may be particularly challenging since the new legislation broadly defines “complaint” to mean any dissatisfaction—whether justified or not—expressed to an institution with respect to either a product or service or the manner in which the product or service is offered, sold or provided. All products and services regardless of the nature of the customer are caught by this definition including complaints made by business/wholesale customers. Complying with the enhanced complaints regime will require AFBs to
- designate an employee or officer to implement complaint management procedures and an employee or officer to receive and deal with complaints;
- establish complaint procedures ensuring that the complaints can be addressed within 56 days of receipt;
- send the customer a written acknowledgement of the complaint;
- make a comprehensive record of each complaint, including information as to how the AFB attempted to resolve the complaint and any paid compensation;
- annually make certain information available on the AFB's website, such as the number and nature of complaints the AFB dealt with, the average length of time taken to address complaints, and the number of complaints that have been resolved to the satisfaction of customers; and
- submit quarterly reports of complaints to the Commissioner of the FCAC, in a form satisfactory to the Commissioner.
The Framework's whistleblower regime that will extent to AFBs will enable AFB employees who have reasonable grounds to believe that the AFB, or any person, has committed or intends to commit a “wrongdoing”1 to report it to the AFB, regulators or law enforcement agencies. AFBs will be prohibited from taking punitive action against employees who make a report of this kind. Policies and procedures will be required to be implemented for dealing with wrongdoing matters and these should include provisions to ensure employees who report a wrongdoing are not punished or otherwise disadvantaged as a result of their report.
Application to third parties
Currently, AFBs are required to ensure that third parties that sell or further the sale of an AFB's products comply with the BA's consumer provisions. The accountability of AFBs in relation to third parties will be much more onerous under the Framework given its increased scope. AFBs will need to re-examine their third parties' compliance with the new requirements in particular in relation to complaints management.
FCAC new enforcement powers
The penalties for AFBs found in violation of the Framework have increased from up to $500,000 to up to $10,000,000. The FCAC will also name any AFB that is issued a notice of violation and can require an AFB to reimburse customers when financial harm occurs.
As Canadian banks will now be expected to comply with a new, more robust financial consumer protection regime, so will the AFBs.
1 “Wrongdoing” is defined as including a contravention of (i) any provision of the BA or the regulations made thereunder, (ii) a voluntary code of conduct adopted by the AFB or a public commitment made by the AFB, and (iii) a policy or procedure established by the AFB.
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.