Key changes marking a significant shift in the Financial
Consumer Agency of Canada's (FCAC) enforcement powers and
mandate came into force on April 30, 2020. Financial institutions
will need to recalibrate their reputation and regulatory risk
assessments in light of these changes.
On December 13, 2018, Bill C-86, Budget Implementation Act, 2018,
No. 2 (Bill C-86), received royal assent. Bill C-86, among
other things, amends the Bank Act to provide for a financial
consumer protection framework (Framework) for banks and authorized
foreign banks. These amendments include provisions that expand the
mandate and enhance the powers of the FCAC. By
order in council, these provisions came into force on April 30,
2020. The remaining amendments relating to the Framework are not
yet in force. For further information on those amendments please
see our November 2018
Blakes Bulletin: A New Federal Financial Consumer Protection
Framework.
RECALIBRATED FCAC MANDATE
A new section provides that the purpose of the Financial Consumer Agency of Canada Act
(FCAC Act) is to ensure that financial
institutions, external complaints bodies and payment card network
operators are supervised by an agency of the Government of Canada,
so as to contribute to the protection of consumers of financial
products and services and the public, including by strengthening
the financial literacy of Canadians.
The objects of the FCAC now include that the FCAC is to strive to
protect the rights and interests of consumers of financial products
and services and the public, although this concept is tempered
somewhat, as the FCAC will also account for the need of financial
institutions to efficiently manage their business operations.
It also provides that FCAC shall now make public information on
trends and emerging issues that may have an impact on consumers of
financial products and services.
NAME AND SHAME
The FCAC Commissioner will be required to name the person who
committed a violation, subject to any regulations. The Commissioner
previously had the discretion to name such a person, but that
discretion was rarely used. Currently, no regulations have been
published that would allow for exceptions to this mandatory naming,
likely signaling that the government does not plan to do so.
However, the regulation making power to provide for circumstances
in which the Commissioner shall not make public the name of the
person was also brought into force. In making public the nature of
the violation, the Commissioner may also include the reasons for
his or her decision, including the relevant facts, analysis and
considerations that formed part of the decision.
This is in line with other recent changes in naming. On June 21,
2019, the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act was amended to require the
Financial Transactions and Reports Analysis Centre of Canada make
public all administrative monetary penalties it imposes.
STRONGER PENALTIES
The maximum penalty for a violation has been increased from
C$50,000 to C$1-million in the case of a violation committed by a
natural person, and from C$500,000 to C$10-million in the case of a
violation committed by a financial institution or payment card
network operator. The criteria for penalties has been expanded to
include the duration of the violation and the ability of the person
who committed the violation to pay the penalty, in addition to
existing criteria related to the degree of intention or negligence,
the harm done and the history of prior violations. A new section
has been added stating that the purpose of the penalty is to
promote compliance and not to punish.
In the past, the FCAC has issued violations that seemed to relate
solely to operational errors, including where a bank
fully-reimbursed all impacted consumers. Given these enhanced
powers and vastly increased penalty amounts, it is important that
the administrative process related to violations is appropriate.
The FCAC released its Guidelines for Adjudicative Process
on February 26, 2020. The Commissioner has established the FCAC
Secretariat to administer the proceedings following the service of
a notice of violation. The hope is that these increased powers will
be exercised in a reasonable way and that penalties will be imposed
in a manner that in fact promotes compliance, and not to
punish.
FCAC Audit Right
The Bank Act has been expanded to include a new special
audit right. Pursuant to this right, the Commissioner may direct
that an audit be conducted if, in the opinion of the Commissioner,
it is required for the purposes of administering the FCAC
Act and the consumer provisions. The Commissioner may appoint
a firm of accountants for this purpose, the bank must provide the
Commissioner with the results, and the expenses incurred for the
audit are to be paid by the bank.
The Commissioner may also direct a bank to comply with a compliance
agreement or a consumer provision where the Commissioner is of the
opinion that a bank is failing to comply, or that there are
reasonable grounds to believe that a bank will fail to comply with
these obligations. Although a bank must be provided with a
reasonable opportunity make representations, the Commissioner can
make a temporary direction where, in the opinion of the
Commissioner, the length of time required for representations to be
made may be prejudicial to the public interest.
The Commissioner may also apply to a court for an order requiring
the bank to comply with a compliance agreement or a direction or to
cease a contravention of the Bank Act.
Originally published 01 May 2020
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