Retail sales practices
Following on the heels of the account fraud scandal in the US banking industry, media reports of Canadian banks employing similar tactics began to surface in late 2016. In response, the Financial Consumer Agency of Canada (FCAC), which oversees federal consumer protection legislation, reaffirmed and clarified its expectations regarding express consent for new products and services. When complaints of aggressive sales practices continued to be reported, the FCAC announced, in March 2017, it would conduct an industry review of business practices related to the sale of products and services by federally-regulated financial institutions (FRFI).
While the FCAC's final report, released in March 2018, stated that widespread "mis-selling" was not found, it also summarized five key findings, which:
- Industry-wide enhancements of the management of sales practices risk, including the establishment of formal sales practices governance frameworks; and
- A modernized FCAC supervisory framework, with stronger supervisory and enforcement functions.
The results of the FCAC's investigation did not reveal any indication of widespread wrongdoing by the relevant Canadian banks. However, the findings in the FCAC's report, along with an earlier report by the Agency on best practices in financial consumer protection, prompted the federal government to introduce proposed amendments to the Bank Act in November 2018. These amendments set out a more comprehensive "Financial Consumer Protection Framework," including:
- Changes to banks' corporate governance by mandating the designation of an independent board committee to oversee aspects of retail sales practices;
- The introduction of a "fair and equitable" dealings regime, which expands banks' obligations around a variety of retail sales practices, including the introduction of an obligation to provide "appropriate" products and services, mandating the provision of cooling-off periods (during which customers can cancel agreements), and mandatory balance alerts;
- New consumer protections for personal deposit accounts, such as a prohibition of minimum deposits or the maintenance of a minimum balance; and
- A formal process regarding redress, setting out the required actions a bank must take if it imposed a charge or penalty without appropriate notice, or in the absence of clients' express consent given before the provision of the product or service.
Additionally, the amendments propose an enhanced complaints regime, which requires banks to more carefully and transparently track complaints (which are broadly defined as "dissatisfaction, whether justified or not, expressed to an institution with respect to a product or service ... or the name in which a product or service ... is offered, sold, or provided by the institution"). The new regime also prohibits the use of the term "ombudsman" (or other misleading terms). Most Canadian banks have used the term "ombudsman" to describe an internal office that reviews certain escalated consumer complaints.
Finally, amendments to the FCAC Act, which sets out the Agency's functions, enforcement and administration powers, are also proposed. These amendments include requirements to publicly disclose the nature of a violation, including relevant names and the amount of the penalty. Maximum penalties would also be increased, from $50,000 to $1 million for individuals, and from $500,000 to $10 million for both financial institutions and payment card networks. While these amendments do not significantly alter the FCAC's powers and functions, they do serve as a signal from the federal government that retail sales practices will attract increased and sustained regulatory scrutiny.
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