On March 20, the Financial Consumer Agency of Canada (FCAC) published a report (Report) on its review of the six, big Canadian banks’ sales practices. The banks are subject to federal consumer protection legislation overseen by FCAC. Although the agency did not find widespread mis-selling during its review, it concluded that:
“… retail banking culture encourages employees to sell products and services, and rewards them for sales success. This sharp focus on sales can increase the risk of mis-selling and breaching market conduct obligations. The controls banks have put in place to monitor, identify and mitigate these risks are insufficient.”
In our view, the standards applicable to the sale of financial products should be consistent across financial products sold to consumers regardless of whether they are sold by federally regulated or provincially regulated financial institutions. This very issue was at the heart of the debate a few years ago about the appropriate regulation of federally issued principal protected notes (PPNs). Unfortunately, it appears from the Report that not a whole lot of progress has been made to date to level the playing field.
Looking to the future, however, the Report includes recommendations for how banks should better manage their sales practices risk, for example by ensuring that their compensation strategies motivate employees to work in consumers’ interest. FCAC also has indicated that it is investigating alleged breaches of market conduct obligations and will take enforcement action where appropriate, that it is planning to enhance its supervisory framework to ensure that banks adopt appropriate controls, and that it is planning to improve its consumer education materials.