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.
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.