Review of retail sales practices at Canada’s big six banks

Canadian banks and foreign operations of federally regulated banks in Canada are subject to federal consumer protection legislation overseen by the Financial Consumer Agency of Canada (FCAC). The FCAC completed a review of retail sales practices at Canada’s big six banks. The summary findings were released on Tuesday March 20, 2018. The review called for stronger governance and oversight but did not find widespread “mis-selling”. The FCAC review resulted in five key findings:

  1. Retail banking culture is predominantly focused on selling products and services, increasing the risk that consumers’ interests are not always given the appropriate priority.
  2. Performance management programs—including financial and non-financial incentives, sales targets and scorecards—may increase the risk of mis-selling and breaching market conduct obligations.
  3. Certain products, business practices and distribution channels present higher sales practices risk.
  4. Governance frameworks do not manage sales practices risk effectively.
  5. Controls to mitigate the risks associated with sales practices are underdeveloped.

Understanding and addressing the drivers of misconduct are essential steps in improving standards of behavior, being able to identify key conduct risks, designing pre-emptive enterprise-wide conduct programs, and meeting regulatory and marketplace expectations. Culture and Conduct are lenses that surface the drivers of undesirable behavior and detrimental outcomes.

As the drivers of misconduct can be diverse, the work to gain insight and restore trust can arise from multiple areas and at multiple levels.

A few considerations for financial institutions as they digest this report include:

  • Prioritize financial consumer protection, fairness and product stability
  • Ensure that effective monitoring and reporting of mis-selling and market conduct obligations is embedded into sales practices governance
  • Improve oversight, management, and reporting of customer complaints
  • Ensure financial and non-financial incentives motivate employees to work in the best interests of their consumers
  • Ensure internal controls adequately address sales practices risk
  • Ensure HR, compliance, and risk management and internal audit – the first, second, and third lines of defense – are adequately resourced to improve sales practices oversight

The FCAC will continue to examine the area of sales practices in Canada. The FCAC announced its intention to implement a modernized supervision framework that it will deploy to ensure Canadian Banks are appropriately managing the risk of mis-selling and the risk of breaching market conduct obligations.

The FCAC is taking further steps to target both the banks and consumers with initiatives to manage sales practices and conduct risk from both sides. The FCAC has stated it will:

  • Implement a modernized supervision framework to ensure the banks have implemented the appropriate frameworks, policies, procedures, and processes to effectively mitigate sales practices risk
  • Increase its resources to buttress its supervisory and enforcement functions
  • Enhance consumer education materials to raise consumer awareness about their rights and responsibilities and the importance of asking the right questions

It is evident that conduct risk will continue to be a growing focus in Canada. The Deloitte Canada team is continuously learning from Deloitte Touche Tohmatsu Limited member firms around the globe whom have been active in responding to sales practices and conduct risks in response to worldwide market events.

The Deloitte Center for Regulatory Strategy has published the following POVs:

Managing conduct risk addressing drivers, restoring trust

Steering towards responsible incentives Getting incentive-based sales practices under control

FCAC Report links

Backgrounder: Domestic Bank Retail Sales Practices Review

Full report on Domestic bank retail sales practices review

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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