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:
- Retail banking culture is predominantly focused on selling products and services, increasing the risk that consumers’ interests are not always given the appropriate priority.
- 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.
- Certain products, business practices and distribution channels present higher sales practices risk.
- Governance frameworks do not manage sales practices risk effectively.
- 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:
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:
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:
FCAC Report links
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