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.

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Allowance for credit losses and FFIEC 002 reporting

The significant changes in the accounting for credit losses (e.g., Current Expected Credit Losses or “CECL”, and International Financial Reporting Standards 9 or “IFRS 9”) can have a unique effect on the US branches and agencies of foreign banking organizations (FBOs).  As US banking institutions are in the process of getting ready for the upcoming requirement, this may also be a good time to discuss the relevant Allowance for Loan and Lease Losses (ALLL) considerations for the US branches and agencies of the FBOs. In this article, we consider the current reporting, common problems, and issues to be considered concerning the adoption of CECL.

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Senate passes financial services regulatory reform bill, would amend key Dodd-Frank thresholds

On March 14, 2018, the Senate passed, by a vote of 67 to 31, S. 2155 (the “Economic Growth, Regulatory Relief, and Consumer Protection Act”), which marks the most significant changes to the Dodd-Frank Act since its enactment in 2010.

Most notably, the bill would raise the statutory asset thresholds related to the imposition of enhanced prudential standards (EPS) and the Dodd-Frank Act stress tests (DFAST):

  • EPS – The threshold would be raised from $50 billion to $250 billion, though the Federal Reserve Board (FRB) would retain the authority to impose EPS on banks with between $100 billion and $250 billion in assets.
  • DFAST – The threshold for the FRB’s annual supervisory stress test would be raised from $50 billion to $250 billion and the threshold for the company-run stress test would be raised from $10 billion to $250 billion, though the FRB would be required to conduct a separate, periodic supervisory stress test of banks with between $100 billion and $250 billion in assets.

Below are several key takeaways with respect to the bill’s potential impact on regulatory thresholds.

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