Bank skyscrapers are seen from Bay Street in Toronto’s financial district, on Wednesday, June 16, 2010. THE CANADIAN PRESS/Adrien Veczan
TORONTO — Canada’s financial consumer watchdog plans to expand its probe of business practices — which found that the country’s six biggest banks had "insufficient" controls in place to prevent sales of products that are misrepresented or unsuitable for customers — to the next tier of small and medium sized financial institutions.
The Financial Consumer Agency of Canada examined 4,500 complaints as part of its latest review of the Big Six banks, the findings of which it released Tuesday, and found grievances about other institutions as well, said the agency’s commissioner Lucie Tedesco.
It plans to "cascade" down its probe to other federally-regulated institutions, such as smaller banks, federal credit unions and federal trust companies, she added.
"There are issues with the medium or smaller banks… Our review may not be as intensive, we will have to see what measures they have put in place once we get there," Tedesco said in an interview.
The FCAC commissioner’s comments come as the agency released the findings of an intensive review of business practices across Canada’s Big Six banks, launched last April following media reports alleging questionable sales tactics such as selling services without the consent of customers.
The probe did not find widespread misselling, defined as selling products that are unsuitable or where the consumer is provided with incomplete or misleading information, but concluded that there are "insufficient" controls in place at the country’s biggest banks to prevent or mitigate the risk.
The review examined practices at the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada, and involved interviews with more than 600 bank employees and reviews of 100,000 pages of bank documents.
The FCAC also found that the banks’ sales-focused culture, with variable rewards and compensation for sales performance, elevates the risk that employees may flout consumer protection rules. As technology has allowed consumers to do most of their banking online, banks now expect their front-line customer facing roles in branches, call centres and specialist channels to sell products and services to consumers, the report said.
As well, the FCAC said it is investigating alleged breaches of rules of conduct — designed to protect consumers, and which banks are required to follow — that may have been identified during its review and will take action where appropriate.
Tedesco said these alleged breaches largely involved incidents where "consumers have not provided their express consent to purchasing new products and services."
The agency has a two-year window under current legislation to investigate these breaches and, if needed, take enforcement action such as issuing notices of violation, with or without monetary penalty, she added.
The FCAC also intends to follow up its latest review of the Big Six banks with a "mystery shopper" exercise, she added. More broadly, the agency plans to implement a framework which involves "more intense supervision" and increase its resources for these activities, said Tedesco.
"We’re hoping its going to allow us to be able to flag these issues before they get actually into the marketplace, where they risk harming consumers," she said.
The Canadian Bankers Association said Tuesday Canada’s banks are client-focused with a commitment to high ethical standards and complying with the law when providing products and services to help customers meet their financial goals.
"The six largest banks in Canada co-operated fully with FCAC and we are encouraged that the review found no widespread mis-selling and that banks get this right the vast majority of the time," association president Neil Parmenter said in a statement.
The Canadian Foundation for the Advancement of Investor Rights and the Public Interest Advocacy Centre, said the government should work towards having one national statutory ombudservice for financial services complaints that can issue binding decisions.
Marian Passmore, director of policy at FAIR Canada, said existing rules fall short.
"There is inadequate protection for Canadians at banks and reform is needed. FAIR Canada calls for a best interest standard so Canadians get the advice they expect and deserve," Passmore said in a statement.
The federal government has already signalled its intention to enhance consumer banking protection in its budget last month. Ottawa said it proposes to introduce legislation that "would strengthen the Financial Consumer Agency of Canada’s tools and mandate and continue to advance consumers’ rights and interests when dealing with their banks."
The FCAC review was launched last April after CBC reported that some bank employees alleged they felt pressure to upsell, trick and even lie to customers to meet sales targets. The reports also prompted the House of Commons’ Finance committee to hold a series of hearings examining the allegations last June.
The federal banking regulator, the Office of the Superintendent of Financial Institutions, also last summer said it was reviewing domestic retail sales practices at Canada’s key banks, focusing on "risk culture" and "the governance of sales practices."
TD Bank, the focus of the initial CBC report, has conducted its own internal review and concluded it did not have a widespread problem with aggressive sales tactics.
Meanwhile, banking-related complaints handled by an industry ombudsman last year surged by 28 per cent, with credit cards, mortgages and personal accounts drawing the most customer grievances.
The Ombudsman for Banking Services and Investments (OBSI), which handles customer disputes for Scotiabank, CIBC and Bank of Montreal, says it opened 370 banking-related investigations in 2017 to handle customer disputes for its clients, compared with 290 a year earlier. The dispute resolution firm says last year’s surge in new cases marks the highest level the industry ombudsman has seen in the past five years.
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