Finance Committee on May 28th, 2018

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

You still handed out fines totalling $650,000. I think that's a punitive regime.

[Lucie Tedesco]

Pardon?

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Given that you can impose a financial penalty, that's still a punitive regime. We will agree that $650,000 isn't excessive for banks that report billions of dollars in profits every year.

What would the consequence be if you named a bank?

[Lucie Tedesco]

I'll continue my response.

When I decide whether or not to name a bank, I make sure of three very specific things. What will make the bank return to compliance? What will change the bank's behaviour? What tool will help me get the best result for consumers? If a bank needs to be named, I'll name it.

I can assure you that, with this approach and our interventions, consumers have been reimbursed $21 million over the past two years.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Do you think it would be worthwhile doing what we do for restaurateurs?

In the case of restaurants, it is easy to find on the Internet a list of restaurants that have been fined or had their wrists slapped by the Canadian Food Inspection Agency. This allows the consumer to know which restaurant is the best or, in fact, which one has not had a safety penalty.

Do you think that, when consumers shop around for a bank, it would be good for them to know which banks are the best performers and which ones have received the fewest slaps on the wrist from regulatory agencies, as is the case when they choose a restaurant? Don't you think that's important for the consumer?

[Lucie Tedesco]

Of course. That's a good point.

[The Chair, Liberal, Wayne Easter]

We're well over time, but I felt it was a good line of questioning, so we let it go.

Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chair. So when I ask questions and you cut me off after exactly seven minutes, it's because you don't like the series of questions I'm asking.

Mrs. Tedesco and Mr. Bilodeau, thank you very much for being here. I appreciate the work that the FCAC is doing on behalf of Canadians to ensure the health of our financial system.

Like my three colleagues who have just asked you questions, I also have some concerns about the findings in your report.

First of all, I want to congratulate you on defining mis-selling. You say it is “the sale of financial products or services that are unsuitable for the consumer”. You went even further in that direction. You also say that “the controls banks have put in place to monitor, identify and mitigate these risks are insufficient”.

My question is very simple. Why didn't you just say that the banks wouldn't be named, that no one said it was a problem?

[Lucie Tedesco]

I'm sorry, but I didn't understand. I had difficulty hearing the last question.

[The Chair, Liberal, Wayne Easter]

These rooms are very hard to hear in. There's an echo, and it's sometimes difficult to hear, so you're better off to have the earpiece in.

Channel 3 is the floor, which will give you both English and French.

[Lucie Tedesco]

Thank you.

Could you repeat just the last part of your question?

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Why didn't you find that Canadian banks were using abusive sales practices?

[Lucie Tedesco]

We need to go back to the purpose of the study.

I'll speak in English instead.

The purpose was to identify the drivers of sales practices that could increase risks of mis-selling to consumers and of violations to legislation and regulations. That was the objective. It was not to find abusive practices by the banks. This was to identify what in the banks' cultures were the drivers that influenced sales practices that could increase risks to consumers.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

In your report, you say that “the retail banking culture is predominantly focused on selling products and services, increasing the risk”. You also mention that retail banks have started to move away somewhat from sales results to focus… They are getting back on the right track and have taken the initiative to correct the situation. However, there were abuses when you did your review.

It seems that having sales targets and objectives using these tools leads to abuse, almost by definition.

[Lucie Tedesco]

What we found was that the banks' culture was really very focused on selling financial products and services.

It was that employees are motivated to sell, and they're rewarded for their sales success. It was that sharp focus on sales that really increased the risk of mis-selling to consumers and the risk of violating market conduct obligations.

As well, we looked at what underlies the culture. Why is there a sales culture? We identified and looked into what I call all the underlying logistics that did not align with, let's say, a strong tone at the top of customer centricity. These were areas, as I mentioned before, such as the compensation programs and the way they are designed and the way the performance management programs are designed, being designed around sales targets and selling particular products and services. That in and of itself increases the risk to consumers.

Also, the movement of consumers to the Internet to do their banking online now has caused the banks to essentially close many of their branch offices and consolidate their branch offices into banking centres. These banking centres are focused on providing advice and ultimately selling products, so this business model shift, as well, aligns with a sales culture. There were certain products, certain distribution channels, and certain practices, as well, that supported this culture of sales with the banks.

All the underlying training material, their procedures, and some policies supported a sales environment. That's why they had a sales culture.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Madam Tedesco, following on the comments you just made, I agree. I think Canada's banks are really a model of stability to the world. Our banking sector survived a global meltdown about 10 years ago that consumed a lot of other banks in other countries. They've also made a successful transition to providing more online services, as you mentioned, which we can understand is a more competitive process, but they've done this and also made a lot of money. As a matter of fact, they've made record amounts of money at the same time.

I believe there's a bit of an unwritten convention that, as we provide that stable framework under which our schedule I banks would operate, it's fine for them to make money, but we want to make sure that they're not carrying out practices that undermine confidence in the whole system and fleece individual Canadians.

Do you feel we're at the stage where we would have to turn those unwritten conventions into written conventions, or is there still an opportunity for our banking industry to make self-corrections, so we don't have to go there?

[Lucie Tedesco]

I would say that we examined 4,500 complaints, and those complaints were not limited to the six big banks. They were complaints that we'd received on express consent and disclosure. Certainly, based on those complaints and a review of those complaints, they're being investigated, and that's an enforcement action, and they're being enforced.

I'm not sure if I'm answering your question.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I'm just trying to figure out whether we have reached the point where, if these practices were to continue, we would need to consider increasing the oversight role of your organization or there is still an opportunity for banks to self-regulate.

[Lucie Tedesco]

Just as an aside, and to answer your question, we oversee at the FCAC very specific provisions under the Bank Act. They're called the consumer provisions. Those provisions are very, very specific and make up largely a system that is essentially a protection regime that is based on disclosure and some business practices. I think what your question is directed at is more the business practices of the banks. We have a few regulations on bank practices, but we don't have many, so we can't exceed our mandate and investigate things that we're not entitled to investigate.

[The Chair, Liberal, Wayne Easter]

With that, you're well over time, Mr. Fergus.

Just on this line of questioning though, and I understand you can't go beyond your legislated authority, I think you'll find among some people in society, whoever they might be, that the banks are never challenged. You're the Financial Consumer Agency of Canada, and people believe you are there in legislation to protect the little guy, whether it's right or wrong. When you're not seen as protecting the little guy, then more and more of the public become disillusioned with what the FCAC is doing, and whether or not the government is protecting the big banks and not protecting them. That's the risk we run here. If there needs to be more authority in the legislation, then we need to know that.

There's been a fair bit of discussion on both sides about these sales practices. If I hire somebody, I expect them to sell. If I have somebody on my farming operation selling my product, I want them to sell it. Yet we read in the CBC report that some of the sales people felt desperate to meet sales targets, which is probably true too. How do you find the balance?

What I'm more worried about is if anybody in the public starts to feel that the government or the FCAC or any of the other regulators are not providing enough protection for the little guy because they happen to be the big powerful banks, then we have a real problem. I think that's where we are.

Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you, Mr. Chair.

My line of questioning really comes out of some of the remarks that the chair and Mr. Fergus made, around a certain amount of discomfort that consumers may have around their choices. You have this system in Canada with six large schedule I banks. We've talked about the regulation of these institutions to ensure that consumers are looked after, but there's another way that consumers are protected. That's through a competitive marketplace. If six large banks, by all means, compete among themselves, they also ought to be challenged. The chair spoke about who challenges the banks. Well, competition ought to challenge the banks. The banks do compete with other entities in the mortgage industry, monoline lenders, credit unions in Alberta with Alberta Treasury Branches. Other entities are capable of challenging the banks and ensure that consumers get the products they need.

Yet the Bank Act exempts many other players that challenge the banks for their business. They're exempt from provincial regulations that regulate the conduct of mortgage brokers or insurance brokers or other entities. Have you examined the role of competition and whether or not the Bank Act exemption for the banks limits competition?

[Lucie Tedesco]

No, we have not. This is the responsibility of the Department of Finance.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Okay, but banks do compete with mortgage brokers. I'll pick that example because it's the one I'm most familiar with on a national level and in particular in my home province. The industry is somewhat seized with questions of product suitability, which you've identified, so this is not an even playing field. These are provincially regulated entities trying to compete with this small group of large lenders. Have you examined differences in how those that compete with the banks have to address things like product suitability?

[Lucie Tedesco]

That's a very good example of a provincial jurisdictional area that has, let's say, a requirement of product suitability in their legislation, while we do not have this requirement in our legislation.

In January 2017, you'll recall that the Minister of Finance tasked me with consulting with all the provinces with a view to identifying the best practices in consumer protection and to ensure that the federal protections were as strong, if not stronger, than the provincial protections. We consulted, I consulted, with the provinces, and I provided the minister with my report at the end of May last year. That report did identify captured data and did identify a number of tools and powers that are in effect in the provinces that we don't have with our federal regime. By providing the minister with the report, I can only suspect that this is informing his policy-making on the new—

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Okay. However, at present then, as a result of this survey of provincial regulation, in certain areas, there is actually a lower regulatory bar for the banks that you regulate than some of their competitors in the provinces.