Evidence of meeting #98 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was banks.
A video is available from Parliament.
Liberal
The Chair Liberal Wayne Easter
Please come to order.
Thank you all. We're now in public session on our hearing into consumer protection and oversight in relation to the schedule I banks.
We have with us for this session the Financial Consumer Agency of Canada and the Canadian Bankers Association. We'll start with the Financial Consumer Agency of Canada, with Ms. Tedesco, Mr. Bilodeau, and Mr. Ryan.
Go ahead, Lucie.
Lucie Tedesco Commissioner, Executive Services, Financial Consumer Agency of Canada
Thank you, Mr. Chair, and good afternoon, everyone.
I have to say it's a pleasure for the FCAC to have been invited to speak on its role with respect to the sales practices of banks. Joining me today is my colleague, Richard Bilodeau, who is the director of supervision and promotion and is also responsible for and taking the lead in our industry's business sales practices review. With us is another colleague of mine, Mr. Jérémie Ryan, our director of financial literacy and stakeholder engagement.
As a federal agency, the FCAC is responsible for protecting the consumers of financial services and products. We deliver on our mandate through two distinct but complementary programs. The first is through the oversight of federal financial entities, and the second is through strengthening the financial literacy of Canadians.
These programs allow the agency to contribute to the federal financial oversight framework of promoting public confidence in a strong, stable, and competitive financial system.
Our oversight function is exercised over three types of entities. The first type is federally regulated financial institutions, which are comprised of banks, federal credit unions, federal insurance companies and federal trust and loan companies; the second is external complaint bodies; and the third type of entity we oversee is payment card network operators, such as Visa, MasterCard, American Express and Interac.
Federally regulated financial institutions are supervised to ensure compliance with their market-conduct obligations under the various federal statutes. External complaint bodies—or ombuds services, as some might call them—are monitored to ensure their compliance with applicable regulations.
These organizations are mandated to deal with consumer complaints that are not resolved to the consumer's satisfaction through the financial institution's complaint handling process. All banks must be members of an approved external complaints body.
Payment card network operators are overseen by FCAC to ensure they comply with their obligations and adhere to the commercial practices that are intended to protect merchants.
Complimentary to our supervision and promotion mandate is our mandate to strengthen the financial literacy of Canadians and enhance their financial well-being by helping them make the best decisions for their situation.
With that said, I will now turn to the subject of bank sales practices.
When the Wells Fargo story broke in the U.S. in September of 2016, we immediately conducted an analysis of the complaints we had received during the previous three years from consumers alleging they had received financial products or services for which they had neither signed up nor received the required disclosure. What we found at that time was that the number of complaints received with respect to these two issues had remained stable year over year. Nonetheless, we continued to monitor incoming complaints and decided to make bank sales practices related to credit cards the subject of our next industry review.
Industry reviews are conducted annually to supervise compliance with market conduct obligations and to help us identify emerging trends and issues that may impact consumers of financial services and products.
In a letter dated February 3, 2017 to the banks, we reminded them of their obligation to provide consumers with the required disclosure and to obtain their express consent when selling financial services and products to them. We also issued a consumer alert on the same day, informing consumers that banks must obtain their express consent before they can issue credit cards to them.
Following media reports alleging questionable sales practices by Canada's big banks, I announced that we would be examining banks' sales practices in relation to express consent and disclosure. That was on March 15, 2017.
Since then, our supervision and enforcement team has been hard at work reviewing and investigating complaints. They are looking at any and all factors that may be contributing to non-compliance and have been instructed to take appropriate enforcement action for all breaches they uncover.
I also instructed my team to accelerate plans for the broader industry review of bank sales practices, which is now in full swing. Through the review, we are assessing whether sales targets and incentive programs are contributing to sales practices that lead to poor outcomes for consumers. We are doing this by interviewing consumers and speaking to consumer groups to gain a broader understanding of the sales experience from the consumer perspective. We are reviewing the institutions' incentive programs, sales targets, and performance management policies, examining their internal controls, and meeting with all relevant bank personnel regardless of their role or level.
The initial findings of our review will be made public by the end of 2017. I want to emphasize that we will thoroughly investigate all breaches of consumer protection that we uncover during this review, and we will enforce compliance with the tools that we have at our disposal.
This industry review is an example of FCAC's approach to supervision, which is based on three pillars. First, we promote responsible market conduct; second, we monitor market conduct; and third, we enforce market conduct obligations.
Last year, together with the first four months of this year, through this very approach, we were able to facilitate the repayment of close to $50 million that was paid by Canadian financial institutions to consumers.
With that, I will conclude my remarks. I thank you for the opportunity to appear before you today. I and my colleagues look forward to answering any questions you may have.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Ms. Tedesco.
From the Canadian Bankers Association, we have Mr. Hannah, vice-president of finance, risk, and prudential policy, and Ms. Stephens, assistant legal counsel.
The floor is yours. Welcome, and thank you for coming.
Darren Hannah Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association
Thank you.
I would like to thank the committee for inviting the Canadian Bankers Association to discuss consumer protection in banking. My name is Darren Hannah. I'm the vice-president of finance, risk, and prudential policy. Joining me is my colleague Sandy Stephens, assistant general counsel.
The Canadian Bankers Association represents 63 domestic banks, foreign bank subsidiaries, and foreign bank branches operating in Canada. Banks help families buy homes and save for retirement, help small businesses grow and thrive, and help drive the economy. Banks provide over half of all the business lending in Canada. Canada's banks are prudent lenders and continually work to make credit available to creditworthy Canadians and businesses in Canada.
Banks are in the customer service business, with a history of building long-standing relationships with their clients. A key part of developing that relationship is providing advice about products and services to help customers realize their financial goals and respecting customers' right to freely choose their financial products and services. With more than 40 banks offering financial products and services, in addition to hundreds of credit unions and caisses populaires, customers know they are in the driver's seat when it comes to choice.
With that in mind, bank employees receive training and information on the principles for putting the client first. Banks work hard to provide the services and products that are right for their customers, and this means they have to keep their customers' needs and interests in mind, providing the information they need to make informed decisions when choosing financial products and services.
Banks have a strong track record of following both the letter and the spirit of the law in dealing with customers. Banks devote considerable time, effort, and resources to ensuring strong compliance. They take extensive steps to make sure that customers subscribe to the products and services they want and which they have consented to receive.
Banks have clear guidelines, policies, and procedures to ensure products are described accurately and completely to their clients. Banks also have established codes of conduct that articulate employee behaviour, including expectations related to integrity and sales practices. All employees are required to attest to compliance with the code of conduct on an annual basis. Should an employee not adhere to a bank's code of conduct, banks take corrective action to address employee behaviour.
Bank performance management systems and incentives are designed to reinforce appropriate practices and culture that promote a client-centric, advice-driven approach. Performance management systems include several layers of controls, governance, and oversight to ensure appropriate conduct and to detect and address potential incidents of inappropriate behaviour. A key factor in the goal-setting process for employees is that sales objectives are designed to align with creating value for customers and that objectives are reasonably obtainable and aligned across products and channels.
Customers are well served by their banks. As I've already mentioned, banks work hard to meet the needs of their customers, and banks are competing with each other to attract and retain customers. Canadians appreciate the reliability, trustworthiness, and stability of Canada's banks. No less important is the value that customers feel they get from their bank. Banks have worked hard to make banking more convenient—extending branch hours, introducing mobile banking and payments, and enhancing online banking—enabling banking literally around the clock and around the world. Canadians have noticed and value these improvements.
A key part of customer satisfaction is how banks respond to complaints. Should a bank customer have a complaint, banks have a very robust and thorough internal complaint process. In fact, very few complaints are not resolved within the bank. In those cases, complaints are reviewed by an independent ombudsman. In 2016, only 515 complaints were reviewed by external complaints bodies. With more than nine billion customer transactions flowing through banks each year from millions of customers, the small number of complaints demonstrates a positive customer experience across all banks.
Finally, I want to briefly comment on the banks' relationship with our regulators. We work closely with the FCAC and OSFI on consumer and prudential matters respectively. Canada's streamlined and effective financial regulatory system has become a model for the world, providing a strong federal consumer and prudential regulatory regime in which banks operate.
Specifically, with regard to consumer regulations, banks co-operate with the FCAC to ensure compliance with these regulations, including express consent and disclosure. As you've heard, the FCAC regularly conducts reviews of banks' business practices, and banks co-operate with them on those reviews.
Thank you, again, for the opportunity to present our views. I look forward to your questions.
Liberal
The Chair Liberal Wayne Easter
Thank you very much to all the witnesses.
The first round will go to seven minutes.
Mr. Fergus.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Thank you, Mr. Chair.
Thanks very much to Mr. Hannah, Ms. Tedesco, and all their colleagues for being here.
My first question is for Mr. Hannah.
The newspapers have reported on complaints made by former employees of certain major banks regarding practices for obtaining consent. At the least, it appears there was not informed consent.
In your opinion, do the big banks in Canada take these complaints seriously?
At first glance, do you think there is a problem that needs to be addressed or do you think instead that it is a misunderstanding between the banks and their clients?
Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association
Banks certainly take the allegations very seriously. I think they've all stated that very publicly. They've also stated—and I think it's also the case—that it is certainly not consistent with their own expectations or views of the culture or operations of their institutions. Indeed, they look seriously at the issue to make sure that they are promoting a culture that is customer-centric.
Banking is really a relationship business. You want to establish, build, and sustain a strong, lasting relationship with your clients, and you need engaged and motivated employees to do that. Ultimately, that's very important.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Are they convinced that there's a prima facie case that these complaints are legitimate, or is there a sense that there is a misunderstanding?
Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association
I think what they have said is that this is inconsistent with their own expectations or their own internal reviews around their institutions, both from a customer perspective and a client perspective. I'm certain they can provide additional information around that when they come forward.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Sorry to dig just a little further on that one, but, again, I can understand how it might not correspond with their expectations, and I'd actually like to explore the term “expectations”. Are we talking about their own expectations, or are we also talking about their own codes of conduct with regard to sales practices?
Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association
I think there's a linkage here, and maybe it's best to explain it in the context of the system.
A bank always starts from culture. You want to have a strong culture because that articulates what you are trying to build as an organization: how you want your employees to behave, how you want the client relationship to look, and how you want the client to feel. You build that then into the code of conduct, which should articulate what that relationship should look like and what sort of values you want to embody within the organization. That gets translated into the actions and the directions for the employees. It all flows through, and then you monitor performance against that.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
I'm assuming all schedule I banks have codes of conduct regarding sales practices?
Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association
They certainly all have codes of conduct for their employees.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
All right, we could dig a little deeper on that one, but I guess we could address that with each one of the schedule I....
Is there a gap, or has it come to the attention of your membership that there is a gap in terms of having a code of conduct specifically for sales practices?
Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association
The code of conduct and, indeed, the objectives for each employee are designed to be multi-faceted. You are going to look at several dimensions because, ultimately, culture is sort of a very rich concept. You have to look at a number of dimensions of culture. Sales may be part of that, but there's also going to be consumer feedback. You have to make sure that client feedback and other factors are incorporated into your objectives.
These are growing, robust businesses. You're looking at issues, potentially, around staff leadership, mentorship, and community engagement. It really depends on the position you have. Ultimately, you're trying to bring together a number of dimensions that help reinforce the culture you're trying to build and embody it in the relationship you have with your staff.
Sandy Stephens Assistant Legal Counsel, Canadian Bankers Association
Could I just follow on with that?
At a bank, there are multiple controls that relate to performance management. The code is one, but there are a number of controls: training, coaching, etc. So, that's just one control.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
A long time ago, before I was in politics—and I haven't been in politics for a very long time, I should say—I used to be involved with an industry association for research-based pharmaceutical products. We set up not only a code of conduct, which of course could be thick, but also something that I thought was quite innovative, which was the notion of guiding principles, and those were very, very thin, sort of like your “Ten Commandments” of the practices you would want to encourage or the basic principles by which you would work.
Do any of your members have those kinds of guiding principles?
Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association
That's a question you should ask them. I can't speak to that specifically.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Okay. Has the CBA ever made that distinction between guiding principles and a code of conduct?
Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association
We don't typically get into the codes of conduct the institutions have, but I can certainly say that they can certainly provide insights into how they structure their codes.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Thank you very much.
Ms. Tedesco, please tell us about your role at the agency. I know that it regulates or monitors financial institutions' voluntary codes of conduct that were developed by the industry. If a financial institution or the big banks note a disparity and develop a code of conduct or guidelines, does that automatically fall under your responsibility and do you then have to ensure that they comply with those codes?
Commissioner, Executive Services, Financial Consumer Agency of Canada
Certainly.
I would like to clarify two points though.
On the one hand, there are codes of conduct for members of the financial industry. These codes govern their conduct on specific matters, and we are authorized to monitor that. These include, for instance, the code of conduct for the Canadian credit and debit card industry.
Second, there can be various internal codes of conduct governing financial institutions' activities that employees follow. We are not authorized to monitor those codes of conduct.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Thank you, Mr. Chair.
Thank you to all of our witnesses. It's a pleasure to have you here today.
I'm going to direct my comments mainly at the FCAC.
First of all, have you watched the CBC Marketplace episode in which these issues were first raised?