Finance Committee on June 5th, 2017

[Lucie Tedesco]

Yes, I have. I was out of the country, but, yes, when I got back, I did.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

What was your initial response?

[Lucie Tedesco]

If I can just go back a moment in time, when, in September, the Wells Fargo issue made its way into the media, we took various actions, and I mentioned those in my opening statement. As soon as the story broke on the CBC, we were getting ready to do our industry review anyway, but we decided to bring it forward, because there was an uptick in our complaints—probably because of the media surrounding Wells Fargo and the Go Public media coverage as well. At that particular point in time, I contacted all the CEOs of the the big six banks to let them know that we were going to conduct an industry review to look at their sales practices, that the industry review could result in investigations and enforcement actions, and that I expected their co-operation and their assistance in helping with our industry review.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Again, when you saw it, you immediately contacted the CEOs, the banks, and informed them that there was considerable interest in this area and that you expect their co-operation. That's fine. But in terms of the public, if someone were to watch it, they would say that obviously, something has gone wrong.

Can you please identify what that would be? Is it a lack of oversight? Is it a lack of resources? Is there a gap in the system? How did these practices...? I would say, Mr. Chair, that Canadians would say we have a very well-governed banking system.

How did this arise, in your opinion?

[Lucie Tedesco]

Well, right now we're doing an industry review precisely to find out, one, if there is a problem, because quite frankly, we haven't done any investigation in this regard. Our industry review was launched April 1, so we need to satisfy ourselves that there actually is a problem, and we need to do that through the tools we have at our disposal.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Being more consumer-driven, do you have the mechanism to properly be able to take the concerns raised by these former employees—or current employees, I'm not sure—and investigate them fully? Do you have all the authority you need to be able to do that?

[Lucie Tedesco]

I'm not sure I'm getting the employees—

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

There's a difference between a consumer phoning up and saying they've had an issue that the ombudsperson has not been able to rectify and they would like to raise their concerns, versus an employee or former employee who says, “These are the practices that were going on in my department.”

Do you have all the tools and resources necessary to carry out an investigation?

[Lucie Tedesco]

I would say that part of our industry review will be to interview all of the relevant employees, at all levels, regardless of their title. It will help us conduct our investigation. We will have to look at their compensation programs, because the issue for us, for our industry review, is really trying to zero in on whether or not compensation programs and sales targets lead to poor business practices.

We are lucky enough to have worked with some international jurisdictions that have conducted such reviews and found that sales targets, particularly the compensations, drive culture and can drive poor sales practices and poor outcomes for consumers.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I do appreciate the response, because I think we're starting to get more to the cusp of the issue, where we try to pin the tail on the donkey, so to speak, as to where things are.

But I asked you a very specific question. Do you have the resources and the tools necessary to carry out an investigation that would bring these things to light right now?

[Lucie Tedesco]

I would say yes. We are currently buttressing our supervision bench strength by creating a new enforcement unit. Additionally, we are adding resources to our supervision group. By the end of next year we will have added 10 more resources to help with our supervision group. Through our industry reviews, and this particular industry review, we will be able to look at things such as compensation programs.

Someone made the point that if there's a corporate culture and a governance culture, and all the policies and procedures are in place, what falls off? We will be able to look at that. We will be able to look at how employees are managed, how their performance is managed. What if they don't reach their sales targets? What happens to them? Those are the kinds of matters that might lead to some poor behaviour.

Did you want to add anything, Richard?

[The Chair, Liberal, Wayne Easter]

There's time for a short one.

[Richard Bilodeau, Director, Supervision and Promotion, Financial Consumer Agency of Canada]

I was going to add that as part of looking at the complaints that we received, any information that we receive from employees will be followed up on.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you.

[The Chair, Liberal, Wayne Easter]

If I may, Pierre-Luc, that was my question.

Could you tell me the process you would use in this type of an investigation? How do you handle a specific employee complaint that we've seen in the media?

I debate this myself. Is it your area? Is it the Canada Labour Code? Is it a provincial matter under their labour code?

It's one thing for you folks to handle a consumer complaint, but how do you involve yourself in an employee complaint?

[Richard Bilodeau]

I think it's very important to be clear on this point. Your question is very relevant.

We do not have the ability, nor is it our mandate, to get involved in an employee-employer dispute or issue. It's not our role, and we have no desire to play that role.

However, if an employee has information, and that information comes to us, that's a source that we can use to inform ourselves about what's going on, whether it's an investigation or an industry review.

We do not have that mandate. It's really just a source of information.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

Mr. Dusseault.

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

Thank you, Mr. Chair.

My first questions are for you, Mr. Hannah.

Unfortunately, you seem to have completely left out the fact that there is a problem, despite the many people who have attested to it. We see this not only in media reports, but also in the testimony we hear. My colleagues around the table certainly share this opinion. There is most definitely a problem in the opinion of former employees and clients. So I am a bit surprised that you left that out of your introductory remarks.

I would like to focus in particular on your expertise regarding the sales targets that banks set and impose on employees. Is that indeed the practice? To what extent are employees held to those objectives set by the employer, that is, by the banks?

[Darren Hannah]

As I said, ultimately what the bank is trying to do is set objectives that align with the culture the institution is trying to put forward, to build, and to strengthen. The culture is one centred on building and strengthening a robust client relationship, and that's a multi-dimensional issue.

For clients who have a sales function, there's a sales element to that, but that won't be it. That might be one dimension. Customer feedback, client feedback will certainly be another dimension.

Potentially other issues around, let's say, leadership, mentorship, training, community involvement, and civic involvement are all factors that build toward an objective of creating a culture that is designed to both strengthen and extend the client relationship, to ensure that clients are satisfied and want to maintain, enhance, deepen, and extend their relationship with their financial institution.

Banking is, ultimately, a relationship business. It's not a single-transaction business. It is trying to build, extend, and create a long-lived relationship with the client that has many dimensions to it.

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

Thank you.

I think we can probably add to that the banks' desire to make profits, since they set such sales objectives. Aside from the interest you mentioned in providing good services to consumers, I think we must not overlook the role of the profits that the major Canadian banks expect to make.

Are you aware of certain disciplinary measures taken against employees who do not meet their objectives? For example, an email might be sent to all employees listing the employees who performed well and those whose performance was lacking. This created a sub-category of employees whose performance was lacking and who have a sword of Damocles over their heads. In other words, if they do not improve, they should expect to be let go. Do you think that is a suitable practice?

Are you aware of these practices that exert pressure on employees and expose them to penalties when they do not meet their objectives? Do you think that serves consumers well?

[Darren Hannah]

Now I can't speak to individual employee relationships, but I can certainly say that from the institution's point of view, if you're trying to build a culture that's focused around the client, you also have to make sure the employees feel properly engaged in it. You want to have motivated employees to make sure that this works, and engaged employees. Banks very typically have very high employee engagement scores, which is a good thing. That's part of it. Banking is very much, in that sense, a very personal business. You have staff who are dealing with clients. You want to make sure that the client is comfortable. You want to make sure the client is well served. To have that, you have to have an employee who's comfortable, an employee who feels engaged and empowered. That's really important.

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

That is not necessarily what we hear in the testimony.

One person told us that he had asked one of his colleagues how he was able to meet his objective, to which his colleague replied that he sometimes gave products to consumers who had not requested them, that he falsified signatures, and that he increased interest charges and lines of credit without the client's permission.

The testimony we have heard shows that these incentive measures make certain employees resort to dubious practices in order to meet their objectives. Unfortunately, you did not address this problem today.

As to the recourse available to clients or employees who have witnessed a fraudulent situation, I understand there is a complaints process that can lead to penalties.

To give us a better idea of the scope of the problem, can you tell what penalties have been imposed on the banks in recent years?

[Richard Bilodeau]

I will give you a general answer because it would be difficult to provide details about each matter and each of the penalties imposed as a result.

I can tell you that the commissioner made three decisions in fiscal year 2016-17, some of which have not yet been published. These decisions identified eight violations, which resulted in $465,000 in administrative penalties.

I would add, however, as did the commissioner, that this is just part of the story. In the past year, we have led financial institutions to reimburse clients close to $15 million, owing to inaccurate disclosures or situations in which clients' account had been charged more than what they were told. We did this through our monitoring activities, using the various tools at our disposal, and by working with the financial institutions.

Aside from the pecuniary aspect, in cases where clients had received inaccurate information during transactions with their financial institution, we were also able to backtrack and inform clients that they had received inaccurate information and give them the correct information. It is just as important to correct inaccurate information. Just because there were no problems or financial losses, that does not mean that the client is not hurt more broadly speaking.

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

Thank you.

The fact that $15 million was returned to customers is obviously good news. I think, though, that we could be stricter with the banks themselves. That leads to my next question.

When you impose fines or penalties, or when you find a bank guilty at the end of an investigation, is that information made public?

In my opinion, one way of dissuading banks is to name them when they are in the wrong. Is that part of your approach? If not, would it be a good idea to do that?

[Richard Bilodeau]

I will begin by answering the question regarding the process, but I will let the commissioner finish.

The process is triggered when a statement of wrongdoing is made and there is a potential fine. The financial institution can then be heard by the commissioner, who must in turn make a decision.

All decisions by the commissioner are subject to the publication principles. The commissioner has the discretion to name the financial institution or not, something she can elaborate on. On the other hand, if the errors that represent the wrongdoing lead to a fine, the commissioner discloses the amount in her decision. In addition, for obvious reasons, all sensitive commercial information is removed.

Our goal is not only to inform consumers of the issues we are examining, but also to use the decisions as a tool to ensure that other financial institutions are well informed of their duty to comply with the law.