Finance Committee on June 7th, 2017

[Sally Watson]

Recently, I went into my own bank profile and found there was a Mastercard on my profile. I didn't have a Mastercard and I never applied for a Mastercard. I didn't know anything about Mastercard. I had a staff Visa. I contacted the bank and asked why I had this Mastercard. They said, “It's free.” I said, “I don't care. It has a zero balance. It's never been used. Take it off my profile.” They said, “But it's good for your profile. It's good for your credit profile for you to have that on it.” I said, “No, no, no. I didn't apply for this Mastercard. Take it off.”

I was having a discussion with somebody earlier today who said the same thing had happened to them. What it was is the bank had bought a Sears credit card customer list. I'd had a Sears credit card for about three weeks five years ago and all of a sudden, that turned into an active credit card on my Scotiabank profile. I never signed anything for it and I didn't want it. It took them three months to get it off my profile. I asked for a written letter from the bank stating that they had put this card on my profile without my knowledge or permission, but they wouldn't put it in writing. They wouldn't talk to me by email. They would only talk to me on the phone.

[The Chair, Liberal, Wayne Easter]

I wonder if Mr. Buell has any comments to interject on this point on investments.

[Stan Buell]

Absolutely.

What I'm hearing is the truth. This is what we said to the committee: you need to talk to the witnesses to discover the truth, because the good words of the regulators, really, those rules and regulations are not applied. The problem is they're basically selling financial products. They're not advising clients and they're not looking after their best interests. This goes against the feelings of most ordinary Canadians. That is why they're distressed when they're forced to do it.

I've talked to many of the financial advisers by phone. They have confessed to me, for what it's worth, that they've resorted to alcohol and drugs to enable them to do the work they have to do to take advantage of their clients. To me, it's a real sociological problem when employees are treated that way. It is good that we are a society based on trust, but It's unfortunate that people are being forced to do things that are against their inner feelings. This creates a lot of distress in the individuals. As Sally said, it creates sickness and it creates lots of issues. I think that's something the committee should look at and seriously consider recommending to the government that they take action immediately.

[The Chair, Liberal, Wayne Easter]

Mr. Fergus.

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

I have a very short question, perhaps for all three of you.

In Monday's testimony, we heard from the FCAC and we also heard from the Canadian Bankers Association. They indicated that the banks all have codes of conduct and they all want to promote an appropriate culture.

In your experience were you aware of any code of conduct training or any formal guidelines as to how to carry out your business in an ethical way?

Please give short answers if you could.

[Sally Watson]

All right.

The only codes of conduct that I recall—and I've put this in my talking points—while I was working at Scotiabank, where I worked for 33 years, is there was, one, a code of conduct pertaining to customer confidentiality. There was absolute adherence to that and if you didn't, you were fired, which was totally appropriate. There was a code of conduct pertaining to money laundering prevention rules. We had to sit down and watch videos every year and write tests. We were very well-versed in how to prevent money laundering. Also, there was a code of conduct about discrimination in the workplace. That was also very strict.

I remember no code of conduct whatsoever when it came to how you sold your products. There may have been one, but it was not something that I was ever made privy to in 33 years. I never had any training, never watched a video about it. We never had a meeting about it. You were simply given your goals and told to meet them.

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

Mr. Buell or Mr. Elford.

[Stan Buell]

We've recently looked at the FCAC, and we saw that they established rules and guidelines and then they told the banks to self-regulate.

In our experience in talking to hundreds and hundreds of people, if you listen to what the people are saying, it's contrary to what you're reading in the codes of ethics and the rules and guidelines that the regulators provide. There is a great difference between the two. I tend to put more credibility into what people are saying rather than what I hear from the regulators.

[The Chair, Liberal, Wayne Easter]

Okay.

Turning to Mr. Albas, we'll go to five-minute rounds and we can get everybody on.

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

Thank you, Mr. Chair.

To all three witnesses, I certainly thank you for your testimony. This is a very important study, and I appreciate your frank and honest responses.

I'm going to start first with Ms. Watson.

I was able to serve on a special committee for pay equity. One of the areas under examination was pay equity for women, but we also examined the federal labour standards in the federally regulated market. From our view of it, banks have really beefed up in the area around making sure people are properly compensated for any time and whatnot, and there are better mechanisms now, through implementation of a variety of new labour code standards.

I'm going to speak in general to all three, and then I'll be asking each one of you to voice in. Obviously in banking, there is more competition than ever. Customers, consumers, can go very quickly from a low-cost bank to a virtual bank. If they want to deal with mutual funds, they can choose their own self-directed options through a separate organization while still having the convenience of online banking. For a lot of people, the onus is on the banks to treat their customers...if they want to continue to keep them.

I certainly agree that there are going to be individual cases, for example, your mysterious Mastercard account. There are codes of conduct federally put in place on ensuring that there is consent and plain language used. I just want to delineate that I don't think there is anything wrong with a business offering an extra service to a client. When you go into a car dealership, they will often try to upsell you on a feature. It's up to the individual customer to decide. Where I do draw the line, though, is with behaviour like you mentioned, Ms. Watson, where things were unsolicited. By the same token, I think we need to examine the incentive systems and what effect they may have.

Right now, I've heard some concerns on how the FCAC is conducting an investigation, and I'm not going to prejudice that, but some would ask, whom do you hold accountable? Do you hold accountable the person in your role? Do you hold accountable the manager? Do you hold accountable the upper management, as in the CEO, for the systems of compensation that are put in place? Do you hold the directors of the company accountable for that?

One of the biggest challenges in my mind is that you may have one employee who has figured out a way to increase his or her incentive pay or other options, and that might not be complicit with the management or with the CEO or with the board of directors.

Let's just start there. If the system were to be improved on oversight, who would you say would be first accountable?

[Sally Watson]

It would be the CEO, without a doubt. It would be the CEO.

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

Mr. Elford.

[Larry Elford]

It would be management, upper level sales managers, all the way up through the system, who all have bonuses and incentives depending on whether they're going to get sent on a trip or not, and regulators who pretend to protect Canadians when what they are doing is actually insulating the banks and investment dealers from—

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

Again, we have to say that many of these things we've had before us. Mr. Liepert was quite clear last time that there are allegations we've heard on different shows, like Marketplace, but it's good for us to talk about these kinds of cases in general terms.

I'll go to my next question. We're asking the question about individuals and how they behave. If someone is acting unethically and signing people up for accounts that they didn't sign up for, or has initialled where there was no consent, to me, you would hold the person that was doing that accountable. You say, though, that it should be the system that is held accountable for that person's actions.

What about also someone's licensing? If they are licensed in some way provincially, is there not a code of conduct or a code of ethics like other professional, credentialed individuals?

[Larry Elford]

I'd say the answer to that is if it's a systemic wrong, if it's being done, if there are hundreds of employees across an institution doing wrong with forgery, or wrongly signing people up to things, systemic issues in my view are never punished, because it's very profitable to sign up hundreds and thousands of clients. If it interferes with the profits of the bank, they'll punish it. If the bank catches one bad apple, they'll punish that person, but if it's across-the-board, systemic, and profitable, that's not an offence.

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

I have to say I do have some skepticism around mutual funds, etc., simply because when someone is dealing in investments, it's again caveat emptor, buyer beware. Obviously, someone will not purchase a stock if they do not feel there is a benefit to them. That being said, if someone is acting maliciously, then I do believe there should be recourse for that.

I'd like to focus on the FCAC. You specifically said earlier you think that in the system they are investigating there's too cozy a relationship. Can you explain what you mean? Again, I do note there is absolute privilege here, Mr. Chair, but I really think it's important that we all act responsibly here in what we say, so could you please simply explain that comment a little bit further?

[Larry Elford]

I'll try, thank you.

There is a number of regulators. When I made a documentary film in 2004, Breach of Trust. The Unique Violence of Systemic White Collar Crime, I researched how many regulators, self-regulators, ombudsmen, agency bodies there were. I found over 100 in Canada, most of which are paid by the industry that they purport to regulate. In my opinion, they act more as insulators to the industry rather than protectors to your constituents. They insulate the industry from being held to account for systemic issues which are highly profitable.

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

You did mention the ombudsperson process. Some banks choose to have an in-house ombudsperson, which they can, and obviously there are some firewalls put in place. Others choose to use a third party ombudsman, and that information we've heard from the FCAC is directly shared with them.

Do you have any suggestions about how that process could be improved, or do you think enough people know about their rights to use an ombudsperson?

[Larry Elford]

That's a good question. I think that makes my point.

The ombudsman was giving recommendations that were fairly favourable and fair to clients on settlements, so Royal Bank and TD walked away, summarily firing the ombudsman and saying they will not deal with the ombudsman despite agreeing that they have to deal with the banking ombudsman. They went out and hired their own. That is the exact example of hiring another layer of a quasi-regulator to insulate yourself from harm and accountability. Hire your own people and within a year the ombudsman, OBSI, who was doing a good job, was told, “ You shall not look at systemic issues, you shall not investigate them, and you shall not touch them.” On the issues that are costing Canadians billions and billions of dollars—not one bad apple, not one bad guy in Mississauga—the systemic issues that cost every Canadian across the board, the message was, “You shall not look.”

That's my strongest message.

[The Chair, Liberal, Wayne Easter]

Thank you, Dan. I hate to cut you off, but you're doubly over time. I simply thought I should let that line of questioning finish.

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Welcome, everyone. Stan, welcome on the line.

I'll ask two questions, and then please feel free to answer in the manner you feel appropriate.

With regard to the FCAC, they have announced a full review of the business practices by the banks and federally regulated institutions, to be technically correct, and I would like to know what you would individually like to see come out of that review.

The second question is on financial literacy. November is financial literacy month in Canada. We have a member in our caucus who is championing this, and I applaud her efforts. We also have the Province of Ontario adopting, beginning in September 2018, a requirement for students to undertake financial literacy in high school. I want to hear your take on that, because I think there is an education process that needs to go on with consumers in terms of financial products, which I have felt for a long time has not occurred.

I'll give you an example. You can get into a mutual fund and you'll be charged an MER, or you can buy an exchange-traded fund. Most people don't know that an exchange-traded fund is much cheaper to own. Your returns will be compounded much quicker if you buy an exchange-traded fund from a financial institution versus a mutual fund.

On the financial literacy component, then, and also on the broad review that FCAC is undertaking, what are your comments? Will each individual please answer?

[Sally Watson]

I'm not familiar with the FCAC broad review, so I can't comment on that, but I can comment on the financial literacy part.

I think there are so many products being offered by the banks now that it's virtually impossible to educate the public on all of the different products, especially when the products themselves keep changing in nature. Nobody gets something in the mail or in their email saying, “Oh, by the way, we've changed the interest rate on this, or we've changed the service charge structure, or we've changed the minimum balance requirement.” Those things just don't go out to the public. You would have to retrain yourself on all these products every six months in order to keep up.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I worked at the same financial institution that you worked at, Ms. Watson, so I'm familiar, not on the retail side but on another side. I believe the banks do send information out and are required to send it out. If I'm mistaken, I'll excuse myself. When there are changes to service fee structures, customers are informed. There is information sent out to customers. For example, when there are changes regarding a minimum balance, a bounced cheque, or service charges, the banks do inform their customers.

I'm familiar with the information you provided on taking courses on money laundering and so forth. I had to take the same courses that you had to take. We had to take them bank-wide. They're informative. I agree with you.

However, the bank's customers are informed of the changes that take place with regard to service fee changes in the products they have. That I'm very well aware of.

[Sally Watson]

Well, it doesn't happen to me. I've been a bank customer for 41 years. I have not had any information from the bank regarding any of my products. Now, some of them, being flagged as “staff”, don't incur service charges: I did officially retire from the bank, so I don't pay that many service charges. There are, however, other structural account changes that take place that I am never informed of.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Do you have any further comments on the financial literacy component, please?