FCAC modernizes framework for overseeing financial institutions

The agency has bolstered its ability to protect Canadians following two reviews of industry practices

FCAC modernizes framework for overseeing financial institutions

The Financial Consumer Agency of Canada (FCAC) has instituted a new Supervision Framework to supervise federally regulated financial institutions and ensure financial consumers and merchants are benefiting from applicable protections.

The new framework, which replaced the agency’s Compliance Framework on October 1, was supposed to come into effect earlier. But according to the FCAC’s recently released 2017-2018 Annual Report, the implementation had to be delayed so that the findings from its review of sales practices across the banking industry could be used to fine-tune the new framework.

The agency has also set up a new Enforcement Division within its Supervision and Promotion Branch. The move, according to the FCAC, is meant to “bolster the rigour and independence of the Agency’s investigation function and improve its ability to protect Canadians.”

Another initiative noted in the latest annual report is a new Consumer Protection Advisory Committee, established by Commissioner Lucie Tedesco.  Members of the committee — national, provincial, and regional leaders in financial consumer protection — provide their perspectives on evolving financial-sector issues and consumer needs, as well as the impact of changes in the financial-services sector.

The new initiatives follow two reports from the agency that point to industry-wide risks for customers of financial institutions. In its investigation of the domestic retail sales practices of Canada’s largest six banks, the FCAC focused on distribution channels where there is interaction between consumers and bank employees.

“FCAC found that retail banking culture encourages employees to sell products and services, and rewards their sales success,” the agency said in its 2017-2018 report. It went on to say that the sharp sales focus in banks can increase the risk of consumers’ interests not being given the appropriate priority, and that the banks had insufficient controls to control, identify, and mitigate risks of mis-selling and breaches.

In another report focusing on home equity lines of credit, the FCAC found that lenders were increasingly combining term mortgages with HELOCs and other credit products under readvancible mortgages. “While HELOCs can provide a convenient source of less expensive credit, readvanceable mortgages are complex and many consumers do not understand how they work or the applicable fees,” the agency noted.

“The product’s characteristics may increase consumers’ vulnerability to overborrowing, debt persistence and wealth erosion,” the FCAC continued, adding that it has proposed improvements to product disclosure to help consumers make informed decisions.