A review conducted by the OSC and the Canadian Investment Regulatory Organization found mutual-fund advisers face a high degree of pressure to meet sales targets.Nathan Denette/The Canadian Press
Canada’s largest association for retirees is pressing Ontario’s securities regulator to complete its second review of inappropriate sales practices at Canada’s big banks.
At an event in Toronto earlier this week, Anthony Quinn, president of the Canadian Association of Retired Persons, asked officials from the Ontario Securities Commission to start actively regulating Canada’s largest banks, rather than repeatedly surveying and reviewing sales practices that have already been deemed harmful to investors.
“If these identified issues continue and the banks are considering perhaps tackling it at some future date, when does the regulator look to start regulating?” Mr. Quinn said.
He made the comments during a panel talk about financial security for Canadians, which included the results of a recent regulatory review of sales practices at Canada’s Big Five banks.
The review, which was conducted by the OSC and the Canadian Investment Regulatory Organization and was released in July, found mutual-fund advisers face a high degree of pressure to meet sales targets, which can lead them to offer products or services that are not in a client’s best interests.
The OSC and CIRO said their examination identified several areas of concern that would be more closely examined in a second review, before determining whether any further action would be required to ensure continuing compliance with securities law.
Now, nearly three months later, Mr. Quinn said his membership, most of whom are retirees or preretirees, cannot wait years for the necessary changes to be made.
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Matthew Onyeaju, the OSC’s senior-vice president of registration, inspections and examinations, told the audience that while there is a second review under way, the regulator has not commenced a formal investigation of the banks at this stage.
“We have performed research which identified that there was some disconcerting elements of the responses that were the opinions of the representatives,” Mr. Onyeaju said. “So we’ve not yet independently corroborated whether in fact there have been violations of securities law. That work is being done in progressing phases.”
However, Mr. Quinn said in an interview he didn’t think the audience came away with “much confidence that there is an imminent remedy to the current situation.”
“What we heard from the OSC was sobering. Their survey results show that a significant portion of bank clients continue to receive investment advice that is not in their best interest,” he added. “The incentives at play appear to leave the investor in the back seat.”
The first review found that 24 per cent of respondents who sell mutual funds said clients “have been recommended products or services that are not in their interests” at least “sometimes,” while 33 per cent reported that clients “have been provided with incorrect information about products and services being recommended to them.”
The survey focused on sales pressures, the range of products available for customers, advisers’ knowledge of products and services, and compensation models used by the banks. The next phase of the review will include the controls the banks have in place to address possible conflicts of interest that arise from sales practices.
OSC spokesperson Andy McNair-West said in an e-mail that the regulator expects to complete the second review within months and intends to share the findings and results in an appropriate way – depending on the outcome.
“This could be further public communication, or compliance findings to specific firms,” he added.
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In a prebudget submission, Mr. Quinn asked the federal government to direct the Competition Bureau to review the big banks’ “oligopolistic power and collective decision” to restrict retail investor choice at bank branches.
As well, CARP is advocating for legislating a fiduciary standard that would require all financial advisers and banks to act in the best interest of clients.
“These advisers are motivated by sales quotas and incentives that put the interest of the banks ahead of their clients,” Mr. Quinn said in the submission. “Regulators are aware but have taken no action to end this exploitation.”
This is not the first time the OSC has taken a closer look at Canada’s biggest banks.
In 2021, Ontario Finance Minister Peter Bethlenfalvy called on the OSC to conduct a review of several banks that had halted sales of third-party investment funds. It was completed in 2022 and submitted to the minister. The findings have not been made public.
Colin Blachar, a spokesperson for Ontario’s Ministry of Finance, said the government continues to work with the OSC and CIRO to ensure investors have “access to the products that best serve their needs, and that large and small market players can thrive in Ontario’s capital markets.”