John Turley-Ewart is a regulatory compliance consultant and Canadian banking historian.
Last week, the Ontario Securities Commission and the Canadian Investment Regulatory Organization launched a “coordinated review into the sales practices within Canadian bank branches.”
The OSC and CIRO’s move followed a March CBC MarketPlace undercover exposé that reported instances of bank branch staff mis-selling credit cards and lines of credit and offering inappropriate financial advice to customers. Undue pressure on bank staff to meet sales targets was apparently at fault.
Yet this is not the coordinated review as advertised by the OSC, a Crown corporation, and CIRO, a self-regulatory body. The Financial Consumer Agency of Canada, or FCAC, an arm of the country’s bank supervisory regime, conducted a similar exercise in 2018. The OSC and CIRO are now tackling this issue on their own, opening the door to a potential hodgepodge of rules that are hard to apply and enforce.
The FCAC’s examination of big bank branch sales practices, titled Domestic Bank Retail Sales Practices Review, generated important findings at the time. It determined that the banks’ “governance frameworks do not manage sales practices risk effectively” and that “controls to mitigate the risks associated with sales practices are underdeveloped.” These observations refer to the use of internal audit and bank compliance programs as a check on unreasonable sales targets that encourage unethical behaviour by branch staff.
Bank branches in Canada are and have always been established to support individual and community economic growth by selling individuals, small business owners and large business operations profitable banking products and services. When bank branches prove unprofitable, like any other business, they eventually close.
Equally true, unethical sales practices undermine credibility and the long-term business sustainability of a bank branch. For this reason, the policies, procedures and training at Canada’s banks are designed to support an ethical sales culture. It is the table stakes for success.
Mistakes are costly. A classic example involves Wells Fargo Bank in the U.S. between 2002 and 2016. Failing to ethically manage its sales culture led to staff misleading customers and opening unauthorized client accounts to meet sales goals – an outcome that cost the bank billions in fines, millions in restitution paid to investors and an effort that continues to this day to rebuild trust with customers.
The FCAC found that risks of bad sales practices at bank branches exist in Canada – that they sometimes happen, but not typically. To guard against them, the FCAC promised “a modernized supervision framework that will allow it to proactively ensure banks have implemented the appropriate frameworks.”
But it never happened. Promise made, promise forgotten?
A rehash of the FCAC’s work by the OSC and CIRO isn’t helpful. Step one should have been determining why the FCAC didn’t deliver its 2018 promise for a new framework. Could it be that another framework atop existing consumer protections in the Bank Act created regulatory confusion?
Recall, too, that Canada’s bank supervisor, the Office of the Superintendent of Financial Institutions, or OSFI, issued a regulatory notice on Nov. 21 this year on culture risk management. It’s a move that also comes into play on the OSC and CIRO file, as culture impacts sales practices.
Another study of bank branch sales practices as proposed last week is not a step forward for consumers or the regulated. Nor is it coordinated, as Canada’s bank supervisory regime is not involved.
The OSC and CIRO would better serve and protect consumers from unsavoury bank branch sales practices by truly integrating their concerns with the FCAC and OSFI. Their goal should be producing a common approach and consistent enforcement tools that all four regulators could help supervise. Canadian consumers and banks would be better for it.