House Standing Committee on Finance (May 31, 2024)
ISSUE: Supervision and Enforcement (process FCAC’s track record)

Consumer protection mandate

• FCAC oversees the compliance of federally regulated financial institutions, including banks, with consumer provisions in federal legislation and regulations, including the Financial Consumer Protection Framework.

Mortgage Guideline example

• Just last year, FCAC’s data indicated that homeowners with a mortgage were experiencing increasing financial hardships, such as having to borrow for daily expenses or draw on savings.
• This information contributed to FCAC issuing the Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances.
• The Guideline sets out our expectations that, in response to the challenging economic circumstances Canadians are facing, financial institutions will adopt proactive, fair and consistent approaches to offer relief measures to consumers who are at risk of defaulting on their mortgage for their principal residence.

Overview of the supervision function

• FCAC’s Supervision and Enforcement program actively oversees the federal financial sector through supervisory engagements, industry self-reporting and, increasingly, data and trend analysis. The program is designed to be risk-based and outcome-driven. It seeks to promote and enable compliance on the part of regulated entities by ensuring supervisory activities are transparent, proactive, timely, and effective.

Supervision framework

• The Supervision Framework describes the Agency’s approach and the variety of supervisory tools and activities that the Agency uses to promote, monitor and enforce the obligations that govern federally regulated entities in Canada’s financial ecosystem.
• A key goal of FCAC’s risk-based, outcome driven Supervision Framework is to proactively monitor market conduct issues and have federally regulated financial institutions address such issues on a timely basis, which may include the use of enforcement actions.
• As compliance issues became known, the Agency works closely with banks, and the banking sector more generally, to ensure banks were taking the necessary actions to address compliance issues in a timely fashion.

Commissioner Decisions

• When the Commissioner has decided that a bank has violated its obligations to consumers, the Commissioner makes public the nature of a violation, the name of the institution, and the amount of the penalty. Commissioner’s Decisions complete the action that begins with the issuance of a Notice of Violation or a Notice of Non-Compliance.
• Since 2022, FCAC has published 4 Commissioner Decisions which included administrative monetary penalties totalling more than $10 million. This includes the highest ever penalty imposed by the Commissioner ($5.6 million - Decision #143 - CIBC).

Examples of Supervisory activities in 2022-23 (from the Annual Report) 

FCAC:

• engaged in 349 formal supervisory touchpoints
• continued to monitor banks’ implementation of the Framework
• opened 6 action plans in relation to compliance with market conduct obligations
• closed 15 action plans where corrective actions were finalized
• received 346 Reportable Compliance Issues submitted by regulated entities
• issued 166 Notices of Breach following investigations (of those, 113 were Level One, 48 were Level Two, and 5 were Level Three)
• issued 2 Notices of Violation

Thematic reviews

• FCAC is currently conducting targeted reviews of the banking sector’s implementation of the new market conduct obligations for complaint handling and electronic alerts under the Framework.

Supervision and financial sector policy

• FCAC’s supervision work contributes to the development of financial sector policy.

Financial Consumer Protection Framework

• For example, FCAC’s past reviews of bank sales practices informed the development of the Financial Consumer Protection Framework, which introduced 60 new or enhanced provisions.
• The Framework came in to force in 2022.
• It holds banks to a higher standard and requires them to take greater responsibility for consumer outcomes.
• For example, they must strengthen their complaint-handling procedures and provide more information to their customers so they can make informed and timely decisions.
• The Framework also requires banks to meet higher standards in their sales practices, including providing products and services to their customers that are appropriate based on their financial needs and circumstances.
• In addition, the legislation that created the Framework provided FCAC with more powers to protect Canadians in their dealings with banks. They include the power to:
  • impose higher penalties on banks that commit serious violations of their legal obligations
  • direct banks to take actions to comply with their legal obligations, such as requiring them to compensate consumers who have been improperly charged fees
  • direct banks to undergo a third party, independent audit to comply with their legal obligations.

Single ECB

• Furthermore, FCAC played a role in the decision to designate the Ombudsman for Banking Services and Investments (OBSI) to serve as Canada’s single external complaints body for banking.
• The move to a single ECB addresses findings from FCAC’s 2020 report that concluded that consumers face delays and complications when escalating their banking complaints.
• FCAC also found that Canada's current multiple-ECB model introduces inefficiencies and complexities and is not consistent with international standards.
• The new, single ECB model reflects the model used in many advanced economies.

Financial Institutions Supervisory Committee

• FCAC is a member of FISC (Finance, Bank of Canada, OSFI, CDIC).
• We work together on issues of importance to the safety and soundness of Canada’s financial system, one of the strongest and safest in the world.
• FCAC brings an evidence-based consumer perspective to FISC.