A conversation with FCAC’s Deputy Commissioner of Supervision and Enforcement, Frank Lofranco
"Our risk-based approach to supervision recognizes the importance of consumer outcomes and ensures financial consumers are afforded the protections they are entitled to."
Frank Lofranco
Prior to joining FCAC you coached a professional women’s soccer team. Are there similarities between coaching soccer and leading a group that supervises financial institutions?
You are bringing back some good memories. I was fortunate to spend several years coaching a highly competitive women’s soccer team in Ottawa, the Ottawa Fury. Several players went on to represent Canada in the Olympics and Women’s World Cup. The obvious similarity between coaching and leading in a team environment within FCAC is being part of a talented group of individuals that are working together toward a common goal. Within FCAC, the common goal is the protection of financial consumers. The two environments share key success factors, including the need for a clear vision, a culture that values people, and clarity in roles and responsibilities. Ultimately, there needs to be an understanding that everyone has an important role to play and that we're all invested in, and dependent on, each other's performance and success.
FCAC oversees more than 60 consumer protection measures under the Financial Consumer Protection Framework. How does FCAC make sure that financial institutions comply with such a large number of measures?
That is an important question. To start with, FCAC is a risk-based supervisor. This approach involves prioritizing our supervisory efforts on financial entities and consumer protection issues that are higher risk.
What do you mean by “risk-based supervision”?
It means that we use a risk-based approach to prioritize and organize our work. This entails identifying and assessing risks, allocating resources accordingly, and putting in place decision frameworks to support supervisory actions such as enforcement actions. It also means continuously monitoring the environment for changing circumstances and emerging risks.
As you may appreciate, this is a very dynamic approach. We therefore rely on, and are guided by, the overarching goal of having financial consumers benefit from consumer protections, which includes being protected from financial harm and being treated fairly by their financial institutions. You can think of this as our supervisory compass.
Practically speaking, we identify risks from three perspectives. First, we look to understand whether changes in the economy and financial sector are presenting risks to consumers. Second, we look at compliance risks within financial entities themselves. Lastly, we look at risks in relation to the characteristics and circumstances of financial consumers themselves.
Besides monitoring areas of high risk, how else does FCAC make sure that financial institutions comply with consumer protection measures?
We organize our supervisory work around three pillars. Our three pillars are, one, the promotion of compliance, two, the monitoring of compliance, and three, the enforcement of compliance.
By promoting compliance, we help financial institutions understand their obligations and the consequences of non-compliance. This is an exercise in proactive education and communication, and we rely on several tools including guidelines to ensure our expectations are clear and well understood by financial entities.
To monitor compliance, we rely on several supervisory and compliance activities. For example, we view compliance assessments as an essential tool. Compliance assessments can take the form of thematic reviews or examinations of financial entities, including their policies, procedures, and business practices, to identify areas of non-compliance. This work allows us to detect consumer protection issues early and ensures financial entities take the necessary corrective actions to protect financial consumers.
Our enforcement pillar is also a crucial part of our work and vital for maintaining the integrity and effectiveness of our consumer protection mandate. While our enforcement work has the immediate effect of ensuring financial entities address non-compliance issues on a timely basis, our actions have the added benefit of deterring future non-compliance. We also recognize the need for financial consumers to be treated fairly and, in cases where they have incurred financial harm because of a financial entity’s non-compliance, our enforcement actions require financial entities to take the necessary steps to remediate the harm to those consumers.
At the end of the day, our risk-based approach to supervision helps financial entities foster a culture that recognizes the importance of consumer outcomes and ensures financial consumers are afforded the protections they are entitled to. This in turn contributes to the trust and confidence financial consumers have in their financial institutions and to the safety and integrity of Canada’s financial system.
What happens when FCAC discovers that a financial institution is not complying with consumer protection measures?
When we determine a financial entity is not meeting its compliance obligations, we respond in a way that is proportionate to the nature and severity of the non-compliance, which includes an assessment of the impact on financial consumers. As part of our response, we always require the financial entity to take necessary corrective actions on a timely basis. When necessary, the financial entity will be required to implement a plan with specific timelines and milestones to achieve compliance, and we use this plan to monitor their progress in putting corrective actions in place. When non-compliance is significant, we place the financial entity under enhanced supervision, which can involve more frequent compliance assessments and additional reporting requirements. In cases of severe noncompliance, enforcement actions can take the form of notices of breach or notices of violation, which can be accompanied by monetary penalties.
What is an example of severe noncompliance where FCAC needed to take enforcement action?
We recently published an enforcement action taken against a bank. This case involved non-compliance related to credit cards and an annual fee rebate that had been promised when consumers signed on but which they did not receive. We investigated the issue to ensure that all the non-compliance had been identified. We then assessed corrective actions, which in this case included the need for the financial institution to update systems and disclosure requirements, train employees and communicate with customers. Following FCAC’s investigation, the bank accepted the findings and a monetary policy of 6.5 million was issued, which is the highest penalty we have issued as an Agency. Because there was financial harm to consumers, we also required more than $70 million dollars in remediation, which is compensation that goes to consumers impacted by the violation.
FCAC has recently been given a new mandate to oversee a consumer-driven banking framework that will enable Canadians to share their financial information safely between financial service providers (banks, credit unions and fintechs). Why is FCAC the right Agency to take on this new responsibility?
FCAC is well placed to oversee this responsibility given our mandate and extensive experience with financial consumer protection. We have deep experience with both supervising financial entities and advancing the financial literacy of Canadians.
We recognize that consumer-driven banking represents an opportunity to empower financial consumers to improve their financial outcomes and financial wellness. At the same time, consumers will also have expectations regarding the security of their financial data and their privacy when information is shared.
Canadians should be aware, and hopefully reassured, that FCAC will put consumer protection at the centre of consumer-driven banking while enabling innovation in the financial sector.
There is criticism that the financial system is overregulated and that financial consumers could be better off with less regulation. How would you respond to that?
The apparent move towards deregulation outside of Canada, specifically in the U.S, has sparked public discussion and debate. From my perspective, I see this as a welcomed opportunity to reflect on the benefits that a sound regulatory regime can offer.
From a financial consumer protection perspective, I am convinced that Canada’s regulatory regime is having a meaningful and positive impact on financial consumers. Our regime is designed to ensure financial consumers are treated fairly, have access to financial products and services that are appropriate for their circumstances, receive timely and accurate information to make informed decisions, and avoid financial harm because of actions or non-actions taken by their financial institutions.
In working closely with other financial sector regulators in Canada, I also see how our collective efforts help prevent risky behaviours among financial entities and prevent systemic crises. In other words, Canada’s approach to financial regulation is focused on promoting trust and stability in the financial system. I think these are the things we should be reflecting on as we think about the future of regulation within the financial services sector.
We’ve heard through the grapevine that you like inspiring quotes. What is your favourite quote right now?
One of my favourite quotes, which I will paraphrase, is, "No person steps in the same river twice. For it is not the same river and they are not same person."
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