ARCHIVED - Compliance Framework: Definitions of compliance terms

From: Financial Consumer Agency of Canada

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The Compliance Framework is archived.  The Supervision Framework came into effect on October 1, 2018.

This section includes definitions of the most common compliance terms associated with the various activities undertaken to promote or enforce compliance in the industry.

Administrative monetary penalty

An administrative monetary penalty is a penalty that the Commissioner can impose, which can be as high as $50,000 for an individual or $500,000 for an entity, as per Section 19 and 20 of the FCAC Act. The penalty is payable to the Receiver General of Canada and is determined on the basis of three criteria: the degree of intent or negligence of the violator, the harm done by the violation and any previous history of violation.

Administrative monetary penalties are not applicable to ECBs as per the legislation.

Appeal to Federal Court

Pursuant to Section 24 of the FCAC Act, a financial institution on which a notice of decision is served may, within 30 days after the Notice of Decision is served or within any longer period that the Court allows, appeal the decision to the Federal Court.

Case

An administrative tool, where a file is opened by CEB pertaining to a compliance matter, such as an alleged contravention of a regulatory provision, a voluntary code of conduct or a public commitment.

Commissioner’s Decisions (Web publication)

Commissioner’s Decisions are published on the FCAC website and are intended to provide the industry with details and timely information on various decisions made by FCAC’s Commissioner. This communication enables industry members to assess their own internal processes and compliance with the relevant legislative provisions, voluntary codes of conduct or public commitments and to take appropriate actions, if necessary to ensure full compliance. Ultimately, the posting of Decisions assists financial entities in carrying out internal work to further enhance compliance.

Previously, FCAC published condensed summaries of the Commissioner’s Reasons for Decision on its website. As of August 2008, the Agency publishes Commissioner’s Decisions on FCAC’s website in full, with minimal omissions, to ensure the confidentiality of the relevant parties.

In addition, as of March 2011, the Agency publishes anonymous summaries of all violations and all instances of non-compliance on the FCAC website.

Commissioner’s Guidance

From time to time, the FCAC Commissioner will publish Commissioner’s Guidance to help clarify, explain or interpret what is required to meet the related industry obligations. The guidance describes the Commissioner’s position on issues and subjects of interest to financial entities.  It is meant to promote awareness and illustrate ways in which a FRFE can comply with the rules and obligations that are applicable to its regulatory regime.

Guidance is provided by the Commissioner at her discretion. While the Commissioner’s interpretation in a guidance document may provide insight, it is not a substitute for the law.

Complaint

A verbal or written expression of dissatisfaction by a consumer, related to any area of activity of the FRFE.

Complaint handling procedure

FRFEs are legally required to have a complaint-handling process in place for dealing with complaints made by consumers. The process must be available to consumers at branches, on websites where products or services are offered, and upon customer demand. Financial institutions must file their complaint procedures with FCAC. The Agency maintains a database of complaint-handling procedures. The database is accessible through the complaints-handling procedures search tool on FCAC’s website.

Complaint Liaison person

Senior-level employee of a financial entity responsible for reviewing compliance issues referred by FCAC and for liaising with FCAC on the institution’s reportable complaints.

Compliance Agreement

A Compliance Agreement is an official agreement entered into by the Commissioner and the senior management of the FRFE. It specifies corrective measures designed to further compliance with the legislative provisions, and sets out the time frame for their implementation. CEB normally works with the FRFE when setting out the agreement parameters and the timelines for the FRFE to address the key measures identified.

Failure to meet the terms and conditions of the Compliance Agreement may lead to enforcement actions, including possible Notices of Violation and the assessment of an administrative monetary penalty.

Administrative monetary penalties are not applicable to ECBs as per the legislation.

Compliance assessment questionnaires

In order to monitor the level of compliance in the marketplace, CEB may carry out direct FRFE assessments on specific legislative provisions, voluntary codes of conduct or public commitments. This assessment may also contain elements pertaining to internal processes or compliance functions.

The questionnaire and resulting follow-up comprise a comprehensive and systemic review of an institution’s overall compliance. The process enables CEB to discern any areas where the institution can make improvements to its overall compliance.

Compliance Bulletin

Compliance Bulletins describe how CEB views the broad requirements of legislative provisions, voluntary codes of conduct or public commitments, and how it interprets these rules in the context of undertaking its compliance work with a FRFE. This form of communication is not an official interpretation of the Commissioner.

Compliance Liaison person

A senior-level employee of a financial entity responsible for the implementation and monitoring of compliance activities within that institution.

Compliance report or proposal

A compliance report or proposal is prepared by CEB once it has concluded that there is a strong likelihood that a FRFE has contravened a legislative requirement and the situation is evaluated as substantive. 

The report defines the key compliance issue(s) identified, provides the key legislative provisions in question, sets out all the evidence, and provides an analysis of the compliance concern and the recommendation for addressing the compliance issue (e.g. compliance agreement, on-site examination, violation, etc).

A draft may be forwarded to the FRFE for comments when it is deemed necessary to verify specific facts surrounding the compliance concern. The financial entity typically has 30 calendar days to make comments on the facts of the draft report.

The report provides the FCAC Commissioner with the information required to render appropriate determinations regarding a particular compliance concern.

Compliance triage

Compliance triage is an administrative process undertaken by CEB in order to categorize various types of industry information collected by the Agency. The goal of compliance triage is to determine whether the information being analyzed by CEB could involve a possible compliance concern involving a legislative provision, voluntary code of conduct or public commitment overseen by FCAC.

Consumer complaint

A consumer complaint is a complaint that FCAC receives directly from a consumer pertaining to a legislative provision, voluntary code of conduct or public commitment. FCAC’s consumer services centre receives complaints via email, mail and telephone. The consumer services centre records all pertinent details about the complaint from the consumer and responds to all written complaints in a timely manner.

Any complaint that is received by FCAC and is related to a legislative provision, code or commitment is sent to CEB for compliance triage.

In addition to the above-mentioned complaints, FCAC also receives a broad range of general consumer complaints (i.e., complaints not related to a consumer provision). After receiving this type of complaint, the consumer services centre explains the complaint-handling procedure of the relevant financial entity and provides information about third-party dispute resolution, if applicable. If a complainant has not followed the financial entity’s complaint procedures, FCAC directs the complainant to the right point of entry in the complaint process. Where necessary, it directs consumers to other organizations (e.g., provincial regulator or other government department or agency).

Consumer provision

A provision of federal legislation/regulations identified as a consumer provision in Section 2 of the FCAC Act. When designated by legislation or regulation, contravention of such a provision constitutes a violation.

Desk review

A desk review is a formal compliance tool that is used when multiple compliance deficiencies are identified within the FRFE. A desk review follows the same process used for an on-site examination, except that the review of information takes place at the office of the Agency.

Following the review process, CEB prepares a written examination report that identifies the compliance deficiencies found within the organization and sets out specific recommendations for compliance actions to be taken by the FRFE to achieve full compliance. FCAC will work with the FRFE to establish an appropriate time frame to address all the recommendations.

FRFEs are expected to address all recommendations and advise CEB how they will ensure compliance. If recommendations from a desk review are not addressed by the FRFE, the issues could be escalated for potential enforcement actions (e.g., Notice of Violation).

Federally regulated financial entity (FRFE)

FCAC supervises three types of federally regulated financial entities: federally regulated financial institutions, payment card network operators and external complaints bodies.

  • Financial institutions
    • banks
    • federal credit unionsFootnote 1 
    • federal trust and loan companies
    • federal life insurance companies
    • federal property and casualty insurance companies
    • retail associationsFootnote 2
  • Payment card network operators
  • External complaints bodies

Industry review

An industry review is a formal compliance tool through which information is gathered from various FRFEs on a specific compliance matter. It is used to establish common practices in the industry on regulatory disclosure, and to provide recommendations or guidance to the industry on what best practices exist in the marketplace.

Investigation and evaluation

Investigation and evaluation is a process undertaken by CEB once a compliance concern has been identified. The financial entity involved is contacted in order to provide further details required for the investigation (e.g., copies of documents or recordings of conversations).

In accordance with Section 5 of the FCAC Act, the Commissioner may collect any personal information considered necessary to determine whether FRFEs are in compliance with the various legislative provisions. Furthermore, FRFEs must provide the Commissioner with this information at the time and in the form that the Commissioner may require for the purpose of administering the FCAC Act and legislative provisions.

Unless otherwise indicated, the FRFE will normally have up to 30 calendar days to respond to the initial investigation request.

If the investigation reveals no underlying compliance concerns, the investigation is closed and the FRFE is notified.

However, if the investigation highlights a compliance concern, CEB will analyze the compliance concern based on numerous factors such as:

  • harm to consumers
  • risk of reoccurrence
  • controls in place/actions taken to prevent the issue
  • level of communication with FCAC

Letter of concern

A letter of concern is an administrative compliance tool used to raise a FRFE’s awareness of a possible compliance issue. The Agency may issue a letter of concern in a case involving an apparent contravention of a legislative provision, voluntary code of conduct or public commitment. A letter of concern may also be issued in a situation where there is significant consumer impact and the Agency believes that the FRFE’s disclosure, procedures or practices may not be adequate or may be misleading to consumers.

This type of letter will inform the FRFE of CEB’s concerns regarding its investigative findings and will advise the FRFE that it possibly will take stronger regulatory actions in the event of another contravention. In addition, CEB will continue to monitor the issue to identify any trends that may develop.

There is an expectation that the FRFE will also review the issue noted, assess the practice to ensure compliance and report to FCAC when changes are made.

Letter of concern with an action plan

A letter of concern with recommended measures (i.e., an action plan) is an administrative compliance tool used to ensure that a FRFE improves its level of compliance with an identified legislative provision, voluntary code of conduct or public commitment within a specific time frame. This letter will also advise the FRFE that stronger regulatory action may be taken in the event of another similar contravention. In addition, CEB continues to monitor the issue to identify any trends that may develop.

An action plan requires the FRFE to provide information on the cause of non-compliance, as well as measures it plans to undertake to prevent recurrence. There is an expectation that the FRFE will review the issues noted, assess the practice to ensure compliance and report back to CEB within an established time frame on how it is addressing the issue.

Non-compliance letter

A non-compliance letter is an administrative compliance tool used to inform a FRFE of a possible non-adherence to a voluntary code of conduct or public commitment that CEB monitors. This letter is signed by the Director of Compliance and Enforcement and notifies the FRFE that CEB is aware of possible non-adherence to a code or commitment and that it will close the case as non-compliant.

In some cases, CEB will request a FRFE to take appropriate measures in order to work toward full adherence with the code or commitment. The FRFE has the right to make representations to the Commissioner to contest the non-compliance letter if it deems necessary.

Non-substantive letter

A non-substantive letter is an administrative compliance tool used to inform a FRFE of a possible breach of the legislative provision, voluntary code of conduct or public commitment. This letter is signed by the Senior Compliance Officer and sent to the FRFE as a notification that the Agency is aware of possible contravention, but will not pursue the issue further for the time being.

CEB continues to monitor the issue to identify any trends that may develop. It expects that the FRFE will review the issue noted and assess the practice concerned to ensure compliance.

Notice of branch closure

A notice of branch closure is a requirement wherein FRFIs must notify FCAC before closing a branch that opens retail accounts and disburses cash, or before ceasing to carry on either of those activities.

A notice of branch closure is a requirement wherein FRFIs must notify FCAC before closing a branch that opens retail accounts and disburses cash, or before ceasing to carry on either of those activities.

FCAC ensures that notices of branch closure meet the content and timing requirements of the applicable legislation. If the institution has met the statutory filing requirements, FCAC acknowledges receipt of this information. If compliance concerns are identified, CEB will follow the compliance framework process with respect to the compliance concern.

Notice of Decision

A Notice of Decision is an enforcement tool issued by the Commissioner informing a FRFE of the Commissioner’s decision regarding a violation, and confirming the amount of any administrative monetary penalty, if applicable, as set out in Section 23 of the FCAC Act.

The Notice of Decision is issued following the Commissioner’s review of the facts of a compliance investigation, as well as any representations made by the FRFE in response to the Notice of Violation. If the FRFE is deemed to have committed the violation, the Commissioner will decide the administrative monetary penalty and inform the FRFE of the decision through the Notice of Decision.

Subject to section 31 of the FCAC Act, the Commissioner may make public the nature of the violation, who committed it and the amount of any applicable administrative monetary penalty. The Notice of Decision also states that the FRFE may appeal the decision to the Federal Court, subject to section 24 of the FCAC Act.

Administrative monetary penalties are not applicable to ECBs as per the legislation.

Notice of Violation

A Notice of Violation is an enforcement tool set out in Section 22 of the FCAC Act. It informs a FRFE that there are reasonable grounds to believe they have breached a legislative provision.

The FCAC Act requires that the Notice state the name of the institution that committed the violation, the nature of the violation and the proposed amount of any proposed administrative monetary penalty to be levied against the institution by FCAC. Within 30 days of the Notice of Violation having been served, the FRFE must pay the administrative monetary penalty (if applicable) or make representations to the Commissioner with respect to the violation and the proposed administrative monetary penalty.

If a FRFE does not make representations and/or pays the administrative monetary penalty, in accordance with the Notice of Violation, it is considered to have committed the violation.

Notices of Violation are typically issued by the Deputy Commissioner through a delegated authority from the Commissioner of FCAC.

Administrative monetary penalties are not applicable to ECBs as per the legislation.

On-site examination

An on-site examination is a formal compliance tool. It is a complete and thorough examination that is used when CEB has identified more than one compliance deficiency within the FRFE, or a particularly egregious deficiency in one or more areas. In order to gather information to proceed with this type of examination, CEB may request specific documents, including but not limited to disclosure documents, policies and procedures, as well as training materials. CEB may also interview employees of the FRFE at their place of business to assess the internal compliance knowledge.

Following the examination process, a written examination report is prepared that highlights the compliance deficiencies identified within the organization and sets out specific recommendations for compliance actions to be taken by the FRFE to achieve full compliance. FCAC will work with the FRFE to establish an appropriate time frame to address all the recommendations.

FRFEs are expected to address all recommendations and advise CEB how they will ensure compliance moving forward. If recommendations from an on-site examination are not addressed by the FRFE, the issues could be escalated for potential enforcement actions (e.g., Notice of Violation).

Prosecution

Prosecution is an enforcement tool. Every person who, without reasonable cause, contravenes any regulatory provision under the Bank Act, the Trust and Loan Companies Act, the Insurance Companies Act, the Cooperative Credit Associations Act, the Payment Card Network Act or regulations thereunder, is guilty of an offence punishable on summary conviction or on indictment, and is liable to a fine, imprisonment, or both.

In circumstances where proceeding with a violation of an offence is appropriate, the matter is referred to the Attorney General of Canada.

Public accountability statement

A public accountability statement is a document that every financial institution with $1 billion or more in equity is required, by law, to publish annually and file with the FCAC Commissioner. The statement describes the contributions made by the institution to Canada’s economy and society.

FCAC ensures that all statements are filed within the legislated time frame and confirms that they are available to the public. FCAC also reviews the statements to ensure that the contents meet the requirements.

Public commitment

A commitment made publicly by a financial entity (for example, on its website), designed to protect the interests of customers of that institution or association. FCAC monitors the compliance by FRFE with their public commitments.

Regulatory Compliance Management (RCM)

An existing requirement of the Office of the Superintendent of Financial Institutions Canada, known as RCM.

Reportable complaint

A reportable complaint is a complaint involving a legislative provision, a voluntary code of conduct or a public commitment, that has been received by or forwarded to the designated reportable level, or higher, of the financial institution’s complaint-handling procedure.

A reportable complaint must be forwarded to FCAC even though:

  • the consumer has also contacted FCAC
  • the consumer is satisfied with the outcome of the complaint
  • the complaint was received at the reportable level or higher but then sent to a lower level of the complaint‐handling process for response or resolution
  • the complaint was received at a reportable level of the complaint‐handling process and was resolved directly
  • the FRFE concluded that it had complied with its obligations to consumers

Templates and deadlines

For FRFEs that report complaints in the Detailed Manner (full complaint description provided):

CEB expects FRFEs to submit reportable complaints to CEB quarterly using the following reporting forms: Reportable complaints summary report for consumer provisions and the Reportable complaints report for voluntary codes of conduct and public commitments.

If the FRFE does not have any reportable complaints (related to consumer provisions or codes/commitments), CEB expects the FRFE to, on a quarterly basis, report this to us by submitting the Reportable complaints nil report.

For FRFEs authorized to report complaints in the Aggregate Manner:

CEB expects these FRFEs to submit all reportable complaints in aggregate form to CEB quarterly using the following reporting form: Reportable complaints aggregate report. The reportable complaints aggregate report contains a section for nil reporting to be used as applicable.

Excep​tion:

Insurance companies are not required to file Nil reports in either the detailed or aggregate manner. These will be addressed in the annual examination.

Reportable compliance issue

A reportable compliance issue is a compliance deficiency that is a material or systemic issue that would normally be reported to the compliance division of the FRFE or captured in the Regulatory compliance management process. This would include any material or systemic compliance deficiency pertaining to a legislative provision, a voluntary code of conduct or a public commitment that is monitored by FCAC.

The compliance deficiency may have been identified through various sources including, but not limited to, regular internal audits, ad hoc compliance or control reviews, or a consumer complaint. If a compliance issue has already been reported to FCAC through the normal reporting of a reportable complaint, it should be reported and linked to the initial report.

A reportable compliance issue would need to be forwarded to FCAC even though:

  • the compliance matter has been addressed by the FRFE
  • consumers were not financially affected
  • an implementation plan for fixing the identified compliance matter is not yet in place

Template and deadline

CEB expects FRFEs to submit a reportable compliance issues summary report within 60 days of the compliance issue being identified, reported or received by their compliance group. FCAC will record each reportable compliance issue in its tracking system.

Reportable level

A financial institution’s reportable level is one level higher than the one that routinely handles and makes operational decisions about the subject matter. The reportable level may vary, based on the operational profile of the FRFE.

For ECBs, the reportable level is their Compliance Officer (liaison).

Restraining order

A restraining order is an enforcement tool. If a financial institution, or any director, officer, employee or agent of one, does not comply with any regulatory provision, the Commissioner or any complainant may, in addition to any other right that a person has, apply to a court for an order directing the financial institution, director, officer, employee or agent to comply with—or restraining the financial institution, director, officer, employee or agent from acting in violation of—the regulatory provision and, on the application, the court may so order and make any further order it thinks fit.

Restraining orders are not applicable to ECBs as per the legislation.  

Risk Assessment Model

The Risk Assessment Model (RAM) is an internal compliance tool that helps FCAC establish relative levels of risk of individual financial entities based on items such as market presence, corporate structure, relevant market conduct data and controls. The information contained in the model is used internally by CEB to identify, define, assess and weigh risks in respect of the various business activities and behavior patterns of financial entities.

The RAM helps identify FRFEs that have a higher probability of non-compliance related to legislative provisions, voluntary codes of conduct and/or public commitments. The RAM considers relevant qualitative and quantitative information from each entity overseen by FCAC, to render a respective outcome into a single net residual risk score.

In turn, the risk scores associated with each entity allows the Agency to better focus on high-impact industry issues and aids in determining which compliance activities will be conducted by FCAC.

Statutory filing requirements

Certain legislative provisions require FRFEs to file the following documents with FCAC’s Commissioner:

Certain legislative provisions​ require ECBs to file the following documents with FCAC’s Commissioner.

  • Reporting of systemic bank issues
  • Annual reporting of complaints and discharge of functions  

In addition, every five years ECBs must submit to an evaluation of the discharge of its functions and performance of its activities as an ECB that is conducted by a third party in accordance with terms of reference established by the body corporate in consultation with the Commissioner.

Systemic issue

A systemic issue is a compliance issue that could affect multiple consumers and/or could potentially have market-wide implications. Generally, these issues are deemed to not be isolated in nature (i.e., individual employee error) and often stem from more wide-spread procedural or documentation issues within the regulated entity.

In addition to reporting their own systemic issues, ECBs are also required to report any systemic issues discovered during their (complaint) investigations relating to its members.

Voluntary code of conduct

A code adopted by a financial entity and made publicly available (for example, on its website), designed to protect the interests of customers of that financial entity or industry association. FCAC monitors compliance by FRFE with their voluntary codes of conduct.

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