October 27, 2014, Shanghai, People’s Republic of China
Taking a forefront role in protecting financial consumers
Check against delivery
Good morning!
It’s great to be in Shanghai. This is my first visit here and it’s hard not to be awed by the electrifying charge of this great city. It’s a truly impressive blend of the modern and the traditional.
As my remarks today will convey, blending the modern and traditional is what regulators need to do to be at the forefront of consumer protection. In this era of rapid digitization, bold new competitors and super complex financial products, we need to combine fresh, forward-thinking approaches with tried-and-true practices to protect consumers effectively.
Being at the forefront: Why it matters
To borrow a quote from the Financial Conduct Authority in the U.K., “A major risk for any regulator is a natural tendency to become bound, often unconsciously, to the conventional thinking and approaches of the day.”
New technologies and financial innovations are moving faster than ever, and we have to make sure our consumer protection activities keep up with the changes. Take payments. Cash and checks are quickly becoming artifacts of a bygone era, with the rise of the global mobile payments market.
A likely game changer has surfaced in the form of Apple Pay – which was launched alongside the new iPhone 6. Apple is using Near Field Communication to make and revolutionize payment systems. While the NFC technology behind this payment form isn’t new, Apple’s ubiquity will likely propel consumer behaviour to new realms. Google, iZettle, Square and other players are also stirring up the payments battleground, and we can expect more to come before the dust settles.
At this point, no one knows which emerging payment channels will prevail. The mobile world is still a wild frontier. But one thing is certain: a far-reaching transformation is underway in financial services. To paraphrase the famous saying from the movie The Wizard of Oz: Toto, we are certainly not in Kansas anymore.
Mobile is just one example of how the marketplace is not standing still. And as regulators, we need to charge forward alongside the trends and the industry, and keep a sharp eye out for consumer interests.
We can’t be naive. Consumer protection isn’t the first, second or even third priority of businesses that have vast, competing interests – like designing new products, upgrading technology, enhancing shareholder value, and so on.
In contrast, our sole focus is protecting financial consumers. That’s our raison d’être. And to do that job effectively, we need to not just manage the existing issues on the table but foresee what’s coming down the pipeline.
Anticipating what’s next, rather than after-the-fact, is the ultimate form of consumer protection. Getting our minds and arms around the issues before they become commonplace, before they adversely impact consumers, is where we need to be. If we as regulators can stay ahead – even in a small way – we can better tackle the risks and challenges consumers face in an accelerating world.
This annual meeting is one of the ways that we continue to keep – and bring – pressing consumer protection issues in the spotlight.
Strategies for success
So far I’ve underscored the importance of being at the forefront of consumer protection issues. But how do we do that? What strategies and techniques can we deploy?
I believe that modern regulators need to do things differently to achieve their objectives. What does that mean in practice?
- It’s about being proactive and preemptive – rather than just being an “enforcer”.
- It’s about having a collaborative, respectful attitude – rather than being heavy-handed or even anti-business.
- It’s about being a prominent thought leader on timely consumer issues – rather than watching from the sidelines.
And it’s not just that we do these things, but that we’re seen to be doing them – by the industry and consumers alike. The ‘new’ regulator must be significantly more visible and vocal on consumer protection matters. Regulators must embrace the public realm, instead of staying backstage and out of the limelight.
Speaking for my organization – the Financial Consumer Agency of Canada, our work has always reflected these various approaches. And they form the roadmap of our future focus, as captured in the five-year strategic plan my Agency recently developed. I want to touch upon three priorities we have set out in support of our long-term vision of being a forward-thinking regulator.
i) Proactive and transparent supervision
One priority is continuing to build a regulatory culture that is proactive, transparent – and thereby more predictable. It’s about communicating our compliance insights and expectations upfront, in a coherent, compelling way that inspires action. So financial entities know our views and the rules of the road, and there is no room for misunderstanding.
As a supervisor charged with defending consumer rights, we expect the institutions we regulate to build consumer protection into their products and services. As these offerings are being conceived and designed. And, well before deployment.
That kind of approach can prevent potential harm to consumers. It can save management and employees from scrambling to mop up issues that will eventually surface. And it can keep regulators happy. Everyone is better off.
This in turn creates a ‘virtuous circle.’ If the organizations we regulate know the type of forward-thinking approach we have, then they will pay more attention to consumer protection issues before they arise. They won’t take a cavalier attitude with the intention of addressing problems later.
To arrive at this point of mutual understanding and cooperation, the concept of transparency is paramount. And it reflects my own personal style.
For example, prior to my appointment I met with the federal minister responsible for the financial services sector. He asked what my priorities would be if I were the successful candidate and I communicated those expectations to him. I was crystal clear about my vision and plans – and these were reaffirmed in the letter of mandate I later received from that minister.
ii) Stakeholder engagement and collaboration
Conducting proactive and transparent supervision is interconnected with another priority our Agency has established, and that’s collaboration and engagement with stakeholders, including the various organizations we oversee.
Trusted relationships are key to achieving richer outcomes. This is true of the relationships we have developed with our stakeholders. We leverage partnerships with financial institutions and community groups to better understand emerging financial issues. And, while we have enjoyed solid ties over the years, we feel it is only through strengthening those connections that we will achieve greater, more meaningful impacts, including staying on top of consumer protection issues.
One of the things we have started doing is meeting with boards of federal financial institutions. We’re making it very clear that our Agency is here to offer practical guidance on protecting consumers. Ultimately we want to support financial institutions in their compliance efforts. And in most cases, they resolve any issues that surface by the time they are reported to us or resolve them shortly thereafter.
This level of engagement fosters better results. As Benjamin Franklin once said, “Tell me and I forget. Teach me and I remember. Involve me and I learn.”
Stakeholder engagement is fundamental for another, more practical reason. While regulators today typically have more to do, we usually don’t have greater resources and yet we are expected to do more with less. And to do that, we need to rely more on partnerships to help manage and keep abreast of the ever-changing world, technology, and so on.
That’s why we are also expanding our outreach to other federal, provincial and municipal government departments and agencies, as well as community organizations to leverage mutual resources to achieve common goals.
As mentioned earlier, as part of engaging stakeholders, I believe it’s important for all regulators to speak out on vital issues – whether the issues are under our direct jurisdiction or not. Many of today’s issues, such as virtual currency, go beyond borders.
From a consumer protection standpoint, we must not only look at what financial institutions need to do – but also look at the flipside a retail financial transaction. Do consumers know their rights and, equally as important, their responsibilities? Do they have the necessary knowledge, skills and confidence to understand product information and ask the right questions?
It’s about making consumers aware of potential risks in the marketplace, that they need to pay attention and inform themselves. For things that fall outside our supervisory jurisdiction, we can address through consumer education.
Many of today’s financial products and services require a greater level of understanding by consumers than in the past. For example, the advent of digital technologies can represent both added convenience and potential risks for consumers.
To better grasp what is at stake, we conducted research on the extent to which consumers are protected when using mobile payments in Canada. Based on our findings, we are now developing information to help consumers better grasp this emerging form of payment. With almost one-third of Canadians already using their mobile devices to make purchases, and nearly half who are “keen” to use smartwatches and other wearable devices to make mobile payments, we want people to know what’s at stake from a consumer protection perspective.[1]
Our research team is also studying the issues around digital currencies. What we learn will feed into the resources we create to educate consumers.
Another area we’re watching closely in Canada is unregulated and predatory lending practices. For example, auto finance is currently experiencing significant growth. Canadian consumers are financing more vehicles than ever before. Some 90% of the money Canadian consumers spend on new and used vehicles is borrowed. Not only are Canadians financing a larger portion of their vehicle than they used to, they are financing them for longer terms.
This is where consumer education becomes important and we have to ensure that consumers are equipped with the information they need to make informed decisions and avoid costly mistakes.
These examples are proof positive the consumer protection challenges are evolving and even multiplying, keeping regulators like us on our toes and making our role as consumer guardians as pertinent as ever.
iii) Informing policy
Not only are we monitoring what is going on in these areas so that we can educate consumers, we also have a goal to feed policymakers with crucial insights. This leads to the third priority we’ve set and I want to highlight today, namely increasing our contribution to financial consumer policy discussions, at all levels of government.
In the past, our research and compliance activities have inspired a number of national consumer protection laws and initiatives. We want to do more. Going forward, we will take a more formalized and proactive approach to inform policy discussions on matters of consumer protection and financial education. Our Agency is well positioned to do so – through the research we conduct, the compliance data we collect, and the daily exchanges we have with Canadians through our contact centre.
Of course, we also address consumer protection in more traditional ways, including through investigations, analyzing consumer complaints and developing guidance for financial institutions. These are the fundamental bread-and-butter duties of a financial consumer regulator that must be fulfilled and delivered with consistent, dependable, quality execution.
Conclusion
Let me wrap up.
Consumer protection is more vital than ever to the financial well-being of consumers.
To be in the vanguard of consumer protection, we can’t just watch history unfold. We need to be proactive in identifying and addressing new and contemporary risks to consumers. We need to ensure our work is relevant to daily life today, to how people and businesses interact and transact in an increasingly digital, social and globalized world.
The more knowledge and insights we have, the better positioned we’ll be to determine what measures, if any, are required. And this is where the careful balance of modern and traditional approaches must be achieved: by blending non-conventional thinking, proactivity and transparency with solid, time-honoured experience, structures and processes.
Financial regulators can’t be fixtures. The marketplace is increasingly complex and dynamic. We need to be open and flexible to regulatory methodologies that allow us to be more efficient and effective in supervising a complex, sophisticated industry. And the benefits and lessons for us as regulators will, in turn, generate rewards for consumers – in the form of better models of protection and education.
Thank you for your attention.
[1] Statistics from PayPal Canada Survey, 2014
