Retail banking sales culture may raise risks for consumers
March 20, 2018
The Financial Consumer Agency of Canada (FCAC) has published a report on its review of domestic banks' retail sales practices. The report, which follows 9 months of extensive work, finds that bank cultures strongly anchored in sales can increase the risks of mis-selling to consumers and of bank employees breaching market conduct obligations.
The report identifies key findings:
Retail banking culture is predominantly focused on selling products and services, increasing the risk that consumers' interests are not always given the appropriate priority.
Banks' financial and non-financial incentives, sales targets and scorecards may increase the risk of mis-selling and breaches of market conduct obligations.
Certain products, business practices and distribution channels present a higher sales practices risk.
Governance frameworks do not manage sales practices risk effectively.
Controls to mitigate the risks associated with sales practices are underdeveloped. The report also proposes a number of measures banks can take to reduce these risks.
For its part, FCAC will buttress its supervisory and enforcement teams and implement a modernized supervision approach that will allow it to monitor banks more proactively. It will also enhance its consumer information by highlighting consumers' rights and responsibilities and the importance of asking the right questions when purchasing new financial products and services.
The report will be shared with government officials to inform policy development.
FCAC is currently investigating alleged breaches of market conduct obligations that may have been identified during the course of the review.
"Banks are in the business of making money. We know that. But the way they sell financial products and manage employee performance, combined with how they set up their governance frameworks can lead to sales cultures that are not always aligned with consumers' interests."
Lucie Tedesco, Commissioner, Financial Consumer Agency of Canada
- FCAC reviewed the sales practices of Canada's six largest banks (Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank).
- FCAC examined the factors that could influence sales practices and the measures banks have taken to minimize any resulting risks to consumers.
- FCAC reviewed over 4,500 complaints to gain a better understanding of the issues consumers experience when acquiring financial products and services from banks.
- FCAC examined more than 100,000 pages of bank documents, including those related to training, performance and sales management, compliance, risk management and internal audit.
- FCAC interviewed over 600 bank employees (from CEOs to front-line staff) and board members.
- Industry reviews: FCAC conducts industry reviews regularly to gather information from multiple federally regulated financial institutions or stakeholders on a specific compliance matter. Industry reviews may result in enforcement action if appropriate. The purpose of industry reviews is:
- to assess current or emerging issues on a specific topic or theme
- to identify and examine industry practices or trends
- to verify levels of compliance with market conduct obligations
- to collect information for policy discussions
Financial Consumer Agency of Canada