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Backgrounder – Weak Enforcement of Financial Consumer and Investor Protection in Canada

(April 2020)

Both watchdogs too weak in powers, and enforcement attitude, to protect financial consumers and investors

The federal government’s Financial Consumer Agency of Canada (FCAC) has a very weak enforcement record since it was created in 2003.

It has made only 134 compliance rulings, is prohibited from naming a law-violating bank unless it prosecutes the bank, and it has only prosecuted 2 banks (neither of them a Big 6 bank). The FCAC not only lacks resources by comparison to the similar watchdog agencies in Britain and the U.S., it is also clearly a lapdog compared to these two other agencies.

According to an article by Reuters in March 2017, and Democracy Watch’s research of fines imposed since then, the FCAC has issued fines totaling just $3.2 million since 2001 in the 134 rulings it has issued.

In contrast, since 2013 when it was created, Britain’s Financial Conduct Authority (FCA) has already issued penalties totalling more than US$3.5 billion, and since 2011 when it was created, the U.S. Consumer Financial Protection Bureau (CFPB) has already imposed fines of more than US$5 billion.

Key consumer protection rules need to be strengthened, and the FCAC must be required to do unannounced, mystery-shopper audits to find violations, required to publicly identify financial institutions who violate the rules, and required to impose high fines on violators. The FCAC hasn’t done unannounced audits since 2005, tipped off the banks in March 2017 about the audit they did through the rest of 2017 on abuses, and then allowed the banks to see the draft audit results and suggest changes that weakened the report.

Meanwhile, former Finance Minister Jim Flaherty, and current Finance Minister Bill Morneau, have done nothing to require TD, Royal, Scotiabank or National Bank to stop using their own complaint judges and return to the Ombudsman for Banking Services and Investments (OBSI).

All banks and investment companies should be required to use OBSI, and OBSI’s rulings on complaints by bank customers and investors must be made binding in every case.

An FCAC report released in February 2020 showed that the banks have a horrible record of dealing with financial consumer and investor complaints, especially the banks using their own complaint judges.

The maximum fine allowed under the Bank Act is $10 million, which is still low for the big banks who each make more than $10 billion in revenue annually, especially given that it is very unlikely the FCAC or a court will ever impose the maximum fine.

The Financial Consumer Agency of Canada (FCAC) and the Ombudsman (OBSI) will continue to be ineffective until the federal government gives them key powers and requires them to use those powers to audit banks and other financial institutions regularly and to penalize every violation with a high fine (there should be minimum fines for various violations of at least $1 million, and the maximum fine should be $50 million) and public naming and shaming.

Finally, to ensure the FCAC and OBSI do their jobs properly, and to ensure that financial consumers and investors have help when complaining to the FCAC and OBSI, require banks, trust and insurance companies to promote in their mailings and emails to customers that they can join an independent, consumer-run Financial Consumer Organization (FCO – as recommended in 1998 by the MacKay Task Force, and the House Finance and Senate Banking committees) so consumers have a place to call for help if they are gouged or treated unfairly, and to get fully independent, expert advice (See details at: https://democracywatch.ca/question-and-answers-about-the-proposed-financial-consumer-organization/).

For more information, see Democracy Watch’s
Big Bank Coronavirus Accountability Campaign