4/9/18 - FCAC Releases Findings from Its Review of Canadian Banks’ Retail Sales Practices
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4/9/18 - FCAC Releases Findings from Its Review of Canadian Banks’ Retail Sales Practices

Last month, the Financial Consumer Agency of Canada released the results of its review of the retail sales practices of Canada’s six domestic systemically important banks.1 The review focused on adherence to federal consumer protection legislation and was prompted by failings of banks in other jurisdictions and subsequent media reports alleging questionable practices by the Canadian banks.

Although the FCAC did not find widespread mis-selling among the Canadian banks, it observed a culture that heightens the risks of mis-selling and breaches of market-conduct obligations and found that current controls were insufficient to monitor, identify, and mitigate sales-practices risk.

FCAC Sees Risks in Retail Banks’ Sales Culture

The FCAC observed a sales culture within bank branches and call centres where employees are motivated to sell financial products and services to consumers in a manner that may not always lead to the best consumer outcomes.

The risk of mis-selling or not meeting market-conduct obligations is most prevalent when employee compensation is contingent on the volume or types of products and services sold, rather than completion of sales-related activity (irrespective of whether or not a sale takes place).

The FCAC also found heightened risk factors associated with banks’ use of third-party sellers and with cross-selling (where bank employees sell other products and services to consumers within existing service times). In either case, the seller may not be in a position to fully understand the consumer’s needs and circumstances, adequately explain the risks and benefits of the product or service offering, or obtain express (written) consent to the sale.

The FCAC further noted a heightened risk of mis-selling associated with certain products and roles, such as creditor insurance and mobile mortgage specialists.

What is sales-practices risk?

A component of the risk associated with a financial institution’s conduct towards consumers and the marketplace.

Sales-practices risk specifically addresses:

  • Mis-selling: the sale of products and services that is unsupported by complete, clear, and accurate information; is unsuitable for the consumer; or does not properly consider the consumer’s financial goals, needs, and circumstances
  • Market-conduct expectations: the legislative consumer protection obligations, voluntary codes of conduct, and public commitments to which banks are subject

Weaknesses in Banks’ Management of Sales-Practices Risk

The banks reviewed have addressed sales-practices risk to some extent in their existing oversight and governance practices, but the FCAC found these efforts to be disparate and underdeveloped within the three lines of defence and at the board level. To bolster these areas of potential weakness in sales-practices risk management, the FCAC report specifically states that banks:

  • “Prioritize financial consumer protection, fairness and product suitability”
  • “Establish a formal sales practices governance framework that clearly defines roles and responsibilities to ensure all elements of sales practices risk are effectively managed, including the effective monitoring and reporting of mis-selling and market conduct obligations”
  • “Improve their oversight, management and reporting of consumer complaints”
  • “Ensure financial and non-financial compensation strategies motivate employees to work in the interest of consumers”
  • “Ensure internal controls adequately address sales practices risk, particularly for the practices, products and channels that pose a greater risk of mis-selling and breaching market conduct obligations”
  • “Ensure human resources and second and third lines of defence — including compliance, risk management and audit — are resourced adequately to improve their oversight of sales practices risk”

Language taken from the FCAC's report.

Other Jurisdictions

Regulators around the globe are increasingly focusing on sales practices and broader issues of conduct as a top risk for large financial firms, with the potential to undermine consumer confidence in the integrity of financial markets. Firms found to have widespread or consistent shortcomings may face expensive fines or enforcement action, reputational damage, and potential restrictions on capital use.

  • In the U.S., the Office of the Comptroller of the Currency initiated a horizontal review of large and midsize banks and undertook a separate independent review of a bank’s sales practices in order to identify supervisory gaps and apply lessons learned to the OCC’s own supervisory process.2 The Federal Reserve Board separately initiated its own multistage conduct and compliance examination of large financial firms, the Consumer Financial Protection Bureau has released guidance on risks to consumers from incentive programs,3 and the Federal Reserve Bank of New York has published a broader discussion of misconduct risk and culture.4
  • U.K. regulators expect firms to consider conduct risk when carrying out stress tests and determining the level of capital they need to hold.5 The Financial Conduct Authority undertook a thematic review of how retail banks assess their customer’s understanding of the products they purchase6 and announced plans to launch a strategic review of retail-banking business models as part of its priorities for 2017 and 2018.7
  • In 2017, the Australian Securities and Investments Commission released the results of its review of sales practices at eight banks, from which it identified weaknesses relating to the sale of basic deposit products, credit cards, and consumer credit insurance.8 Reforms to the Code of Banking Practice are underway and aimed at raising banking standards in this area.9 The government also launched public consultations on potential misconduct in the financial services industry, with a final report expected February 2019 (interim findings expected September 2018).10

The consistent approach taken by regulators around the world creates the expectation for banks to place conduct risk as a comprehensive risk discipline at the enterprise level.


The FCAC report represents a shift in the regulatory approach for supervising the sales practices of Canadian banks. The agency announced its intention to implement a modernized supervision framework that will allow it to proactively ensure banks have implemented appropriate frameworks, policies, procedures, and processes to mitigate sales-practices risk. The agency also intends to increase the resources devoted to its supervisory and enforcement functions.

In preparation for this shift, banks can review and address areas within their current retail-banking distribution channels, performance-management processes, and governance and oversight practices that could give risk to sales-practice and market-conduct violations. By assessing current activities and practices against the FCAC’s recommendations, banks can better position themselves for success in future regulatory examinations. Beyond these measures, banks can also consider how their processes and practices might fit into a broader enterprise framework that addresses risks in capital markets, wealth management, and other relevant business areas.

Banks will benefit from a framework that provides consistency across both business lines and geographies. For instance, most large banks promote the sale of products across business lines (e.g., corporate banking products to commercial banking clients and wealth products to retail clients), or sell similar products across a multijurisdictional geographic footprint. In such instances, a bank will want to ensure that its policies, controls, and incentive structures are aligned appropriately and that they consistently meet the standards established at the enterprise level.

How Promontory Can Help

Promontory has significant experience advising clients on regulatory expectations and industry best practices.

Our professionals have worked at government organizations, financial services firms, and Canadian federal regulators. We have the expertise to help you build effective governance frameworks, compensation strategies, and analytics that address all elements of sales-practices risk, such as delineating clear roles for the three lines of defense, setting metrics for conduct-risk appetites, developing conduct-risk taxonomies, and designing and implementing conduct-risk assessments and effective reporting and escalation of conduct-risk information. Promontory supports clients through a full range of conduct-risk services.

Promontory Services

Please contact Promontory to discuss how our subject-matter experts can help your firm identify areas susceptible to sales-practices risk and develop appropriate controls to mitigate those risks.

Contact Us

Sheryl Kennedy
Chief Executive Officer, Promontory Financial Group Canada ULC
+1 416 863 8574

David Peters
Managing Director, Promontory Financial Group Canada ULC
+1 416 863 8564


1. “Domestic Bank Retail Sales Practices Review,” Financial Consumer Agency of Canada (March 20, 2018).

2. “Lessons Learned Review of Supervision of Sales Practices at Wells Fargo,” Office of the Comptroller of the Currency (April 19, 2017).

3. “CFPB Compliance Bulletin 2016-03: Detecting and Preventing Consumer Harm from Production Incentives,” Consumer Financial Protection Bureau (Nov. 28, 2016).

4. Stephanie Chaly, James Hennessy, Lev Menand, Kevin Stiroh, and Joseph Tracy, “Misconduct Risk, Culture, and Supervision,” Federal Reserve Bank of New York (December 2017).

5. For example: “Stress testing the UK banking system: key elements of the 2018 stress test,” Prudential Regulation Authority (March 1, 2018).

6. “TR17/1: Customer understanding: Retail banks and building societies,” Financial Conduct Authority (July 17, 2017).

7. “Business Plan 2017/18,” Financial Conduct Authority (April 18, 2017).

8. “17-254MR,” Australian Securities and Investments Commission (Aug. 1, 2017).

9. “Customers set to benefit from new Banking Code,” Australian Banking Association (Dec. 20, 2017).

10. “Publications,” Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.