Significant importance attached to ‘winning’

The agency’s review looked at Canada’s six largest banks — investigations and enforcement action.

“What we’re asking (banks) is to create or improve the governance frameworks that they have to monitor and assess their sales practice risk and their market conduct risk so that they’re as robust as the other governance frameworks they have in place for different risks,” Tedesco said in an interview. “What we found was there was no widespread problem of mis-selling or breaching market conduct obligations, although those risks exist across all six banks.”

The FCAC’s review was conducted from May 2017 to the end of November 2017, with the agency analyzing more than 4,500 complaints, examining more than 100,000 documents and interviewing more than 400 employees.

According to the agency’s findings, banks’ increased focus on sales and advice in their branch and call-centre operations — sharpened by technological advances — have outpaced controls to mitigate the risks of rulebreaking or selling customers products or services they may not really want or need.

Financial and non-financial incentives may heighten the sales-related risks, the report said, adding “compensation programs with variable pay as a significant component can lead to misselling because employees may look to increase sales to maximize their commissions or rewards.”

While employees who don’t hit sales targets aren’t generally fired, they do receive coaching or training, and those who stick around or get promoted “tend to be those who thrive in a workplace culture focused on sales,” the report said.

“Some employees informed FCAC that they attribute significant importance to ‘winning,’ defined as closing a big sale or replacing the business of a competitor,” the review said.

Moreover, a recent shift toward “more customercentric sales practices” is still primarily aimed at helping employees nail down sales opportunities, the review said. Banks have also outsourced sales of credit cards and other products to third parties with weaker oversight and sales targets that could encourage the use of “high-pressure tactics.”

The FCAC unearthed “numerous instances” of inadequate investigations of consumer complaints as well. This followed a recent report by the Ombudsman for Banking Services and Investments, which can investigate the complaints of customers who weren’t satisfied with the banks’ internal dispute-resolution system, that found its banking-related complaints increased last year.

“The FCAC’s central finding from its investigation is that the predominant focus in retail banking is on the selling of products and services rather than appropriately prioritizing the interests of financial consumers,” said Frank Allen, executive director of the Canadian Foundation for the Advancement of Investor Rights, in a press release.

Several recommendations were made by the FCAC in the report, such as that banks set up a formal framework to oversee sales practices, that oversight of consumer complaints be improved, and that compensation strategies for employees are geared toward the interests of consumers.

Another review of sales practices at domestic systemically important banks is being conducted by the Office of the Superintendent of Financial Institutions, Canada’s banking regulator.

“By providing external developers, industry innovators and clients with access to select RBC APIs, we have the opportunity to increase connectivity, create new tools and experiences for clients, and enable open and innovative collaboration to improve the future of banking.”

The move is part of a wider trend toward “open banking,” where third-parties such as financial technology startups get access to bank data to develop apps.

All but one of 100 payment executives at major banks globally said they were planning major investments in open banking by 2020, according to an online survey by consulting firm Accenture released last year.