Banks' retail sales practices "may raise risks" for consumers – watchdog

The country’s consumer watchdog has warned that retail sales practices of domestic banks “may raise risks” for consumers.

In particular, the Financial Consumer Agency of Canada (FCAC) said that “bank cultures strongly anchored in sales can increase the risks of mis-selling to consumers and of bank employees breaching market conduct obligations.”

 “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,” FCAC Commissioner Lucie Tedesco said.

In a statement, FCAC said the report identified five key findings:

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 findings come after nine months of extensive work. FCAC looked at 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. Over 4,500 complaints were reviewed, and more than 100,000 pages of bank documents, including those related to training, performance and sales management, compliance, risk management and internal audit were examined. Over 600 bank employees (from CEOs to front-line staff) and board members were also interviewed.