Further clarifications from FCAC on new Financial Consumer Protection Framework

The Financial Consumer Agency of Canada (FCAC) recently released for consultation two important Guidelines respecting the Consumer Protection Framework set out in the Budget Implementation Act, 2018, No. 2, Bill C-86 (C-86): "Guideline on Complaint-Handling Procedures for Banks and Authorized Foreign Banks" (the CHG) and "Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks" (the APSG).

What you need to know

• The FCAC expects that banks will develop complaint handling programs that are effective, timely, and accessible in order to ensure that consumers are provided with a consistent, efficient, and transparent complaint handling process.
• The FCAC expects banks to develop policies and procedures that ensure they know their customers and products; assess the appropriateness of products and services; inform consumers of the results of assessments; and align compensation programs with the objective of offering appropriate products or services to consumers.
• The deadline to provide comments in response to the CHG consultation is December 11, 2021 and January 6, 2022 for the APSG consultation.

Introduction

Critical to the bank’s compliance efforts are guidance by the FCAC with respect to the Consumer Protection Framework set out in the Budget Implementation Act, 2018, No. 2, Bill C-86, in particular in relation to the complaint handling and reporting framework¹ and to the new obligation to establish and implement policies and procedures to ensure products or services offered or sold by banks are appropriate². The FCAC has published and opened consultations on its proposed "Guideline on Complaint-Handling Procedures for Banks and Authorized Foreign Banks" and "Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks". In the following, we examine the guidelines’ key elements.

Complaint Handling Guideline

While the existing and new complaint-handling frameworks have similar underlying requirements³, the new complaint handling framework introduced by C-86 significantly expands the banks' responsibilities with respect to their management of complaints.

While institutions may tailor their complaint-handling policies and procedures (“complaint policies”) to reflect their unique circumstances, the FCAC expects bank policies will reflect the three key principles of effectiveness, timeliness, and accessibility.

1) Effectiveness

Effective complaint policies should be "comprehensive and implemented to deal with consumer complaints in a consistent manner". To accomplish this goal, a bank must designate and appropriately train employees to handle complaints, including designating an officer or employee responsible for implementing its complaint policies. The responsibilities of employees designated to handle complaints should be defined and employees should have the experience, resources and authority required to conduct the complaints process, including resolution.

The complaint policies should include processes to ensure consistency in the handling of complaints across the bank regardless of channel. 

Banks should monitor complaints received by or in relation to third parties and are expected to continuously assess and, as necessary, enhance their complaint policies by:

• soliciting regular feedback from consumers across the complaint handling process;
• monitoring and testing policies and procedures and updating them as required; and
• identifying opportunities to enhance compliance with market conduct obligations and to better serve consumers through analysis of complaint-related data.

Banks are also encouraged to use complaint related data to identify potential systemic issues and, through root cause analysis, to remediate such issues. To guide redress/reimbursement, banks should have a redress policy to ensure that all consumers are provided with redress appropriate to the circumstances of complainants.

2) Timeliness

Bank’s complaint policies should ensure that complaints are resolved promptly and in any case, not more than 56 days from the time of the complainant’s first interaction with the bank. To achieve this goal, the complaint handling process should aim to be as efficient as possible in part by reviewing “complaints in a manner that accounts for their nature and circumstance”.

The Guideline prescribes that referrals from the non-designated level to the designated level, should be made no later than 14 calendar days after the complaint was first received. When a non-designated employee seeks the input or assistance of a designated employee, the complaint will be considered to have been referred to the designated employee and must be reported to the FCAC.

3) Accessibility

To ensure that consumers can find, navigate, and understand the bank's complaint policies, consumer facing policies and procedures should make clear to consumers:

• how complaints can be made through different channels;
• the steps in the complaint handling process;
• the consumer's right to complain to an external complaints body and the circumstances in which this right arises; and
• the contact information for both the external complaints body and the FCAC.

Banks are also required provide a written acknowledgement of a complaint without delay regardless of the channel through which the complaint is made. Acknowledgements can be provided electronically if the complaint was sent electronically or if the consumer consented to receive electronic documents. Banks must respond and provide anonymous complainants access to the complaint handling process and make a record of the complaint with the available information but need not refer the complaint to a designated employee.

Banks must, when requested, provide consumers in a timely manner with comprehensive and current information on the status of their complaint.

The requirement to provide substantive written responses to all complaints regardless of how long it took to resolve will be particularly onerous as it will require substantive responses to be provided even if the complaint was immediately resolved at the branch. 

4) Administrative processes and controls

Banks must maintain a record of all complaints, including anonymous complaints. All complaints that reach the designated level must be reported to the FCAC on a quarterly basis in accordance with the FCAC's "Mandatory reporting guide for federally regulated financial institutions".

Appropriate Products and Services Guideline (APSG)

The APSG sets out five key FCAC expectations with respect to the banks’ implementation of, and compliance with, the Bank Act’s appropriate product and service provision. 

1) Know the consumer

The FCAC’s expectations under the “Know your consumer” are kept very high level and provide general guidance as to what should be included in a bank’s policies and procedures. In order to understand consumer’s individual circumstances, including their financial needs, banks will be required when offering or selling a product or service to collect, record, and verify the KYC information.

2) Know the product

Banks will be required to establish an internal assessment, review and approval process that considers across the product life cycle, a range of factors such as:

• the products features, risks, charges, and benefits to the consumer;
• the product’s distribution channels; and
• consumer facing materials such as disclosures or marketing materials.

These internal assessments will apply to bank products and services as well as those offered or sold through third parties.

All employees who offer or sell bank products and third parties who sell or further the sale of bank products are required to have "the necessary skills, knowledge and expertise to discharge their responsibilities related to the appropriateness of the product or service". To this end, banks and third parties must train their employees on an ongoing basis to ensure compliance with their obligations.

3) Assess appropriateness

Banks must assess the appropriateness of their products and services when offering or selling, including when a consumer requests a product or service.

Banks will also need to maintain records demonstrating that assessments were performed and the outcome of such assessments. A bank’s policies and procedures should include how the bank deals with situations where the assessment was not performed or where a customer purchased a product or service that has been assessed as inappropriate for them.

4) Inform consumers

Consumers should be informed when a bank assesses a product or service as being inappropriate for the consumer or when the bank cannot conduct the necessary assessment. This information should be presented in a manner, and using language, that is clear, simple and not misleading and, at the same time, that takes account of other factors such as the distribution channel. 

5) Align remuneration

Employee compensation programs must be aligned with, and support, the sale of appropriate products or services. Remuneration, incentives, and benefits, including monetary and non-monetary elements, should support the offering and sale of appropriate products and services and should be regularly reviewed to ensure continuing alignment with the bank's obligations to offer and sell appropriate products. The metrics the bank uses to determine remuneration, incentives, and benefits should support the offering and sale of appropriate products and services. Compensation programs thus would need to include both quantitative and qualitative measures and should avoid reliance on volume-based measures.  

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

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