OSFI confirms investigation into Big Six bank sales practices under way

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Canada's banking regulator is reviewing sales practices at the country's six largest banks, focusing on the risks such tactics could pose to banks' reputations and financial health.

The Office of the Superintendent of Financial Institutions (OSFI) confirmed its review this week, saying it is "concurrent" with a probe already under way at a consumer watchdog tasked with overseeing Canadian banks.

The Financial Consumer Agency of Canada (FCAC) launched its own review of bank sales practices in April, promising to look closely at issues of consent, disclosure and sales incentives. Its investigation was partly a response to media reports that grabbed public attention by quoting anonymous sources at several Canadian banks who alleged that they had taken part in misconduct, ranging from raising customers' credit limits without permission and forging client signatures to employing high-pressure tactics to sell products and meet lofty sales goals.

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Executives at the largest banks have repeatedly denied that they have any widespread problems with misconduct in pursuit of sales targets. But the allegations generated enough concern about banks' sales cultures that a parliamentary committee held three public meetings on the issue in June, grilling bank executives in the process. OSFI's role in reviewing banks' sales practices had not been formally disclosed until it was briefly mentioned in a white paper released by the federal Department of Finance late last week.

Whereas the FCAC is looking into issues that directly affect individual consumers and bank employees, OSFI appears to be applying its usual lens by examining how sales practices could affect the stability of the banking system more broadly.

"The review is focused on risk culture, the governance of sales practices, and how banks manage the potential reputational risk that is inherent in sales activities,"OSFI spokeswoman Annik Faucher said in an e-mail. She said the regulator will look for risks to banks "that could potentially impact their solvency, liquidity and overall stability."

But Ms. Faucher declined to provide any further details on OSFI's review, including when it began or when it might finish, saying that such information is "considered protected supervisory information."

The FCAC has made detailed requests for information from the banks and promised to publish its own initial findings by the end of the year. The agency expects to finish a second phase by next June.

The brief mention of OSFI's review, in a consultation document outlining areas of focus for a regular review of the Bank Act, said the regulator is reviewing "domestic retail sales practices" at six banks considered to be systemically important. Those are: Toronto-Dominion Bank, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada.

The federal government "takes the protection of financial consumers very seriously," Chloé Luciani-Girouard, press secretary to Finance Minister Bill Morneau, said in an e-mail.

The FCAC and OSFI reviews, which are expected to produce separate findings, "will help inform whether further adjustments to the consumer protection framework are warranted," she said.

Sales practices at banks have been in sharper focus ever since U.S. bank Wells Fargo & Co. was rattled by revelations of widespread misconduct, which included staff opening about two million unauthorized accounts in an effort to reach lofty sales targets.

No such evidence of systemic misconduct has come to light in Canada. But starting in March, reports by the Canadian Broadcasting Corp. quoted a small number of unnamed current and former employees at Canadian banks who claimed to have bent the rules or ignored clients' best interests under pressure to reach challenging sales goals.

At least some of Canada's largest banks, including TD and Scotiabank, had already audited their own sales practices last year, and claimed that internal reviews did not discover any widespread issues.

The Ombudsman for Banking Services and Investments (OBSI), which helps resolve disputes between banks and customers, has seen a steady increase in banking-related complaints since 2013, including a 6-per-cent rise in complaints in 2016. (Those results don't include Canada's two largest banks, TD and RBC, which opted out of OBSI years ago and now use a private dispute-resolution company, ADR Chambers).