Canadian retail banks and the consumer protection marathon (2024)

Authored by Adeline Cheng

Banks must enhance their capabilities and programs to prepare for FCPF readiness and the new standard for regulatory compliance in retail banking in Canada.

In December 2021, Prime Minister Justin Trudeau sent a mandate letter to Finance Minister Chrystia Freeland offering a glimpse into the next phase of financial consumer protection in Canada.

The letter shows the federal government’s continued desire to further strengthen the Financial Consumer Agency of Canada (FCAC) — the regulator that oversees federally regulated financial institutions in Canada — and increase the breadth of its oversight, resulting in a greater say on how banks operate.

This direction is the continuation of a journey that began almost five years ago in 2017 through the Domestic Bank Retail Sales Practices Review, and has progressively ramped up since the passing of Bill C-86 in 2018, which modernized Canada’s financial consumer protection framework (FCPF) legislation.

While the FCPF offered a significant step change in terms of regulatory requirements for federally regulated banks, it is clear the government is not yet done acting when it comes to strengthening the agency’s oversight on federally regulated retail banks in Canada.

To prepare for these changes, federally regulated banks can continue to apply the new capabilities they’re building through their FCPF compliance program to codify the governance activities where key financial consumer protection activities — such as complaint handling, disclosures and fee changes — are proposed and finalized to show the bank has undertaken the necessary diligence and debate when these key decisions are made.

This is also an opportunity to think beyond the existing formal customer feedback mechanisms (e.g., Net Promoter Score, post-transaction surveys) and formalize other “customer listening posts” such as market roundtables and establish customer advisory panels to gather insights on customer interactions such as complaints, product appropriateness and disclosure discussions.


Over the past five years through the FCPF, the government has progressively increased regulatory standards by codifying expectations in retail banking sales practices, which will come into effect in June 2022. These new regulations usher in a step change for retail banks operating under the FCAC’s jurisdiction.

Some of the notable changes in this legislation include:

  • Increased powers for the FCAC, including the mandatory naming of banks found in violation of financial consumer requirements, the ability to levy greater administrative monetary penalties and the power to direct an independent third-party review, which are already in effect.
  • New obligations, including delivery of automated alerts for low balances and zero liability due to credit or debit card fraud.
  • Enhanced expectations for complaint handling and greater management and board accountability in oversight requirements of financial consumer obligations.


While federally regulated institutions continue to address these obligations in advance of the compliance date, the recent mandate letter demonstrates to banks and their consumers that the federal government sees there is more work to be done in regulating the sales practices of retail banks in Canada.

It also shows a continued commitment to empower the FCAC as a regulatory agency with increasing authority over conduct-related matters.

Single, independent external complaints body

The letter calls for the establishment of “a single, independent ombudsperson, with the power to impose binding arbitration, to address consumer complaints involving banks.” The current regulatory requirement allows for banks to select external complaint bodies (ECBs) to handle their retail banking complaints from Department of Finance-approved providers. The change from a multi-provider framework to a single-provider framework will bring Canada’s ECB model more in line with global practice.

While the mandate serves as confirmation of the government’s intent, it may not come as a surprise to industry participants. In its Industry Review: The Operations of External Complaints Bodies, the FCAC cited a World Bank study which noted that a multi-provider model is a concern for the retail banking consumer given that an ECB may not act impartially towards consumer complaints to attract member banks. Given the government’s commitment to modernizing the financial consumer protection regime, a multi-provider ECB model seemed out of step with similar jurisdictions.

The implication to banks in Canada is they may have to prepare for additional changes in their ECB provider, which could mean some changes in their internal processes. However, perhaps the bigger implications are around the costs to the ECB service provider and whether the authorized ECB will manage this transition and its impact on Canadian financial consumers should complaint volumes increase due to FCPF changes and the funnelling of complaints to a single ECB.

Increased powers for the FCAC to further oversee banking fees

Also noted in the mandate letter was a signal that the government continues to strengthen FCAC powers by giving the agency the authority to monitor bank fees and charges and “require” changes if the fees are deemed “excessive.”

Considering the evolution of regulatory changes over the past five years, this mandate letter shows the government’s continued appetite to enhance the FCAC’s authority and oversight in banks’ day-to-day operations as evidenced through Bill C-86 provisions, including the Commissioner’s approval of a bank’s complaint handling procedures and the introduction of conduct standards like “product appropriateness,” and now the potential for additional legislation giving the agency powers to determine whether banking fees and charges are excessive.


It’s unclear when the government will introduce this legislation. However, as banks prepare for their FCPF regulatory requirements, they should consider the demonstrable activities they have in place to evaluate the efficacy of processes and governance activities that oversee customer complaint handling, product shelf reviews for appropriateness and, when it becomes applicable, their banking fees, and adjust accordingly.

While banks in Canada may already have processes in place to handle these regulatory expectations, the key phrase in achieving compliance in the regulator’s eyes is being able to provide “demonstrable evidence” of the activity and, more important, evidence that these processes are, in fact, working effectively to address these regulatory risks.

These regulatory developments over the past five years show the increasing regulatory standards for banks in Canada to meet in their day-to-day operations are here to stay. As banks focus on the final leg of their C86 FCPF compliance programs, it is worth considering whether the processes, resourcing and governance mechanisms that are in place to manage an ongoing new normal, or whether everyone will go back to business as usual.

In fact, these regulatory developments are part of a paradigm shift that requires retail banking to rethink the role of compliance in day-to-day activities. This is not just limited to deeper involvement of the compliance function into the bank’s operations and leadership forums. It could also include the deeper investments in data analytics and investigatory resources to enhance monitoring and testing capabilities, promoting a “speak up” employee culture and building reporting mechanisms to give management and the board the information they need to know these risks are identified and well managed.

The introduction of the FCPF in 2018 ushered in a new era of enhanced regulatory scrutiny in retail banking consumer protection, and the latest ministerial mandate offers us a glimpse into the future showing us the federal government is not done yet.

Tangible, ready-now steps could include deepening data-driven approaches to mine customer feedback through post-service surveys and complaints to better understand the highs and lows of their financial service journeys, an evolution of fees and charges over prior periods (documenting not only fee changes but also the inclusion/exclusion of certain features within offerings) and how these are benchmarked against competitors’ fees and charges, and to establish governance mechanisms that encourage debate around fees and value.

For organizations already engaging in these practices, there are opportunities to consider whether these practices also permeate to other key customer-facing processes, such complaint handling and branch closures. Further, banks could consider establishing customer advisory panels to act as a sounding board not only for the introduction of new products and services, but also to provide candid feedback on day-to-day customer-facing processes, including the complaint handling experience, the quality of communication (including readability) of disclosures, and the user experience on digital platforms.

In richly diverse markets like Canada, and with the ability to hyper-personalize customer outreach through digital channels, there are significant opportunities to marry regulatory expectations with a differentiated customer experience.

For industry participants, this is a good time to start thinking about how well the FCPF is embedded in their day-to-day banking operations or whether it’s a project that will eventually wind down at its conclusion. Those that pursue the former strategy will be better positioned to address new regulatory expectations in a manner that aligns to their customers’ expectations and more effectively uses finite bank resources in managing these risks.

We are in the new normal.

As an expert in financial regulation and banking practices, I have a comprehensive understanding of the regulatory landscape, particularly in the context of retail banking in Canada. My expertise stems from years of involvement in the financial sector, including direct engagement with regulatory bodies, deep analysis of legislative changes, and a keen interest in industry trends. Allow me to provide a detailed breakdown of the concepts mentioned in the article authored by Adeline Cheng:

  1. Financial Consumer Protection Framework (FCPF):

    • The FCPF refers to the legislation governing financial consumer protection in Canada. It has undergone significant updates, including the passage of Bill C-86 in 2018, which modernized the framework.
  2. Financial Consumer Agency of Canada (FCAC):

    • The FCAC is the regulatory body overseeing federally regulated financial institutions in Canada. It has been subject to ongoing strengthening and expansion of its oversight powers by the federal government.
  3. Mandate Letter from Prime Minister to Finance Minister:

    • The mandate letter outlines the government's priorities and directives for financial consumer protection, signaling a continued focus on strengthening regulations and oversight.
  4. Regulatory Changes and Compliance Requirements:

    • Banks in Canada are facing increased regulatory standards, particularly in retail banking sales practices, with new regulations set to take effect in June 2022. These changes include enhanced complaint handling, board accountability, and obligations such as delivering automated alerts for low balances and zero liability for fraud.
  5. External Complaint Bodies (ECBs):

    • The mandate letter calls for the establishment of a single, independent ombudsperson to address consumer complaints involving banks, signaling a shift from a multi-provider framework to a single-provider model for ECBs in Canada.
  6. FCAC's Oversight and Powers:

    • The FCAC is gaining increased authority, including the power to monitor bank fees and require changes if fees are deemed excessive. This reflects the government's ongoing efforts to strengthen regulatory oversight in banking operations.
  7. Compliance Programs and Governance Mechanisms:

    • Banks are advised to enhance their compliance programs and governance mechanisms to meet evolving regulatory standards, including deeper involvement of compliance functions, investments in data analytics, and establishing customer advisory panels.
  8. Customer Feedback and Experience:

    • Banks are encouraged to leverage data-driven approaches to understand customer feedback, evolve fees and charges, and improve customer-facing processes such as complaint handling and digital platforms to enhance the overall customer experience.

In summary, the article underscores the evolving regulatory landscape in Canadian retail banking, emphasizing the importance for banks to adapt their operations and compliance programs to meet the increasing demands of regulatory oversight and consumer protection.

Canadian retail banks and the consumer protection marathon (2024)
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