On September 28, 2018, the Financial Services Commission of Ontario (FSCO) released the final version of its Guideline Treating Financial Services Consumers Fairly (Guideline). This follows industry and public consultation which took place earlier this year.
The Guideline sets out eight categories of expectations, which are discussed below. FSCO's expectations apply throughout the life cycle of a financial product, and apply to all four of FSCO's regulated sectors: insurance; credit unions and caisses populaires; trust and loan companies; and mortgage brokers (licensees).
All licensees are expected to implement the expectations set out in the Guideline, regardless of whether they are consumer-facing. At the same time, the Guideline is intended to be principles-based, and FSCO recognizes that implementation may differ based on factors such as the licensee's size, risk profile, the complexity of the financial product or service offered, and the sophistication of the financial services market or consumers.
The Guideline is generally aligned with the guidance released on September 27, 2018, by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) (Conduct of Insurance Business and Fair Treatment of Customers) (PDF). Unlike the Guideline, the CCIR and CISRO's guidance is directed specifically towards insurers and insurance intermediaries.
The Guideline does not propose anything ground breaking from a consumer protection standpoint, and some FSCO expectations can be viewed as "motherhood" and common sense. Nevertheless, the Guideline clearly articulates higher expectations than statutory requirements imposed on licensees. Furthermore, the Guideline serves as a good attempt to codify best practices in the financial services industry, and should provide consumers with some consistency across a wide array of financial products and services.
As financial products and services become more complex, and as consumers become more vocal, it should be expected that regulators are likely to continue taking action in this sphere in the coming years. Indeed, the release of the Guideline as well as the CCIR and CISRO's guidance is just the latest example of regulatory action focused on the fair treatment of consumers. Other notable examples include the CCIR's Annual Statement on Market Conduct (PDF) introduced in 2017, and the Autorité des marchés financiers' Fair Consumer Credit Practices Guideline (PDF) introduced in July 2018.
The next guidance on this topic is likely to come from the Government of Canada. The 2018 Budget noted that "the Government has undertaken a comprehensive review of the consumer protection framework" and that Budget 2018 proposes to introduce "legislation that would strengthen the Financial Consumer Agency of Canada's tools and mandate and continue to advance consumers' rights and interests when dealing with their banks."
FSCO's key expectations
1. FSCO expects that a core component of a Licensee's business governance and culture is fair treatment of consumers.
Licensees should have a culture of treating consumers fairly, which should be driven by the senior levels of the organization. FSCO expects licensees to design, implement, communicate and monitor compliance with codes of conduct and/or policies and procedures that reinforce such a culture. These codes of conduct and policies should be made public and be incorporated into any outsourcing arrangements the licensee has. Appropriate mechanisms should be in place to measure the effectiveness of these policies.
2. FSCO expects Licensees to act with due skill, care and diligence at all times, but especially when dealing with consumers or designing financial services or products for consumers.
Licensees selling services and advice to consumers must meet the required statutory proficiency qualifications and act with the skill, care and diligence appropriate for the product or service and the disclosed personal circumstances and financial needs of the consumer. Those involved in the design and governance of products should consider the needs of their target market. Furthermore, FSCO expects licensees to regularly deliver and participate in training programs on ethics and integrity related to their own code of conduct or standards.
3. FSCO expects Licensees to promote financial services and products in a manner that is clear, fair and not misleading or false.
In addition to a licensees' legal requirements to provide consumers with product information that is accurate, clear and not misleading or false, consumers should always receive information that:
- is easy to understand;
- is clear about any risks, exclusions or limitations of a product;
- does not hide, diminish or obscure important statements or warnings, but rather makes sure important information is prominently displayed; and
- is based on the disclosed personal circumstances and financial needs of the consumer.
Those involved in the design and governance of products should establish controls over those soliciting, selling and/or providing advice. Those involved in developing marketing material should obtain the approval of the product manufacturer and ensure there is clarity, plain language and compliance. Where financial products and services are offered digitally, the same level of transparency and disclosure should be applied as with traditional means.
4. FSCO expects Licensees to recommend products that are suitable, taking into account the consumer's disclosed personal circumstances and financial condition.
Licensees and the consumer should have a common understanding of the products or services to be provided, which should be documented. To ensure a product offered is in the best interests of the consumer, licensees should follow the following three-step process:
- get to know the consumer by using methods such as fact-finding;
- understand the products fully; and
- conduct a thorough needs analysis to fully understand the consumer's objectives and needs
Only once this three-step process is complete should the licensee provide a recommendation, which should also be documented. Furthermore, where a consumer declines to accept advice, this should be documented. Where a licensees does not interact directly with consumers, systems and controls to promote and monitor the suitability of advice given to consumers should be established.
5. FSCO expects Licensees to disclose and manage any potential or actual conflicts of interest.
Licensees are expected to comply with legal requirements to disclose and manage any potential or actual conflicts of interests. Depending on the circumstances conflicts of interest can be managed in different ways. In this regard, a conflict of interest management policy should be developed, implemented, monitored and communicated to all officers, directors, employees, and others in the distribution chain. Furthermore, rather than develop incentives based only on sales, licensees should develop incentives that take into account the fair treatment of consumers. Audits should be conducted to assess the management of potential or actual conflicts of interest.
6. FSCO expects Licensees to provide continuing service and keep consumers appropriately informed, through to the point at which all obligations to the financial services consumer have been satisfied, including claims handling or the diligent provision of benefits.
FSCO expects licensees to comply with legal requirements to keep a record of their claims-handling procedures. Licensees should have agreements in place that clearly define the conditions, scope and limits of contracted services, and clarify matters related to the relationship with consumers. Licensees should provide consumers with timely information and easy access to the means of making a claim, applying for benefits, or accessing dispute resolution mechanisms. The licensee should disclose information to the consumer regarding any contractual changes during the life of the product, and any other information relevant to the consumer. Licensees should inform consumers of what their obligations are post-sale and throughout the product life cycle. Where there are changes in terms and conditions of the contract, the consumer should be notified of their rights and obligations and their consent should be obtained as needed. Licensees should provide ongoing service to consumers when they switch between products, and information about cancelling a contract early.
7. FSCO expects Licensees to have policies and procedures in place to handle complaints in a timely and fair manner.
Licenses must comply with legal requirements to have clear, transparent and accessible policies and procedures to review and resolve complaints in a timely and fair manner, and a system of record-keeping for each complaint and the measures taken for its resolution. If a complaint cannot be resolved, the licensee must provide a final position letter to the complainant that includes options to seek further redress. Licensees should consider what alternative resolution mechanisms it could establish if it does not have a statutory obligation to participate in an independent dispute resolution mechanism. Complaints-handling processes and outcomes should be monitored to ensure their ongoing effectiveness.
8. FSCO expects Licensees to protect the private information of financial services consumers and inform them of any privacy breach.
In addition to complying with privacy legislation, including requirements to obtain consent and notification in the case of a privacy breach, licensees should have policies and procedures for the protection and use of personal and financial data. This could include safeguards to prevent the misuse of personal information and a safe online environment. Policies and processes that mitigate cyber risk, enhance cyber resilience, and help prevent cyber crime should also be established.
It will be very interesting to see the developments as licensees comply with the principles and expectations set out in the Guideline. While these expectations are significant, it is possible that compliance with them may reduce litigation risk and reputational risks relating to situations where consumers feel they have not been treated fairly.