Key Takeaways:
- The Canadian banking system is facing a brewing drama over the right of banks to decide what products to sell to their customers.
- The issue stems from 2019 regulations that required banks to develop governance frameworks to manage mutual fund sales practices, but ultimately led to banks stopping in-branch sales of third-party mutual funds.
- The Canadian Association of Retired Persons (CARP) has launched a public-relations campaign to get third-party mutual funds back into bank branches, claiming it will help solve predatory sales practices.
- The Ontario Securities Commission (OSC) and Canadian Investment Regulatory Organization (CIRO) have launched investigations into the issue, but the outcome remains uncertain.
- The Canadian Bankers Association (CBA) has been criticized for its response to CARP’s allegations, and the OSC has been accused of trying to force a business model on banks that they don’t want.
Introduction to the Issue
The Canadian banking system is facing a significant challenge over the right of banks to decide what products to sell to their customers. The issue dates back to 2018 when the Financial Consumer Agency of Canada (FCAC) published a report on bank branch sales of mutual funds. The report directed banks to develop governance frameworks to better manage those practices, but stopped short of formal regulations. However, in 2019, the Canadian Securities Administrators, including the Ontario Securities Commission (OSC) and the Canadian Investment Regulatory Organization (CIRO), produced formal rules requiring in-branch investment advisers to have extensive knowledge of all the funds offered to clients.
The Consequences of the Regulations
The new regulations led to most banks and some credit unions deciding to stop in-branch sales of third-party mutual funds. This allowed them to mitigate the regulatory risk associated with the change and focus compliance efforts on their own in-branch mutual fund products. However, this decision has led to a backlash from third-party mutual fund companies, which have been trying to get regulatory agencies to compel banks to sell their funds. The Ontario government has also been trying to make amends, asking the OSC to review the decision by banks to stop selling third-party funds.
The Role of CARP
The Canadian Association of Retired Persons (CARP) has recently launched a public-relations campaign to get third-party mutual funds back into bank branches. CARP claims that this will help solve predatory sales practices, but critics argue that the group is actually supporting third-party mutual fund providers by framing the absence of their funds in bank branches as a seniors’ issue. CARP has also alleged that Canada’s big banks "are not interested in providing the best product options for the approximately six million Canadians who trust and invest with bank branches." However, CARP has offered no evidence to support these claims, and its campaign has been seen as a thinly veiled attempt to support third-party mutual fund providers.
The Response of the Canadian Bankers Association
The Canadian Bankers Association (CBA) has been criticized for its response to CARP’s allegations. The CBA’s letter to CARP was seen as long, meandering, and largely irrelevant, and gave CARP the opportunity to publicly criticize the banks. The CBA’s response has been seen as a failure to effectively address CARP’s allegations and to communicate the banks’ position on the issue.
The Regulatory Inquisition
The OSC and CIRO have launched investigations into the issue, but the outcome remains uncertain. The Ontario government has asked the OSC to review the decision by banks to stop selling third-party funds, and the federal Finance Department has initiated its own review of the matter. However, the regulatory agencies have been accused of trying to force a business model on banks that they don’t want. The OSC’s 2019 regulations have been seen as a mistake, and it is time for the agency to learn from its mistakes and let banks get on with the business of banking.
Conclusion
In conclusion, the Canadian banking system is facing a significant challenge over the right of banks to decide what products to sell to their customers. The issue stems from 2019 regulations that required banks to develop governance frameworks to manage mutual fund sales practices, but ultimately led to banks stopping in-branch sales of third-party mutual funds. The Canadian Association of Retired Persons (CARP) has launched a public-relations campaign to get third-party mutual funds back into bank branches, but critics argue that the group is actually supporting third-party mutual fund providers. The regulatory agencies have been accused of trying to force a business model on banks that they don’t want, and it is time for them to learn from their mistakes and let banks get on with the business of banking.