Re: OSC, CIRO to review banks’ sales practices, Nov. 26
The recent announcement by the Ontario Securities Commission (OSC) and the Canadian Investment Regulatory Organization (CIRO) of a coordinated review into the sales practices within Canadian bank branches is, at first glance, a step in the right direction. However, for those of us who have followed this issue over the years, it is difficult to view it as anything other than a delayed and muted response to a long-standing and well-documented problem.
This is not the first time that concerns have been raised about sales practices in Canada’s major banks. As far back as the mid-2000s, banks began adopting exclusive proprietary shelves for mutual funds — prioritizing their own products over independent options. This strategy, aimed at maximizing internal profits, created an inherent conflict of interest. It incentivized bank employees to recommend products that aligned with the institution’s bottom line rather than the best interests of their clients.
By 2017, the problem reached public consciousness in a significant way. A CBC “Go Public” report shed light on aggressive sales tactics and the high-pressure environments in bank branches. Employees spoke of being pressured to meet unrealistic sales targets, often at the expense of providing suitable advice to customers. These revelations prompted Charles Sousa, Ontario’s minister of finance at the time, to direct the OSC to review sales practices in the banking sector.
However, that review failed to deliver. The findings were never made public, leaving investors, policymakers and industry stakeholders without a clear understanding of the scale of the problem or the actions being taken to address it. In the absence of transparency or concrete reform, the same practices continued, with numerous anecdotal and media reports over the years highlighting the persistence of a harmful sales environment.
Now, in 2024, we have a déjà vu moment, with regulators once again embarking on a review. For those of us who have advocated for stronger investor protections, this announcement feels a day late and a dollar short. It raises a troubling question: Why has it taken so long to address a problem that has been so visible for so many years?
The answer lies, in part, in the unique dynamics of Canada’s financial industry. The Canadian market is small by global standards, and its banking sector is dominated by a powerful oligopoly of domestic players. Unlike many other advanced economies, where competition from international financial institutions drives innovation and accountability, Canada’s major banks operate in a relatively insulated environment. This lack of external competition has allowed domestic banks to consolidate their influence over both the marketplace and the regulatory environment.
The banks’ power is formidable, and it has often been used to resist reforms that might limit the banks’ ability to earn profits at the expense of investors. Successive governments and regulators have been reluctant to challenge this influence. The result has been a regulatory approach that often prioritizes the status quo over the proactive protection of investors.
This dynamic has real consequences for ordinary Canadians. High-pressure sales tactics and conflicts of interest in bank branches are not victimless practices. They lead to suboptimal investment decisions, higher fees and diminished financial outcomes for individuals who rely on professional advice to secure their futures. These practices undermine public confidence in the financial system, eroding the trust that is essential for healthy capital markets.
This latest review by the OSC and CIRO could be an opportunity to break this pattern of regulatory inertia, but only if it is approached with urgency, transparency and a commitment to meaningful action. The public deserves to know the scope of the problem and the specific steps being taken to address it. Regulators must prioritize investor outcomes over industry interests and recognize that maintaining the status quo is not a reasonable option.
To this end, transparency is paramount. This review’s findings must be made public, accompanied by a clear timeline for implementing reforms. Regulators should provide regular updates on their progress and hold institutions accountable for meeting new standards of conduct.
Furthermore, reforms must be bold enough to address the root causes of these issues. This includes tackling the conflicts of interest inherent in proprietary sales models and establishing enforceable standards that prioritize the best interests of clients. Regulators must also ensure that the consequences for failing to meet these standards are significant enough to deter non-compliance.
Canada’s banking sector plays a vital role in the economy, but with that role comes a responsibility to uphold the highest standards of integrity and fairness. The current review is an opportunity to demonstrate that regulators are willing to fulfil their mandates to protect investors, foster confidence in the financial system and promote fair and efficient markets.
Let us not waste this opportunity. For too long, the power of the banks and the reluctance of regulators to challenge it have come at a cost to Canadian investors. It is time to prioritize the needs of the many over the influence of the few and to deliver the reforms that Canadians deserve.
Harvey Naglie is a consumer advocate.