Scrutiny of Canada's financial oversight sparked by reports of improper sales practices at the nation's top banks shows its watchdogs lack the muscle and the bite to tackle consumer abuses as aggressively as their U.S. and European peers.
Canada's banking system avoided failures in the 2007-09 financial crisis and the World Economic Forum consistently ranks it as being among the world's soundest, crediting strong regulations and oversight for the top billing.
But reports by CBC News, Canada's public broadcaster, that staff at the country's biggest five banks had moved customers to higher fee accounts and raised overdraft and credit card limits without their knowledge made lawmakers and campaign groups question if lenders were properly supervised.
"If they're doing it with customer service, where else might they be doing it?" said Robert-Falcon Ouellette, a Liberal MP and a member of Canada's House of Commons Standing Committee on Finance.
A review of budgets, staffing and legal powers at the disposal of the Financial Consumer Agency of Canada (FCAC), the primary financial consumer watchdog, shows the regulator lacking the firepower of its U.S. and British peers.
The FCAC has a budget of $18 million for the 2016/17 financial year and employs 89 staff. In contrast, the Office of the Superintendent of Financial Institutions that oversees the safety of the entire banking system employs 700 with an annual budget of $144 million.
By comparison, Britain's Financial Conduct Authority had an annual budget of 519 million pounds (US$645 million) and 3,337 staff at the end of its last fiscal year. The U.S. Consumer Financial Protection Bureau had a budget of $606 million last year and 1,623 employees.
The FCAC's fines are also capped at $500,000 per violation and since its formation in 2001, the FCAC has issued fines totaling just C$1.7 million. In contrast, Britain's FCA has dished out over US$3 billion pounds since its creation in 2013 while the CFPB has handed out fines worth over US$5 billion since its creation in 2011.
One consequence of the tight budget is that the FCAC has not carried out a "mystery shopper" exercise since 2005.
"They demand a lot of resources and are not always necessary," FCAC's Deputy Commissioner Brigitte Goulard told Reuters in an interview.
"There are better ways to make sure the banks actually comply with the legislation," she added. "The banks are required to self-reveal, self-assess their own compliance with legislation and I think it's worked fairly well."
Consumer advocate Duff Conacher said, however, that the Canadian regulator's failure to detect questionable business practices reported by the public broadcaster could be down to the lack of "mystery shopper" checks where inspectors pose as regular customers.
To be sure, when Wells Fargo (WFC.N) paid US$190 million last year to settle charges that its sales staff created 2 million of unauthorized accounts, it was down to a whistleblower and media who alerted the authorities about the practices.
But "mystery shopping" helped U.S. regulators last year to investigate allegations of racial discrimination at BancorpSouth Inc (BXS.N) that led to a US$10.6 million settlement.
In Britain, regulators used the technique in 2008 to investigate banks' mis-selling of loan insurance in the nation's most costly corporate scandal.
Conacher also criticized the FCAC for effectively tipping off banks when it said earlier this month it would review business practices in the federally regulated financial sector in April.
"It's just another example, unfortunately, of the Financial Consumer Agency of Canada's negligent lack of enforcement and weak enforcement record," he said in an interview.
Conacher is a co-founder of Democracy Watch, a lobby group which has gathered 50,000 signatures under a petition calling for more effective regulation of Canada's biggest banks.
One issue that stirred much debate was the continued use of sales incentives by banks named in the CBC reports - Royal Bank of Canada (RY.TO), Toronto Dominion Bank (TD.TO), Bank of Nova Scotia (BNS.TO), Bank of Montreal (BMO.TO) and Canadian Imperial Bank of Commerce (CM.TO).
All five have confirmed that they continue to offer sales incentives for staff and defended the practice that some of their British and U.S. peers have scrapped or modified under pressure from regulators.
"What we've created is an incentive system where people might feel pressure to engage in unethical behavior which might actually jeopardize the long-term future of the banking market," Ouellette said.
Since Canadian banks have avoided scandals or failures that have plagued banks their European and U.S. peers, they have avoided similar intense regulatory scrutiny, raising the question if any improper practices might have gone undetected, banking analysts say.
FCAC's Goulard said existing statistics did not suggest that.
"In the past two years we've had over 6,000 complaints and about 200 of those have to deal with not obtaining the consent of the consumer," she said. In some cases consumers have given their consent but have forgotten about it, she added.
Canada's Liberal government is currently reviewing the regulation of the financial services industry and, last August, launched a consultation on the issue.
Conservative MP Dan Albas, who also sits on the parliamentary finance committee, said the reports of mis-selling made the review particularly critical.
"If there seem to be systematic issues where there are gaps that consumers are falling through or banks aren't meeting their obligations then that's something the government needs to take very seriously."