Canada's banks faced intensifying scrutiny on Wednesday after the country's financial watchdog launched an investigation and lawmakers called for a parliamentary inquiry following media reports suggesting improper sales practices at certain banks.
Financial Consumer Agency of Canada (FCAC) Commissioner Lucie Tedesco expressed concern over the reports by CBC News that employees at some of the country's largest banks had opened accounts for products and services for consumers without properly obtaining their expressed consent, an issue the regulator said it will focus on in a review to begin in mid-April.
Canadian banks have until now avoided the consumer mis-selling scandals that had affected banks in the United States and Europe in recent years. However, some analysts said banks in Canada have therefore been subject to lighter regulatory scrutiny, enabling them to engage in sales practices no longer deemed acceptable elsewhere.
The banks named by in the reports by CBC News have all subsequently defended their sales practices.
"The lack of scandals has led to Canada avoiding the regulatory scrutiny of sales practices seen in other markets, in particular the U.K. We think this could now change, putting some pressure on profitability," said Citi analyst Stefan Nedialkov.
British banks have so far paid out more than 24 billion pounds (US$29 billion) compensating customers who were mis-sold loan insurance and Spanish banks face a bill of nearly 4 billion euros (US$4.25 billion) after a 2013 court ruling that they sold mortgages to around 1.5 million customers without explaining interest rates could not fall below a certain level.
Sales practices at banks in the United States have come under scrutiny after Wells Fargo & Co (WFC.N) reached a US$185 million settlement in September with U.S. authorities after admitting branch staff had opened up to two million unauthorized customer accounts amid pressure to meet internal sales goals.
Two lawmakers who sit on the House of Commons Standing Committee on Finance said on Wednesday that banks' business practices and the effectiveness of financial regulation in Canada should be examined by the committee.
"Is it adequate enough? Do they have enough power?" asked Liberal MP Robert-Falcon Ouellette. "Part of our role is not only to hold the government to account but the entire financial system."
Conservative MP Dan Albas called on the FCAC and Canada's finance ministry to explain how they are responding to the concerns and to address questions around the effectives of regulators.
"I'd like to see the Minister of Finance [Bill Morneau] tell us whether he believes the current framework works," he said.
The finance ministry reiterated on Wednesday it was confident the FCAC would examine the issue carefully.
CBC News had reported last week that customers of Toronto-Dominion Bank (TD.TO) were moved to higher-fee accounts or had their overdraft and credit card limits increased without their knowledge after staffers came under pressure to meet sales targets.
On Wednesday, CBC News reported that employees at the nation's other biggest banks — Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce and Scotiabank — said they had engaged in similar practices.
The banks have all defended their practices.
Royal Bank of Canada (RY.TO) said in a statement that its employees "embrace the responsibility of putting our clients' needs at the center of all we do."
Bank of Montreal (BMO.TO) said in a statement it is committed to "putting customers and employees first" and Canadian Imperial Bank of Commerce (CM.TO) said its staff are "incentivized to do what is right for our clients."
Bank of Nova Scotia (BNS.TO) said in a statement that all employees are "focused on the needs of our customers."
TD has defended its practices.
Shares in Scotiabank and Bank of Montreal were down one per cent on Wednesday. Shares in CIBC fell 0.7 per cent. Shares in TD and RBC were down 0.3 per cent.