Canada Gazette, Part I, Volume 146, Number 28: Approved External Complaints Bodies (Banks and Authorized Foreign Banks) Regulations
July 14, 2012
Department of Finance
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issue and objectives
The Constitution confers on Parliament exclusive jurisdiction in relation to banking and the incorporation of banks. In this regard, the Bank Act constitutes the complete and exclusive regulatory framework applicable to banking products and services offered by banks. Parliament’s intent that all banking activities throughout Canada be governed exclusively by the same federal standards is being clarified with the introduction of a preamble to the Bank Act, recently tabled in Bill C-38, the Jobs, Growth and Long-term Prosperity Act.
Access to an effective and efficient complaint handling system, competition, disclosure, limits on practices not beneficial to consumers, and the consumer’s right to exercise informed choice are key pillars of a financial services consumer protection framework.
A vibrant financial services industry is founded on vigorous domestic competition that delivers the best services to consumers and that best suits their individual needs. Disclosure ensures that consumers have the relevant information to make informed decisions. Financial education ensures that Canadians have the knowledge and the tools to act on the information presented. Limits on certain business practices that are not beneficial to consumers complement the consumer protection framework.
An effective and efficient complaint handling system that resolves customer complaints builds consumer confidence in financial institutions and contributes to the strength of the Canadian banking system.
For customers of banks, there is an integrated dispute resolution system in place:
- The first responsibility for addressing a customer’s complaint is with the bank, and banks are required to have dedicated procedures and personnel in place to do so. The vast majority of customer complaints are resolved directly between the bank and the customer.
- All banks are also required to be members of an external complaints body. If a customer is not satisfied with the bank’s response, the customer may make a complaint to the external complaints body of which the bank is a member; typically, only limited numbers of complaints are made.
An external complaints body provides a service involving an impartial review of a customer’s complaint, and it is not a regulator, nor an advocate. For customers, an effective and efficient external complaints body can provide a timelier and no-cost alternative to the court system. However, customers and banks continue to have the right to bring their dispute to the court system.
There had been one external complaints body for the banking sector for many years. With the advent of a second external complaints body for the banking sector, stakeholders were concerned that, in a multiple-provider market, there is a need for criteria to be met by all external complaints bodies for the banking sector.
In Budget 2010, the Government recognized the need to formalize, through legislation, the requirement for banks to be a member of an approved external complaints body. The Sustaining Canada’s Economic Recovery Act received Royal Assent in December 2010, and it amended the Bank Act to establish the requirement that banks belong to an external complaints body incorporated either under Part Ⅱ of the Canada Corporations Act or under the Canada Business Corporations Act and that is approved by the Minister of Finance. The purpose of external complaints bodies is to deal with complaints made by customers of banks. The amendments also provided authority to set out, in regulations, clear criteria to govern the approval of an external complaints body.
Description and rationale
The proposed Approved External Complaints Bodies (Banks and Authorized Foreign Banks) Regulations (the proposed Regulations) establish the criteria for ministerial approval, the criteria for maintaining approval and the obligations of banks in respect of external complaints bodies.
The proposed Regulations specify that, to be an approved external complaints body, the applicant must be operated in a manner that is consistent with the standards of good character and integrity and must have policies and procedures, as well as terms of reference that would enable it to meet the requirements for maintaining approval.
With respect to maintaining approval, the proposed Regulations would require that an approved external complaints body be accessible, accountable, impartial, and independent. Furthermore, it would need to discharge its functions and perform its activities in a transparent, cooperative, effective and timely manner.
For instance, the proposed Regulations require that every person who acts on the external complaints body’s behalf and is dealing with a complaint be impartial and independent at all times.
As well, the proposed Regulations would improve upon the timeliness of complaint resolution. The proposed Regulations would require an external complaints body to resolve complaints within 120 days, compared to the current industry standard of 180 days. Although it is expected that most complaints should be resolved much more quickly, it is possible that a handful of complaints may occasionally extend beyond the 120-day time limit, but this should be exceptional, and overall performance would be monitored by the Financial Consumer Agency of Canada (FCAC).
Transparency would be accomplished by requiring, in the proposed Regulations, external complaints bodies to make publicly available its constitution, governance, membership, terms of reference and sources of funding. In addition, each approved external complaints body would submit to a third-party evaluation every five years with the results publicly available.
Furthermore, an approved external complaints body would need to be accessible by accepting any bank or authorized foreign bank for membership, by making its services available in both official languages across Canada, and by offering those services free of charge to those making complaints.
The proposed Regulations would require cooperation by establishing that external complaints bodies transfer all information, without delay, if a member bank changes to another external complaints body. The new external complaints body must notify the parties to an active complaint that it is the new external complaints body once a file is transferred.
The criteria for approval and maintenance of an approval build upon accepted industry norms. They would improve the current standard of practice by setting high expectations to be met by a company choosing to apply for approval as an external complaints handling body for the banking sector, as well as for the maintenance of any approval.
The proposed Regulations would also formalize existing expectations of banks and authorized foreign banks in that they would need to notify customers of the name and contact information of their external complaints body, cooperate with their external complaints body, as well as notify the FCAC of any changes in these arrangements.
The proposed Regulations may impose minor incremental costs on external complaints bodies as many of the administrative requirements are already being completed by the existing players, on their own accord. There will be no incremental costs for banks, as the proposed Regulations formalize existing expectations and consumers will retain access to external complaints bodies at no charge.
Interested stakeholders representing federal financial institutions, consumer groups and ombudservices have offered their views following the Budget 2010 announcement. These views have been taken into consideration in the development of the proposed Regulations.
The Ombudsman for Banking Services and Investments (OBSI) has expressed disagreement with the Government’s decision to not make OBSI the mandatory sole provider for all banks. However, stakeholders do agree that, in a multiple-provider model, there is a need for approval criteria.
Implementation, enforcement and service standards
To be transparent with stakeholders on how the approval process will work, approval guidelines (the guidelines) would be developed by the FCAC in consultation with stakeholders to supplement the proposed Regulations. The guidelines would be released in time for the coming into force of the proposed Regulations.
The guidelines would outline the process for completing applications, including a list of information to be submitted with the application for approval, the procedures to be followed and the criteria to be considered by the applicant in demonstrating that they meet the standards in the proposed Regulations.
The guidelines would allow each application to be considered on its own merits, recognizing that each external complaints body may have a different approach for meeting the standards in the proposed Regulations.
As established in the amended legislation, a company choosing to apply to serve the banking sector as an external complaints body would submit an application to the Commissioner of FCAC (the Commissioner) demonstrating that it meets the high standards in the proposed Regulations.
Once the application contains all the required information in light of the criteria in the proposed Regulation, as per the common practice for all ministerial approvals, the Commissioner would refer it to the Minister, along with a recommendation, and send a receipt to the applicant certifying the date on which the application was referred to the Minister.
The guidelines will also set out timelines for processing approvals setting out the intention to follow in practice a 30-day timeline from the certified date of receipt for the Minister to notify applicants of a decision.
The proposed Regulations would come into force upon registration, at which time applications for approval would be received by the FCAC.
Financial Institutions Division
Department of Finance
L’Esplanade Laurier, East Tower, 15th Floor
140 O’Connor Street
PROPOSED REGULATORY TEXT
Notice is hereby given that the Governor in Council, pursuant to subsection 455.01(3) (see footnote a), sections 459.4 (see footnote b) and 576.2 (see footnote c) and subsection 978(1) (see footnote d) of the Bank Act (see footnote e), proposes to make the annexed Approved External Complaints Bodies (Banks and Authorized Foreign Banks) Regulations.
Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part Ⅰ, and the date of publication of this notice, and be addressed to Jane Pearse, Director, Financial Institutions Division, Department of Finance, L’Esplanade Laurier, 15th Floor, East Tower, 140 O’Connor Street, Ottawa, ON K1A 0G5 (fax: 613-943-1334; email: email@example.com).
Ottawa, June 19, 2012
Assistant Clerk of the Privy Council
APPROVED EXTERNAL COMPLAINTS BODIES (BANKS AND AUTHORIZED FOREIGN BANKS) REGULATIONS
1. The following definitions apply in these Regulations.
“Act” means the Bank Act. (Loi)
“complaint” means a complaint made by a person to an external complaints body that is approved by the Minister under subsection 455.01(1) of the Act about a product or service that was requested or received by the person from a member of that body. (réclamation)
“member” means a bank or an authorized foreign bank that is a member of an external complaints body that is approved by the Minister under subsection 455.01(1) of the Act. (membre)
“point of service” means a physical location to which the public has access and at which a bank or an authorized foreign bank carries on business with the public and opens or initiates the opening of retail deposit accounts through natural persons in Canada. (point de service)
2. The purpose of these Regulations is to enhance the process for dealing with complaints under the Act by establishing a scheme for external complaints bodies that are accessible, accountable, impartial and independent and that discharge their functions and perform their activities in a transparent, effective, timely and cooperative manner.
3. (1) A body corporate that applies for approval under subsection 455.01(1) of the Act must have a reputation for being operated in a manner that is consistent with the standards of good character and integrity.
(2) Before it applies for approval, the body corporate must have policies and procedures, and terms of reference to govern its functions and activities as an external complaints body, that would enable it to meet the conditions that are set out in section 4.
4. Every body corporate that is approved by the Minister as an external complaints body must, as conditions of maintaining approval,
- (a) maintain a reputation for being operated in a manner that is consistent with the standards of good character and integrity;
- (b) make its services as an external complaints body available across Canada in both official languages and offer those services free of charge to persons who make complaints;
- (c) accept as a member any bank or authorized foreign bank that makes a request to it for membership;
- (d) ensure that every person who acts on its behalf in connection with a complaint is impartial and independent of the parties to the complaint;
- (e) notify a person who has made a complaint within 30 days after the day on which it receives the complaint if all or part of the complaint is outside its terms of reference;
- (f) advise the Commissioner in writing without delay if it determines that a systemic issue is raised by a complaint;
- (g) transfer a complaint received by it and all related information that is in its possession or control to another external complaints body without delay if a bank or an authorized foreign bank that is a party to the complaint becomes a member of the other external complaints body before the complaint is resolved;
- (h) notify without delay the parties to a complaint that is transferred to it by another external complaints body
- (i) that a bank or an authorized foreign bank that is a party to the complaint has become a member of the body corporate, and
- (ii) that the complaint has been transferred to it;
- (i) deal with and resolve complaints in a manner that affects only the parties to them;
- (j) resolve complaints by making a final recommendation to the parties to a complaint within 120 days after the day on which it receives the complaint;
- (k) consult at least once a year with its members, and with persons who have made complaints since the previous consultation, with respect to the discharge of its functions and performance of its activities as an external complaints body;
- (l) submit an annual report to the Commissioner on the discharge of its functions and performance of its activities as an external complaints body, including a summary of the results of any consultation with its members and with persons who have made complaints, and make the report available to the public without delay;
- (m) submit every five years to an evaluation of the discharge of its functions and performance of its activities as an external complaints body that is conducted by a third party in accordance with terms of reference established in consultation with the Commissioner; and
- (n) make available to the public complete and accurate information about
- (i) its constitution and governance and the identity of its members,
- (ii) the terms of reference that govern its functions and activities as an external complaints body,
- (iii) all sources of funding for its functions and activities as an external complaints body, including the fees charged to each of its members for its services and the method of calculating those fees, and
- (iv) the results of the most recent five-year evaluation.
OBLIGATIONS OF MEMBERS
5. A bank or an authorized foreign bank must display and make available to the public at all of its branches and points of service where products or services are offered in Canada, and on every website through which products or services are offered in Canada, copies of a written statement disclosing the name of the external complaints body of which it is a member and with which it must cooperate and the contact information for that body.
6. A bank or an authorized foreign bank that is a member of an external complaints body must give written notice to the Commissioner of its intention to become a member of another external complaints body at least 90 days before the day on which it is to become a member of the other body.
OBLIGATION RELATING TO INFORMATION
7. All information that is provided under these Regulations by any body corporate, bank or authorized foreign bank must be in language that is clear, simple and not misleading.
COMING INTO FORCE
8. These Regulations come into force on the day on which they are registered.