FCAC Issues Final Version of Product and Service Appropriateness Guideline
On February 24, 2022, the Financial Consumer Agency of Canada (“FCAC”) issued the final version of its Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks (“Guideline”). The Guideline follows a consultation process which ran from November 22, 2021 to January 6, 2022 and sets out key principles and expectations related to the offering and sale of appropriate bank products and services to consumers.
Changes of note
The guideline was finalized with little change to the draft version issued for consultation in the fall. In the end, while most changes were minor, such as the capitalization of the first letters of key words (e.g., “ Bank”), the correction of syntax errors and the use of the active rather than the passive voice, a handful of modifications were more substantive. These are summarized below.
The reference to the “requirements” of the Bank Act was replaced by the “provisions” of the Bank Act and “in Canada” was added to “product and services” banks offer or sell to clarify the application of the Guideline. In addition, the Guideline now specifies that it applies to products offered or sold to a natural person “other than for business purposes”. Finally, the Guideline must now be read in conjunction with “all applicable” legislation and regulations.
2. Key principles
While the key principles remained the same, a clarification was made with respect to the oversight responsibility at Authorized Foreign Banks, whereby it will fall to senior management to oversee the creation and implementation of product appropriateness policies and procedures.
Further, the final version of the Guideline removes the expectation that policies and procedures “effectively address and implement” the key principles, leaving banks to decide how they will comply with this requirement.
In the general reference to the principles Know your consumer, Know your product, Assess appropriateness and Inform consumers, the Guidelines replaces “before they offer or sell products or services” with “when it offers or sells products or services”, thereby allowing the activities resulting from these principles to be executed simultaneously with the offer or sale rather than prior to the offer or sale.
a) Know your consumer
The information verification requirement in Paragraph 11 of the draft version has been removed in favour of an information recording requirement. Wording has been added to Paragraph 12 such that policies and procedures must now detail the type of information that is to be collected, as well as the manner in which it is to be used.
b) Know your product
The word “appropriate” has been added to the reference of “policies and procedures” in Paragraph 15. In addition, instead of having to ensure that their policies and procedures cover the processes related to product assessments, reviews and approval, banks will have to ensure that they have such processes in place.
Paragraphs 17 and 18 now read that banks, as opposed to their policies and procedures, must require the initial and ongoing training of those involved (officer, employee or any other person) in the offer and sale of their products or services. The training program must be regularly reviewed and updated by the banks. Banks are also required to monitor training completion by their participants.
c) Aligning remuneration
The introductory sentence of Paragraph 23 has been amended in a manner similar to the introductory sentences of Paragraphs 17 and 18, where the reference to “Policies and Procedures” was removed in favour of a reference to “Banks”.
The Guideline becomes effective on June 30, 2022, along with the new Financial Consumer Protection Framework (“Framework”) and its supporting regulations. For a more detailed review of the Guideline, consult our blogpost published on December 8, 2021. Our blogpost series on the Framework can be found here.