Canada's Big Banks Face a New Adversary: The Power of Retirees

John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian. It’s a bad day for business when you spar with the Canadian Association of Retired Persons. The day grows worse when CARP mocks you as “feckless” and publishes correspondence suggesting you are downplaying damning regulatory reports. The final straw is having it all splashed across The Globe’s pages for interested parties to weigh CARP’s allegation that you are putting profits before seniors’ interests. Canada’s big banks had just such a day last week. For bankers, what proved frustrating was how all this came to be. Ill-considered regulations from 2019 that securities supervisors are still trying to fix. Aggrieved third party, non-bank mutual fund companies, side swiped by the regulations, wild accusations from CARP that came out of the blue, and communication malpractice by the banks’ own advocacy organization, the Canadian Bankers Association. These elements cast a bright light on a brewing drama in the Canadian banking system that needs to be put to rest: The right of a business, in this case a bank, to decide what products to sell to its customers. The issue dates to 2018 when the Financial Consumer Agency of Canada (FCAC), a federal regulator focusing on consumer concerns, published a report on bank branch sales of mutual funds. The report directed banks to develop governance frameworks to better manage those practices but wisely stopped short of formal regulations. Seniors’ association criticizes big banks for ‘predatory’ sales practices Rosenberg Research: Even after their recent surge, we’re still bullish on Canada’s Big Six banks A year later, the Canadian Securities Administrators, which includes the Ontario Securities Commission (OSC), along with the Canadian Investment Regulatory Organization (CIRO), failed to see the wisdom of the FCAC’s decision and produced formal, client-focused reform rules requiring in-branch investment advisers to have extensive knowledge of all the funds offered to clients. Most banks and some credit unions decided to stop in-branch sales of third-party mutual funds, though such funds are still offered through their brokerage and wealth advisory arms. This allowed them to mitigate the regulatory risk associated with the change and focus compliance efforts on their own in-branch mutual fund products. Thus began the great banking bun fight with third-party mutual fund companies. Today, their cat’s paw appears to be CARP, which has embarked on a public-relations campaign to get their funds back into bank branches under the guise that it will help solve predatory sales practices. Since 2022, non-bank mutual fund companies have wanted regulatory agencies to compel banks to sell their funds. Ontario’s government, long blind to this potential outcome (and job losses at third-party funds), has been trying to make amends. It asked the OSC that year to review the decision by banks to stop selling third-party funds to determine what could be done to fix it. This was executed as requested, but the outcome remains secret. The review likely concluded that banks could not be forced to sell third-party funds by the OSC. The battle moved on to Ottawa, and the federal Finance Department initiated its own review of the matter. It called for stakeholder submissions in the summer of 2024. There must be a lot, given that Finance promised to publish its report after reading them and has yet to publish anything. Ottawa’s inaction led the Ontario government to try again, and the OSC and CIRO launched another investigation of the issue in November, 2024. Last July, it released its initial findings, which gave the OSC leverage to launch a more formal examination of bank sales practices. The result of those supervisory exams is expected soon. Now, CARP is ostensibly calling out the banks for not addressing harmful sales practices flagged by another regulatory review. But what the group is really doing is supporting third-party mutual fund providers by framing the absence of their funds in bank branches as a seniors’ issue, and alleging Canada’s big banks “are not interested in providing the best product options for the approximately six million Canadians who trust and invest with bank branches.” The seniors group offered no evidence at all that its members were being victimized because banks didn’t sell third-party funds in their branches, and launched a public-relations campaign against the CBA, which CARP mistakenly thinks regulates its member banks. A long, meandering and largely irrelevant letter from the CBA to CARP in response did nothing to help. In fact, it gave CARP the opportunity to publicly sucker punch the banks. The OSC fumbled this regulatory change in 2019 and should not be seeking ways to force a business model on the banks that they don’t want – selling mutual funds in branches that banks neither launched, manage nor oversee. It is time to write off this unforeseen consequence of the OSC’s own rule making, and learn from it, rather than continue its regulatory inquisition. Let banks get on with the business of banking.