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FCAC Supervision Framework

The Financial Consumer Agency of Canada (FCAC) Supervision Framework updates and replaces FCAC’s current Compliance Framework. The updates provide a clearer and deeper understanding of how FCAC fulfills its mandate to protect financial consumers.

The current Compliance Framework combined the supervision and enforcement divisions.  Under the New Supervision Framework, there will be three separate divisions:

  1. Promotion/Policy Division;
  2. Supervision/Monitoring Division; and
  3. Enforcement Division.

Who Does This Apply To?

The FCAC supervises the market conduct of federally regulated entities, these fall into two categories:

Tier 1 regulated entities – entities where business activities inherently include market conduct risk and nature of the products or services offered by tier 1 entities requires compliance with market conduct obligations overseen by FCAC. These include entities such as Federally Regulated Financial Institutions (FRFIs) that offering retail products and services to consumers; payment card network operators who offer payment services to merchants; and external complaints bodies (ECBs) offering dispute resolution services to member banks.

Tier 2 includes regulated entities such as banks and trust companies that do not offer retail products and services, or insurance companies that restrict their business to the sale of insurance. FCAC monitors tier 2 regulated entities significantly less than tier 1 regulated entities.

What Do You Need To Do?

FCAC expects regulated entities to proactively identify, address, monitor and keep FCAC updated on their risks and controls. Also, they expect regulated entities to proactively report to FCAC any material developments that could change their market conduct risk.

Tools For Promotion

The FCAC promotes responsible market conduct by communicating expectations and interpretations using various tools. The FCAC will continue to promote responsible market conduct using guidelines and decisions, but will introduce a rulings process. Although rulings apply to a particular case and its specific circumstances, publishing information about the ruling provides direction to entities of similar nature.

Tools For Monitoring

FCAC monitoring activities include gathering and assessing information and introduces new monitoring tools. One such tool is the maintenance of a market conduct profile for each tier 1 regulated entity, which will help identify the entity’s risk profile.

Tools For Enforcement

Enforcement begins with the process of investigating a potential breach of a market conduct obligation. Such investigations may lead to the issuance of either a compliance report which is included in the existing FCAC Compliance Framework or a notice of breach which is a new tool under the Supervision Framework. There are three levels of a notice of breach.

What path of action the FCAC will take when it comes to enforcement remains unclear, but perhaps the new ruling process discussed within the new Framework will be helpful for organizations.

When Does This Come Into Force?

It was expected that the FCAC would commence implementation of the Supervision Framework on November 1, 2017 and that the FCAC internal processes and tools that will be used (i.e. revised Publishing Principles) will likely come at a later date. This has now been extended to sometime in 2018. The FCAC’s website is vague on details as to when exactly enforcement will start or as to reasons why enforcement has been pushed out.

We’re Here To Help

If you have questions about these changes, or compliance in general, please contact us.

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