This is nation building in the 21st century

27 April 2017
Canada’s banks are at an important crossroads when it comes to their relationship with Canadian consumers – are banks just businesses like any other or are they fundamental to our financial well-being and, therefore, leading actors when it comes to helping Canadians build their financial security and health? 
 
The globalization of the financial marketplace, explosion of new financial products, rise of fintech, and data analytics enabling banks to know their customers like never before, have all coincided with a decline in the financial health of Canadians, marked by historically high household debt-to-income levels and perilously low savings rates.  
 
The irony of this is not lost on Canadians who may wonder why they are struggling so hard to maintain a financial foothold in a marketplace that, theoretically, has never been better equipped to help them succeed.   
 
The problem, of course, does not lie entirely with banks:
 
  • Structural macro-economic drivers (e.g. demographic, housing, income, and labour market trends) are arguably more powerful determinants of our economic prospects.
  • Individuals are shouldering more economic risk than before, due to the erosion of stable jobs and the workplace pension and insurance benefits that once accompanied them, and the growing disconnectedness of our social safety net programs and labour market.
  • The growing number and complexity of financial products and decisions Canadians must navigate increasingly challenges the time and expertise we have to deal with them.
Despite all this, we can expect at the very least that banks will abide by the rules and act ethically to advance the best interests of their customers.
 
In March, however, CBC Radio ran a series of stories on frontline bank employees who reported being pressured to engage in unethical or prohibited behaviour to meet sales targets and keep their jobs. Behaviours included inappropriately upselling customers, signing them up for products without disclosing required information, or neglecting to obtain their consent. The CBC stories were based on nearly 1,000 emails, from current and former employees of BMO, CIBC, RBC, Scotiabank, and TD across Canada.  
 
Banks responded by highlighting that these practices violated their policies and codes of conduct, were inconsistent with their findings from regular employee and customer satisfaction tracking, and that their performance management systems were geared to encourage employees to achieve sales goals and act in their customers’ best interest. Banks invited anyone affected to submit their complaints for investigation and some launched internal reviews and employee consultations to assess the extent of the problem.
 
Is the behaviour reported by the media that of a comparatively few “bad apples” in a banking system that employs hundreds of thousands of frontline employees or is it indicative of a more systemic problem? While Canada’s banking system is globally acknowledged to be one of the most stable and well-regulated in the world, media stories have left Canadians wondering. 
 
In response, the Financial Consumer Agency of Canada (FCAC) has announced that it is moving up a previously scheduled routine review of banking practices and that it will focus on the recently reported claims of inappropriate practices. We are encouraged that FCAC is responding with an in-depth review and look forward to the terms of reference that should be released shortly.  
 
Ensuring banks abide by the rules should only be the minimum we expect, however – not the acme of our aspirations. Let FCAC and the banks undertake the review and let us correct any problems but, if we stop there, an important opportunity will be missed. 
 
The time is ripe for a broader national conversation about what Canadians need and can expect from their banks (and credit unions, even if these are provincially regulated) in the face of the financial difficulties so many households are experiencing, ongoing financial exclusion of the most vulnerable Canadians, and opportunities offered by new data, insights and technologies to help Canadians build their financial well-being in today’s challenging environment.
 
The federal government’s statutory review of the Bank Act, to be completed by 2019, offers an important opportunity to engage banks and Canadians on these questions, but only if the federal government, our banks, and Canadians are bold enough to truly seize this moment. 
 
In the United States, leading edge financial institutions, supported by the Center for Financial Services Innovation (CFSI), are responding to the disruptive force of new financial technologies, shifting customer demands and challenging economic realities by transforming the role that they play in consumers’ lives. Adopting a consumer financial health framework, they are exploring ways to measure and invest in building their customers’ financial well-being, as a route to creating responsible and sustainable profits over time. This means defining success to include positive financial health outcomes for their customers, as well as positive outcomes for their businesses. 
 
To this end, CFSI and its partners have developed a comprehensive set of indicators that banks can use to track their customers’ financial health and inform the development of new strategies, products and services to build their financial well-being. 
 
If there is still truth in the adage that “what gets inspected, gets respected,” then this approach merits a closer look by our own banks and regulators, and by bank shareholders who are surely aware by now that business as usual is no longer really an option.
 
The genius at the heart of Canada’s banks is that they have always understood, and acted on the understanding, that they are more than just businesses. They are semi-public institutions that are critical to the smooth functioning and health of our economy, provide essential services to Canadians, and are at their very best when working in tandem with governments and civil society to understand and respond to national challenges and opportunities. In short, when they are nation builders. 
 
This understanding and approach has set us apart on the world stage, causing Canada to be ranked first among 134 countries on the soundness of its banks by the World Economic Forum. It has also served Canadians well when it has mattered most, enabling us to successfully weather the 2008 economic crash that inflicted prolonged economic hardship on so many other nations.
 
The world continues to evolve, however, and we must evolve with it if Canadians are to sustain and grow their prosperity.   
 
Banks alone cannot eliminate barriers to financial inclusion, capability and opportunity for Canadians, but they are powerful institutional actors with infrastructure, expertise, data, tools, resources and the potential to make an even greater positive impact for Canadians if they choose. 
 
Canadian households are struggling and now is the time for all of us to step up – not simply to enforce the rules, but to make our financial institutions the best in the world at actively supporting all citizens to build their financial well-being.  
 
This is nation building in the 21st century. 
 
Let’s get the conversation started. 

By: Elizabeth Mulholland, CEO, Prosper Canada