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CmB magazine cmba-achc.ca spring 2017 | 39 By Dawn Jetten & nicole McDonalD – Blake, cassels & GrayDon llP T he Financial Consumer Agency of Canada (FCAC) recently published its new Supervision Framework, following extensive consultation with stakeholders. e Supervision Framework will come into effect November 1, 2017. It updates and replaces FCAC's current Compliance Framework. Among other things, the Supervision Framework implements FCAC's vision for robust and effective oversight of the entities that it regulates, including federally regulated financial institutions (FRFIs), external complaints bodies (ECBs) and payment card network operators (PCNOs). In announcing the Supervision Framework, FCAC highlighted that internal processes and functions will be redesigned and phased in over time to support the core components of the new framework. Guiding Principles and Pillars of Supervision e Supervision Framework states that all supervisory activities and decisions will be driven by the four guiding principles of transparency, proactivity, proportionality and accountability. Additionally, the Supervision Framework identifies three interdependent pillars of supervision: promotion, monitoring and enforcement. Old and new supervisory tools will be employed by FCAC to support these pillars through three separate divisions: the Supervision Division, the Enforcement Division and the Promotion and Policy Division. is is a shi from the FCAC Compliance Framework, which currently combines the Supervision and Enforcement Divisions. e Supervision Framework emphasizes FCAC's increasingly proactive efforts to understand emerging risks before they impact consumers. As part of these efforts, FCAC expects regulated entities to proactively identify, address and monitor risks, and keep FCAC updated on their particular risks and controls. New Classification of Regulated Entities Under the Supervision Framework, FCAC will implement a risk-based approach to supervision. Regulated entities will be classified as either tier 1 or tier 2, depending on the level of market conduct risk that is present or inherent in their business activities. Market conduct risk is defined as the risk of breaching a market conduct obligation that is overseen by FCAC. Market conduct obligations include both consumer provisions (statutory obligations) and voluntary codes and commitments. Examples of tier 1 regulated entities include FRFIs offering retail products and services to consumers, PCNOs whose participants offer payment services to merchants and ECBs offering dispute resolution services to their member banks. FCAC will supervise tier 1 entities proactively and assign each entity an FCAC senior officer as their liaison. Tier 2 regulated entities will include 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 will monitor tier 2 regulated entities significantly less intensively than tier 1 regulated entities, but may reclassify a tier 2 regulated entity if its business model expands into product or services that increase its federal market conduct risk. Promoting Responsible Market Conduct FCAC will continue to promote responsible market conduct using FCAC guidelines and decisions, which will be published according to FCAC's Publishing Principles. In addition, FCAC will introduce a rulings process through which regulated entities may obtain FCAC's views on the applicability of a market conduct obligation to a conduct or practice. Rulings will be published to provide direction as to how a specific fact situation is viewed by FCAC. Monitoring Market Conduct e Supervision Framework introduces new tools that will allow FCAC to monitor the market conduct of regulated entities. 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. FCAC officers will also devise annual supervision plans for each tier 1 regulated entity and update the market conduct profile as additional information is gathered through FCAC examinations (on-site and off-site).

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