Paid-by-commission Canadian Royal Bank employees are facing fire from federal agencies over allegations of account churning. Federal Court evidence documenting the account churning, a practice parliament outlawed in 2018, was filed over the 2018 firing of a $500,000-a year financial planner whose misconduct the judge called “serious and fundamental,” according to Blacklock’s Reporter. Churning is "excessive trading of assets in order to generate commissions," according to Investopedia. "Churning is illegal and unethical and is subject to severe fines and sanctions."Bank lawyers told the court, “This was fundamentally dishonest and contrary to the Royal Bank’s Code Of Conduct." The manager in question generated $98,174 in fees and commissions through unauthorized transactions and federal agencies suspect account churning is a wide-spread phenomenon among Canadian bank employees. “It broke the trust that was required for her employment to continue and justified immediate termination,” wrote Justice Simon Fothergill.The fired employee, who is unnamed, as is the city and the branch, was a licensed mutual fund manager who “performed numerous rebalancing transactions in which she manually redeemed existing client investments for cash and then used the cash to purchase new investments.” Churning accounts to generate fees “exposed clients to significant risks,” the Court wrote. “The Bank argued the behaviour was neither trivial nor occasional but a deliberate course of conduct repeated over a hundred times with many clients.”Bill C-86, the Budget Implementation Act, was put in place in 2018. It banned all bank policies tying employees’ compensation to sales quotas, following a 2017 investigation by the Commons Finance Committee that documented hard sales practices by branch managers.However, evidently the problem persisted until 2022, when the Financial Consumer Agency of Canada conducted a sting operation where government officials posed as customers and consulted with bank managers. The agency concluded sales tactics aimed at generating fees remained commonplace. Sales people routinely “recommended products that were not appropriate,” said an agency report called Mystery Shopping At Domestic Retail Banks, detailing how they were often sold high-cost premium credit cards they never asked for. “Data showed 80% of shoppers who were offered premium credit cards were not asked about their income,” said the report.Agents applying to open chequing accounts were sold overdraft protection or insurance they didn’t need. Students, pensioners and visible minorities were more likely to be pressured, said the agency report.The Superintendent of Financial Institutions in a 2023 Culture And Behaviour Risk Guideline cautioned bankers against rewarding unethical conduct.“Leaders actively shape the culture by what they say and do, and do not say and do,” said the guide. “This includes senior leaders including senior management and heads of oversight functions setting a consistent ‘tone from the top.’”“Financial institutions should design and implement compensation frameworks and incentive plans to encourage expected behaviour and discourage undesired behaviour at all levels including senior management,” it said.
