OSFI to review CIBC faxing debacle

CIBC paid $80-million (U.S.) in a settlement with U.S. securities regulators at the end of 2003 over allegations it aided and abetted the accounting fraud at Enron…"Remember that denial wins no points."

The Globe and Mail
January 31, 2005

OSFI to review CIBC faxing debacle
Sinclair Stewart

Canada's top financial industry regulator is looking into a faxing debacle at Canadian Imperial Bank of Commerce in which confidential information for dozens of customers was accidentally sent to a scrap-yard operator in West Virginia.

The Office of the Superintendent of Financial Institutions, the federal government body charged with overseeing the banking sector, is reviewing the incident and has held discussions with CIBC officials to make sure the problem has been dealt with properly, according to a letter from federal Finance Minister Ralph Goodale.

"You may be interested to know that the Office of the Superintendent of Financial Institutions is … examining this issue and has been in contact with CIBC officials to assess whether the bank is taking appropriate action to resolve this matter," Mr. Goodale stated in an e-mailed letter to one CIBC investor.

A spokesman for OSFI confirmed that it has been in contact with CIBC on the issue, and said the regulator's involvement centres on "reputational risk" issues. He declined to provide further details.

A spokesman for CIBC declined to comment.

The federal privacy commissioner launched an investigation into the fax mix-up last fall to see whether any privacy laws were broken, and the results of the probe are expected shortly.

The Department of Finance is monitoring the outcomes of both reviews, as well as CIBC's response, Finance spokesman David Gamble said.

"Once the work of the Privacy Commissioner and OSFI is complete, the Department will assess whether any further legislation or a change in regulation may be appropriate," he said.

CIBC was thrust into the spotlight in November after Wade Peer complained that the bank had been sending errant faxes to his junkyard in Ridgeley, W. Va., for three years.

He claimed he continued to receive them even after notifying CIBC of the problem, and is suing the bank for allegedly clogging his fax lines and interfering with his business.

CIBC has since implemented an internal ban on faxes, and chief executive officer John Hunkin issued a public apology to customers.

Nick Le Pan, the superintendent of financial services, has highlighted reputational risk as a key area of focus for the regulator, particularly in light of the stain left by high-profile U.S. corporate scandals at Enron Corp. and other companies in the past few years.

CIBC paid $80-million (U.S.) in a settlement with U.S. securities regulators at the end of 2003 over allegations it aided and abetted the accounting fraud at Enron.

In a related settlement with OSFI and the New York Federal Reserve Bank, CIBC agreed to enact a number of policies and procedures, hire an independent auditor to monitor its compliance, and establish an ethics hotline for staff.

At a Toronto conference late last year, Mr. Le Pan urged banks to be more pro-active on reputational matters, and said OSFI would soon be providing information to the banks outlining ways to manage this risk.

"There is no other basis for the financial services business than trust and confidence, and that goes to a firm's reputation and why reputation is a zero-tolerance risk. Confidence and credibility is at the core of what financial institutions are all about.

They take a long time to build up but can be undercut quickly," he said in his speech.

"Think ahead to areas that are potentially under-controlled from a reputation risk point of view. And, when inevitably some problems arise, react appropriately. If you don't like the result, ensure there are consequences for those responsible.

"Remember that denial wins no points."

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