Budget 2021’s impact on the Canadian financial sector

On April 19, Parliament tabled the federal budget (Budget 2021), which included a number of measures to be introduced affecting financial institutions.

What you need to know

Budget 2021 contains a number of proposals pertinent to financial institutions, including to:

• modernize the unclaimed assets regime;
• clarify that the right to cancel certain contracts with a bank under the proposed bank consumer protection framework does not apply in respect of large businesses;
• implement a new retail payments oversight framework;
• engage in a consultation with stakeholders regarding credit card fees, pricing and rewards;
• extend the sunset date in the federal financial institution statutes to 2025; and
• introduce legislative amendments to provide CDIC with greater flexibility to facilitate a transaction where it takes control of a failed member institution.

Unclaimed assets regime

The government proposes to amend the Bank of Canada Act, the Bank Act, the Trust and Loans Companies Act and the Pension Benefits Standards Act, 1985 to modernize the federal unclaimed assets regime by increasing the information available and the use of electronic communication to match Canadians with their unclaimed assets, and expanding the scope of the regime to include unclaimed balances from terminated federally regulated pension plans and foreign denominated bank accounts.

Clarifying the bank consumer protection framework

In December 2018, amendments to the Bank Act introducing a new consumer protection framework received Royal Assent. The framework granted all bank customers, including large businesses, a limited right to cancel certain contracts with a bank. The framework added a limited right of all bank customers, including large businesses, to cancel certain contracts with a bank. In Budget 2021, the government reiterated a proposal first announced in the 2020 Fall Economic Statement to amend the framework to clarify that the statutory cancellation right only applies to retail consumers (which are individuals and small and medium-sized businesses) and excludes large businesses.

Retail payments oversight framework

The government is proposing to introduce legislation to implement a new retail payments oversight framework (RPOF) to continue to promote growth and innovation in digital payment services, such as digital wallets, while ensuring that these payments services are safer and more secure.

The RPOF was initially announced by the government in 2019 in response to the rapid pace of innovation in the retail payments space. It will require non-financial institution payment service providers (PSPs) to establish sound operational risk management practices and protect users’ funds against losses. The RPOF will include a public registry of regulated PSPs maintained by the Bank of Canada to ensure their compliance with operational and financial requirements.

By ensuring that all competitors face comparable regulatory oversight, and checks and balances for the functions they perform, the intention is to create an enhanced level of trust amongst incumbent financial institutions and PSPs.

Credit card acceptance fees

The government will engage with key stakeholders to work towards three objectives:

• Lower the average overall cost of interchange fees for merchants
• Ensure that small businesses benefit from pricing that is similar to large businesses
• Protect existing rewards points of consumers

Following consultations with stakeholders detailed next steps will be outlined as part of the 2021 Fall Economic Statement including legislative amendments to the Payment Card Networks Act that would provide authority to regulate interchange fees if necessary.

2023 sunset date of financial institutions statutes

The government is proposing to extend the sunset dates in the Bank Act, the Insurance Companies Act, and the Trust and Loans Companies Act by two years (to 2025) to enable full consideration of the impacts of the pandemic on the financial sector as part of the next legislative review. This extension makes sense because the statutory amendments for the last financial sector review received Royal Assent on June 21, 2018, but most of the amendments have not been proclaimed in force (as supporting regulations have not yet been publicly released for comment).

Financial Institution Restructuring Powers (FIRP) extension

The government proposes to amend the Canada Deposit Insurance Corporation Act to provide the Canada Deposit Insurance Corporation with greater flexibility to facilitate a transaction in circumstances where it takes control of a failed member institution.