On February 27, Parliament tabled the federal budget (Budget 2018),1 which included measures aimed to strengthen stability in the financial sector, support innovation and competition in the financial sector and bolster consumer protection.2
What You Need To Know
Budget 2018 proposes a number of points pertinent to financial institutions, including to:
- introduce legislative amendments to implement targeted proposals from the most recent review of the Financial Sector Framework.3 The most significant change would provide greater flexibility for financial institutions to undertake and leverage broader fintech activities, although the extent of these changes will not be known until the relevant Budget Implementation Act is tabled;
- undertake a review of the merits of open banking;
- introduce legislation that would strengthen the Financial Consumer Agency of Canada's tools and mandate and continue to advance consumers' rights and interests when dealing with their banks;
- introduce legislative amendments to the Canada Deposit Insurance Corporation Act to modernize and enhance the Canadian deposit insurance framework;
- introduce legislative amendments to implement a new framework for the oversight of retail payments following the conclusion of consultations with stakeholders; and
- introduce legislative amendments to implement a resolution framework for Canada's systemically important financial market infrastructures.
Modernizing the Financial Sector Framework
In 2016, the Government announced consultations with stakeholders as part of a financial sector legislative review. Budget 2018 proposes to introduce legislative amendments to implement targeted proposals from that review, which most notably would include greater flexibility for financial institutions to undertake and leverage broader financial technology activities that enable the delivery of financial services in new and innovative ways. This could represent one of the most significant changes to the federal financial institution statutes since 2001, although it is not yet clear how broad the proposed amendments will be. We will provide a further update once the relevant Budget Implementation Act has been tabled. Additional legislative amendments will be proposed to:
- permit life and health insurance companies to make long-term and predictable investments in infrastructure;
- provide prudentially regulated deposit-taking institutions, such as credit unions, flexibility to use generic bank terms, subject to disclosure;
- renew the sunset date in the federal financial institutions statutes;
- modernize financial institutions’ corporate governance; and
- provide for the continued clarity and prudential integrity of federal financial sector legislation, including targeted updates to streamline the federal framework.
Review of Open Banking
Open banking is about empowering consumers to share their financial data between their financial institution and other third party providers through secure data sharing platforms, which enables financial service providers to offer more tailored products and services on a more competitive and innovative basis. Open banking may also provide consumers with greater transparency on the products and services offered by financial institutions, allowing them to make more informed decisions. Recognizing these potential benefits, and the fact that a number of international jurisdictions are implementing open banking platforms, the Government is proposing to undertake a review of the merits of open banking to assess whether it would deliver positive results for Canadians with highest regard for consumer privacy, data security and financial stability.
Enhancing Consumer Protection in Banking
The Government has undertaken a comprehensive review of the consumer protection framework over the last year. Budget 2018 proposes to introduce legislation that would strengthen the Financial Consumer Agency of Canada's tools and mandate and continue to advance consumers' rights and interests when dealing with their banks. New legislation will be developed through targeted consultations with stakeholders, including provinces and territories.
Modernizing the Deposit Insurance Framework
As a follow up to public consultations which were held in 2016, Budget 2018 proposes to introduce legislative amendments to the Canada Deposit Insurance Corporation Act to modernize and enhance the Canadian deposit insurance framework. The changes would expand the scope of deposit insurance coverage to reflect products currently offered, address the complexity of trust deposits and improve understanding of insurance coverage.
Supporting an Innovative Retail Payments System
The Government intends to introduce legislative amendments to implement a new framework for the oversight of retail payments following the conclusion of consultations with stakeholders. The framework would strengthen the reliability of the payment system for consumers when they purchase goods and services or transfer money, and foster innovation in the payments sector. The Government also proposes to launch a review of the Canadian Payments Act in the coming months (through consultations with stakeholders, including provinces and territories) to ensure that Payments Canada continues to fulfill its public policy objectives of ensuring the efficiency, safety and soundness of its systems.
Financial Market Infrastructure Resolution
Financial Market Infrastructures (FMIs) facilitate the clearing, settling or recording of payments, securities, derivatives and other financial transactions among participating institutions and financial brokers. Under the Payment Clearing and Settlement Act, FMIs that are considered to have the potential to pose systemic or payments system risk can be designated as systemically important. Budget 2018 proposes to introduce legislative amendments to implement a resolution framework for Canada's systemically important FMIs, the objectives of which would be to maintain the critical services of the FMI and reduce potential public exposure to loss.
Maintaining a Robust Currency Regime
The Government proposes to introduce legislative amendments to facilitate the maintenance of high-quality bank notes in the money supply and to provide greater clarity on the bank notes that can be used as legal tender.
2 Co-author Eli Monas returned to the firm on March 5, 2018 after a 6-month secondment to the Legislation and Approvals Division at the Office of the Superintendent of Financial Institutions.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
For permission to republish this or any other publication, contact Janelle Weed.
© 2019 by Torys LLP.
All rights reserved.