The ongoing modernization of the regulatory framework for Canada’s financial sector continues in 2019 federal budget (Budget) released this week.
What you need to know
The Budget proposes a number of points pertinent to Canada’s financial sector framework, including to:
- modernize corporate governance by addressing a range of issues—from leveraging technology to reduce regulatory burden to promoting diversity on boards—through a new governance framework for federally regulated financial institutions;
- add reinforcement to the government’s latest consumer protection initiatives. A proposed governance council would support the Financial Consumer Agency of Canada (FCAC) in its new mandate;
- consider the merits of open banking for Canada;
- facilitate innovation in payments through a new framework for the oversight of retail payments; and
- reform Canada’s unclaimed balances regime by expanding scope of unclaimed balances framework applicable to federally regulated banks and trust companies.
Updating federal financial sector statutes
The Budget proposes to modernize the corporate governance framework for federally regulated financial institutions to, among other things, align with changes recently passed by Parliament to the Canada Business Corporations Act (CBCA). Examples of proposed changes by the federal government include:
- amendments to promote a more democratic and transparent election process for board members;
- more options for voting prior to and at annual general meetings of members of federal credit unions;1
- amendments to allow institutions to use technology in certain of their communications with owners, thus reducing administrative costs and regulatory burden;2
- new requirements for federally regulated financial institutions to disclose policies aimed at promoting greater diversity on boards and in senior management.
The Budget also proposes technical amendments to the federal financial institution statutes to ensure such legislation remains clear and current.
Introducing a Financial Consumer Agency of Canada Governance Council
Building on the new Bank Act consumer protection provisions passed in December, the Budget proposes the Minister of Finance will appoint a governance council to support FCAC. The Council would guide FCAC in its expanded mandate—which was introduced in 2018 as part of the new consumer protection framework—and promote the confidence of Canadians in the financial consumer protection system.
Reviewing the merits of open banking
In the 2018 federal budget, the Government announced that it would undertake a review of the merits of open banking,3 and appointed an Advisory Committee on Open Banking to assess whether it would deliver positive results for Canadians with highest regard for consumer privacy, data security and financial stability.
A public consultation paper was released in January 2019, and roundtable consultations are underway to learn more about how Canadians feel about open banking. After these consultations are complete, the Committee will deliver a report to the Minister of Finance and subject to its findings, the Government will assess best potential ways to move ahead with open banking.
Supporting an innovative and well-functioning Canadian payments system
Echoing the proposal in the 2018 federal budget, the Government intends to introduce legislation to implement a new framework for the oversight of retail payments, so retail payment services providers can continue to innovate their services, while remaining reliable and safe. The Government also proposes to introduce technical amendments to the Canadian Payments Act (as a result of its 2018 review of the Act) to modernize the governance framework of Payments Canada.
Modernizing the unclaimed assets framework
The Budget proposes to introduce amendments to the Bank Act, the Bank of Canada Act, the Trust and Loan Companies Act and the Pension Benefits Standards Act, 1985 to expand the scope of the existing unclaimed balances framework.4 This expansion would include foreign denominated bank accounts and unclaimed pension balances from terminated federally regulated pension plans.
1 Many provincial credit union statutes permit advanced electronic voting, and such amendments would presumably leverage off these existing regimes.
2 In the Department of Finance’s Second Consultation Paper dated August 11, 2017 as part of its review of the federal financial sector framework, it was noted that the Department of Finance was considering the merits of allowing federally regulated financial institutions to choose to adopt the notice-and-access system adopted under the CBCA. Based on this previous statement, the proposal in Budget 2019 may be alluding to a notice-and-access regime for federally regulated financial institutions similar to the CBCA regime in respect of the mailing of financial statements.
3 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.
4 When certain accounts, deposits or other instruments held by federally regulated banks or trust companies have been inactive for 10 years and the owner cannot be contacted, it is considered an “unclaimed balance.” Once a year, on December 31, unclaimed balances are transferred to the Bank of Canada, which acts as custodian on behalf of the owners.
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