Budget 2021: Financial Institutions Update
The 2021 federal budget (the “Budget”) included a number of measures directed to the financial services sector, including measures in respect of credit card interchange fees, the retail payments oversight framework, the federal unclaimed assets regime, a proposed clarifying change to the federal financial consumer protection framework, the announcement of consultations in respect of the criminal rate of interest, and proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “PCMLTFA”), the Canada Deposit Insurance Corporation Act (the “CDIC Act”), the Payment Clearing and Settlement Act (the “PCSA”). Finally the Budget also provided that the sunset date for the federal financial institution statutes be extended to 2025. A number of these measures were previously announced in the 2020 Fall Economic Statement (see our summary here).
Payments Regulation – Lowering Interchange Fees, Implementing the Retail Payments Oversight Framework and Amendments to PCSA
The federal government announced that it will engage with key stakeholders with respect to interchange fees to work towards three objectives: (i) lowering the average overall cost of interchange fees for merchants, (ii) ensuring that small businesses benefit from pricing that is similar to large businesses and (iii) protecting existing rewards points of consumers.
Following these consultations, next steps will be outlined as part of the Fall Economic Statement, including legislative amendments to the Payment Card Networks Act that would provide authority to regulate interchange fees, if necessary.
In addition, the federal government proposes to:
introduce (long anticipated) legislation to implement a new retail payments oversight framework, including working with the provinces to implement a framework that promotes growth, innovation and competition in digital payment services;
clarify the Bank of Canada’s authority to oversee payment exchanges under the PCSA;
amend the PCSA to clarify how investors, creditors and other participants may be compensated as a result of actions taken by financial sector authorities to sell, wind-down or restore to viability a failing financial market infrastructure.
The Budget did not address consumer-directed finance (open banking) nor announce any additional developments in this area.
Anti-Money Laundering Measures – Amendments to PCMLTFA
The federal government proposes to introduce amendments to the PCMLTFA to:
strengthen criminal penalties and the registration framework for money services businesses (“MSBs”);
regulate armoured car services under the PCMLTFA;
enable the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) to recover its compliance costs; and
clarify FINTRAC’s ability to obtain information from reporting entities and to expand the information that it can disclose.
In addition, the federal government proposes to provide an additional $4.6 million over four years and $0.6 million per year thereafter to enable FINTRAC to build its expertise with respect to virtual currency, supervise the armoured car sector and develop and administer a cost recovery scheme for its compliance activities.
The Budget also included funding to Innovation, Science and Economic Development Canada to support the implementation of a publicly accessible corporate beneficial ownership registry by 2025, and funding to Transport Canada to further advance the Known Traveller Digital Identity pilot project, testing digital identity technology in the context of air travel. This funding is noteworthy in the context of discussions relating to a so-called vaccine passport, as well as discussions in provinces of Canada relating to digital identification (e.g. drivers’ licenses, health cards, fishing licenses), consistent with the pan-Canadian Trust Framework.
Criminal Rate of Interest
The federal government proposes to launch a consultation on lowering the criminal rate of interest set out in the Criminal Code applicable to, among others, installment loans offered by payday lenders.
Amendment to the Federal Financial Consumer Protection Framework
The federal government proposes to introduce legislative amendments to clarify that application of the statutory right to cancel a contract with a bank under the Bank Act only applies to individuals and small and medium-sized businesses, and excludes large businesses. This should do away with some of the confusion surrounding the application of the new Framework to businesses other than small and medium-sized businesses.
Amendments to the CDIC Act
The federal government proposes to introduce amendments to the CDIC Act to:
provide the Canada Deposit Insurance Corporation (“CDIC”) with greater flexibility to facilitate a transaction in circumstances where it takes control of a failed member institution;
provide the CDIC with a targeted expansion of its authorities to improve the timeliness and efficiency of the deposit insurance payout process;
clarify the scope of, and support, the cross-border enforceability of the stay provisions applicable to eligible financial contracts; and
clarify how investors, creditors and other participants may be compensated as a result of actions taken by financial sector authorities to sell, wind-down or restore to viability a failing bank.
Expanding and Modernizing the Federal Unclaimed Assets Regime
The federal government proposes to modernize the federal unclaimed assets regime, by increasing the information available and use of electronic communication, and expanding the scope of the regime to include unclaimed balances from terminated federally regulated pension plans and foreign denominated bank accounts.
Extending the Sunset Date of Financial Institutions Statutes
The federal government proposes amendments to the Bank Act, the Insurance Companies Act, and the Trust and Loans Companies Act to extend their respective sunset dates to 2025. The stated purpose of this extension is to enable full consideration of the impacts of the COVID-19 pandemic on the financial sector as part of the next legislative review.