Budget 2018: Financial Institutions Update

The 2018 federal budget (the “Budget”) announced a number of measures directed to the financial services sector, including plans to modernize the deposit insurance framework, to implement a resolution framework for Canada’s systemically important financial market infrastructures (“FMIs”), to undertake a review of open banking, to introduce legislative amendments to implement a new framework for the oversight of retail payments and a review of the Canadian Payments Act, to modernize the financial sector framework and to introduce legislation broadening the powers of the Financial Consumer Agency of Canada (“FCAC”).

Deposit Insurance Review

Consistent with last year’s budget, the Government announced plans to introduce amendments to the relevant legislation to update and modernize the deposit insurance framework in Canada, including by modernizing the scope of deposit insurance coverage to better reflect products currently offered, to address trust deposits, and generally to better protect depositors and support financial stability.

Oversight of Financial Market Infrastructures

Again, consistent with last year’s budget, the Government announced that it intended to introduce legislative amendments to implement a resolution framework for Canada’s systemically important FMIs, with the goals of maintaining the availability of critical services provided by FMIs, promoting financial stability and minimizing potential public exposure to losses. Examples of candidates for potential inclusion in the resolution framework include CLS Bank, Swap Clear and the Large Value Transfer System (LVTS).

Open Banking

“Open Banking” refers to an emerging financial services business model that focuses on the portability and open availability of customer data, including transactional information.  The open banking model has been mandated in the European Union and the United Kingdom, and is being reviewed in Australia. The Canadian Government first noted the potential benefits of reviewing the merits of “open banking” in Canada in the second consultation paper respecting the review of the federal financial sector framework which was released in August 2017.  More recently, the Competition Bureau has expressed support for open banking in its final report on its market study into technology-led innovation in the Canadian Fintech sector.

The Budget confirms that the Government proposes to undertake a formal review of the merits of open banking in Canada.

Payments Reform

The Government confirmed that it intends to introduce legislative amendments to implement a new framework for the oversight of retail payments following the recent consultation process triggered by the consultation paper “A New Retail Payments Oversight Framework”  issued last July.

In addition, the Government announced its intent to undertake a review of the Canadian Payments Act to ensure that Payments Canada is well positioned to continue to meet its public policy objectives.  The Government noted these consultation processes will include consultation with the provinces and territories.

Financial Sector Framework Review

In connection with the current 2019 Bank Act review, the Budget announces intentions to introduce legislative amendments to implement targeted proposals resulting from the recent review of the federal financial sector framework, including amendments providing greater flexibility for financial institutions to undertake Fintech activities (expanding the business of banking), providing prudentially regulated deposit-taking institutions (such as credit unions) with the right to use generic banking terms (“bank”, “banking”), and permitting life and health insurance companies to make long term investments in infrastructure.

Consumer Protection

The Budget notes that the Government has undertaken over the last year a comprehensive review of the federal consumer protection framework, and proposes to introduce legislation expanding the FCAC’s tools and mandates, to be implemented through legislation to be developed in consultation with relevant stakeholders, including the provinces and territories.

Anti-Money Laundering

The Budget proposes to introduce amendments to income tax reporting requirements to provide additional beneficial ownership information for trusts and to amend the Canada Business Corporations Act to increase the availability of beneficial ownership information for corporations.

In addition, the Budget announces intentions to propose amendments to modernize legislation requiring the declaration of currency and monetary instruments.

Conclusion

As the Government takes steps to implement the various initiatives outlined in this Budget, financial institutions can expect a number of important regulatory and legislative changes to follow in the near future.

For a discussion of the tax measures in the Budget, please see McCarthy Tétrault’s Budget 2018 Commentary.

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