2023 Fall Economic Statement: Financial Services Sector Measures
The 2023 Fall Economic Statement includes a number of federal measures directed to the financial services sector, including measures in respect of (i) consumer-driven banking (open banking); (ii) amendments to the Canadian Payments Act; (iii) measures in respect of Canada’s anti-money laundering and anti-terrorist financing (AML/ATF) regime; (iv) bank fees; (v) low and no-cost bank accounts; (vi) designation of the external complaints body; (vii) measures in respect of the integrity and security of Canada’s financial sector; (viii) amendments to federally-regulated financial institutions (FRFI) statutes; and (vii) crypto-asset matters.
Update on Consumer-Driven Banking (Open Banking)
The federal government announced that legislation will be introduced to establish a consumer-driven banking (open banking) framework in the 2024 federal budget. Federal consultations on open banking originally began in January 2019 and have yielded a number of reports, including a 2021 final report of the Advisory Committee on Open Banking which at the time contemplated a live date of January 2023.
Concurrently with the Fall Economic Statement, the federal government released a policy statement on consumer-driven banking. From a timing perspective, the federal government has set a goal of adopting legislation and fully implementing the necessary governance framework by 2025. The policy statement identifies the following five core elements for the forthcoming consumer-driven banking framework:
- Governance: The framework will establish a government-led entity to supervise and enforce the framework. Provincial entities will be allowed to "opt-in" to the governance, supervision and participation in the framework.
- Scope: This refers to (i) what entities can participate; (ii) the breadth of data that must be shared among them; and (iii) functionality, such as read or write access. In the initial phase, the federal government will mandate participation in the framework for FRFIs meeting specified retail volume thresholds, while providing other FRFIs, credit unions and accredited third parties the ability to opt-in to the framework. All participating entities will be equally subject to customer-permissioned data sharing requests. Once authorized by a customer, in-scope data would be shared unaltered and free of charge.
- Accreditation: Canada's framework for financial data sharing will include a formal accreditation framework, overseen by an accrediting body which evaluates applications against the framework’s criteria and publishes a list of accredited entities in a central registry. Federally regulated banks and credit unions, as well as provincially-regulated credit unions will be exempt from accreditation as they are subject to prudential and other forms of regulation. In the initial phase, the federal government does not propose having different accreditation requirements for entities, based on the levels of data they are permitted to access, but indicates that this may be considered at a later stage.
- Common rules: The framework will implement common rules addressing privacy, security and liability obligations, which will be applicable to both accredited and mandated entities.
- Privacy: In addition to complying with applicable privacy laws, entities will also be required to comply with additional privacy rules that will be enacted that are specific to financial data sharing, particularly around consumer consent to access, including the need for participants to reconfirm consumer consent at specified intervals or following certain events and to provide consent dashboards to provide consumers with real time knowledge of who has access to their data.
- Security: The framework will require entities to demonstrate they can protect accessed consumer data, are able to satisfy minimum security requirements as part of the accreditation process, and are able to fulfill ongoing reporting obligations. FRFIs and credit unions will be exempt from these security requirements, since they have mature risk management regimes and are already subject to prudential regulation.
- Liability: The framework will set out a liability structure that establishes a statutory contractual relationship between participants. Under this structure, when a consumer initiates a data transfer, the entity providing the data ceases to be liable to the consumer for how the data is managed or protected once the data leaves such entity. The framework will also require entities to implement internal policies and procedures for consumer complaint handling and the provision of redress.
- Technical standards: Canada will be adopting a single technical standard for customer-permissioned financial data sharing. This single technical standard would replace less secure methods like screen scraping with secure APIs that enables products and services to communicate with each other, decreasing the risk of personal data being compromised. The single technical standard to be adopted will be finally announced by the federal government once it wraps up its ongoing engagement with industry and international partners.
Amendments to Canadian Payments Act
The federal government announced plans to amend the Canadian Payments Act to expand membership eligibility in Payments Canada to: (a) payment service providers (PSPs) supervised by the Bank of Canada under the Retail Payment Activities Act, (b) credit union locals that are members of a credit union central, and (c) operators of designated clearing houses.
The Canadian Payments Act amendments will also clarify the composition of the Stakeholder Advisory Council and provide for a 4 year statutory review period.
The Fall Economic Statement announces new measures from the federal government to address financial crimes which threaten the safety and integrity of Canada’s financial system.
The federal government proposes to introduce legislative measures strengthening Canada’s AML/ATF regime through changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) to the following effect:
- Combat sanctions evasion by permitting the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to use its expertise to develop intelligence products, and, where appropriate, disclose its findings to law enforcement partners to support law enforcement and Canada’s sanction-based asset seizure and forfeiture regime;
- Address fraud and money laundering risks in the real estate sector by extending requirements under the PCMLTFA to title insurers and by requiring real estate representatives to identify unrepresented parties and third parties in real estate transactions;
- Broaden the PCMLTFA framework to apply to intermediary companies, known as “acquirers,” offering cash withdrawal services for white-label automated teller machines;
- Combat environmental crime by enabling FINTRAC to share financial intelligence with enforcement officers at Environment and Climate Change Canada and the Department of Fisheries and Oceans;
- Improve FINTRAC’s strategic intelligence products by allowing it to list names of foreign entities that present AML/ATF risks; and,
- Make technical amendments to the PCMLTFA to address inconsistencies and close loopholes.
The federal government also proposed the following changes to the Criminal Code to increase the operational effectiveness of the AML/ATF Regime:
- Address challenges with prosecuting third-party money launderers by amending the money laundering offence;
- Respond to the rapidly evolving nature of financial crime by adapting the production order for financial data so that it more effectively applies to accounts associated with digital assets; and,
- Modernize provisions related to the search, seizure, and restraint of proceeds of crime.
Lastly, the federal government proposes to enhance the authorities of the Canada Border Services Agency (CBSA), including the creation of a Trade Transparency Unit within the CBSA to detect, deter, and disrupt trade-based financial crime.
The federal government announced that it would provide an update in the 2024 federal budget on plans to reduce non-sufficient fees (NSF) charged by banks. This effort, originally referenced in the 2023 budget, will be supported by the Office of Consumer Affairs, which will be assisting with independent research on the issue.
Low and No-Cost Banks Accounts
The federal government has directed the Financial Consumer Agency of Canada (FCAC) to work with banks to expand low- and no-cost accounts and services to more Canadians by making these accounts and services available at more banks and expanding eligibility to include a broader range of Canadians. The FCAC will also work with banks on enhancing the features available of such accounts, such as by providing additional debit transactions, online bill payments, and e-transfers with no extra fees.
An update on these initiatives will be provided in the coming months.
Designation of External Complaints Body
The federal government has designated the Ombudsman for Banking Services and Investments (OBSI) as the sole external complaints body for the Canada's banking sector. It will hold jurisdiction to address complaints at all Canadian banks starting November 1, 2024.
Measures in Respect of the Integrity and Security of the Financial Sector
The Fall Economic Statement provided important updates to the measures announced in Budget 2023 which address emerging risks to Canada’s financial sector, including threats from foreign interference. The updates include:
- A national security review process of payment service providers is currently being developed by the Department of Finance with security and intelligence partners, slated for 2024 under the Retail Payment Activities Act.
- The Office of the Superintendent of Financial Institutions (OSFI) is currently consulting the public on its draft Integrity and Security guideline (refer to our analysis on the draft guideline here for further insights and details), with the final guideline slated to be issued in January 2024.
- The federal government is currently seeking feedback on federal financial sector legislation, including on technological and geopolitical changes which are affecting the financial sector, and whether changes are required to protect Canadians, national security, and the safety and integrity of Canada’s financial sector. The consultation period ends on December 4, 2023. (refer to our analysis on the financial sector legislative review consultations here for further insights and details)
Other Amendments to FRFI Statutes
The federal government plans to amend the FRFI statutes to clarify the scope of permitted non-financial activities and to permit virtual meetings.
The Fall Economic Statement did not provide a specific update on the financial sector legislative review targeting the digitalization of money previously announced as part of the 2022 Budget.
However, the Fall Economic Statement did announce that the federal government has been advancing initiatives announced in Budget 2023 to require disclosures of crypto-asset exposures from federally regulated pension plans, including targeted consultations with stakeholders to understand the development and implications of digital assets. Considering that the majority of Canada's major pension plans fall under provincial regulation, the federal government is actively engaging provinces in the ongoing initiatives. This includes encouraging provinces to mandate the disclosure of crypto-asset risk for provincially regulated pension plans.
The Fall Economic Statement also announced that OSFI will launch consultations with FRFIs on the implementation of public disclosure of crypto-asset exposures in November (which have now been launched; more information available here). This initiative aligns with international efforts led by the Basel Committee on Banking Supervision and the Financial Stability Board.
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