The 2024 federal budget (the “Budget”) includes a number of measures directed to the financial services sector, including: (i) developments in respect of a Consumer-Driven Banking Framework, which will be overseen by the Financial Consumer Agency of Canada (“FCAC”), (ii) a number of measures in respect of affordability of financial services, including limits on non-sufficient fees (“NSF Fees”) charged by banks and additional consumer protection measures in respect of high-interest lending and criminal rate of interest enforcement, (iii) updates to financial crime legislation (iv) tax measures in respect of crypto-asset transactions, (v) proposed deposit insurance consultations and (v) a number of proposed amendments to the Bank Act, the Insurance Companies Act, and the Trust and Loans Companies Act (the “Financial Institutions Statutes”).

1. Consumer-Driven Banking (Open Banking)

The Budget, along with the companion document - Budget 2024: Canada’s Consumer-Driven Banking Framework, sets out the federal government’s plans to legislate a framework for consumer-driven banking (also known as open banking) in Canada in the coming months.

As summarized in the Budget, the objective of open banking is to provide a mechanism for individuals and businesses to securely transfer their financial data between various service providers, including banks, credit unions and Fintechs. While there have been numerous efforts made by the government to advance open banking in Canada over the past number of years, this Budget signals a reinvigorated push by the federal government to legislate an open banking regime.

Key takeaways on the federal government’s plan for consumer-driven banking/ open banking from the budget include the following:

• Spring 2024 – Legislation Part 1: The federal government intends to introduce the first of two pieces of legislation to implement the open banking framework in spring 2024. This initial legislation will cover key elements such as governance (oversight and management of the framework), scope (types of data, functionalities the system will provide, participants, etc.) and the criteria and process for the technical standard that will be adopted.
• Fall 2024 – Legislation Part 2: The remaining elements of the framework will be legislated in fall 2024, which will include accreditation (requirements and process for participating in the open banking regime) and common rules governing privacy/liability/security/etc.
• FCAC Oversight and Administration: The FCAC will be tasked with the oversight and administration of the open banking framework, including evaluating accreditation applications from participants, publishing a registry of participants and overseeing reporting and other compliance obligations of participants. The Budget includes funding for the FCAC to support preparation for the new responsibilities, although it is noted that the intention is that FCAC oversight will operate on a cost recovery model once the framework is operating.

2. Measures in Respect of Affordability of Financial Services

Limits on NSF Fees

The federal government announced its intent to cap non-sufficient fees (“NSFFees”) charged by banks to $10 per instance and to release NSF fee regulations in the coming months. These regulations will also (i) require banks to alert consumers that they are about to be charged an NSF fee; (ii) require banks to provide a grace period to deposit additional funds to avoid the NSF fee; (iii) prohibit multiple NSF fees when the same transaction reoccurs; (iv) restrict the number of NSF fees that may be charged to one in every 72-hour period; and (v) prohibit NSF fees for small overdrawn amounts under $10.

Enhancements to No Fee and Low-Cost Bank Accounts

The Budget states that the FCAC is in negotiations with banks to secure enhanced agreements to offer modernized no fee bank accounts with expanded eligibility as well as modernized low-fee ($4 per month) bank accounts.

Criminal Rate of Interest Developments

Following up on recent changes to the criminal rate of interest in the Criminal Code, the federal government announced that it now proposes to amend s. 347 of the Criminal Code to add a prohibition against offering or advertising credit at a criminal rate of interest, and to remove the requirement in s. 347(7) to obtain Attorney General consent to commence proceedings, in order to facilitate additional enforcement of the criminal rate of interest provisions.

Consumer Protection Measures in Respect of Consumer Lending

The federal government announced that it intends to work with provincial and territorial governments to enhance consumer protection measures in respect of consumer lending, focusing in particular on high-cost loans and payday loans, including, if necessary, by enacting federal legislative measures. Additional consumer protections being sought include:

• capping the cost of optional insurance products for high-cost loans and payday loans;
• additional disclosure requirements and regulation of marketing and other market practices in respect of high-cost and payday loans;
• increasing regulation and enforcement in respect of lead generators; and
• improving monitoring and data collection practices in the high-cost loan and payday loan market.

Amendments to the Canada Mortgage Charter

The federal government announced that it is intending to update the Canadian Mortgage Charter “to provide further support to Canadians facing mortgage hardship”, including

• permitting consumers to use their rent payment history for mortgage applications and to improve their credit score;
• expanding mortgage amortization to 30 years for first-time home buyers purchasing new builds; and,
• requiring lenders to proactively contact borrowers and to provide more information in certain cases, such as at mortgage renewal.

More generally, the federal government announced that it “was calling on banks, [F]intechs, and credit bureaus to prioritize launching tools to allow renters to opt-in to reporting their rent payment history to credit bureaus […] to strengthen their credit scores”.

Expanding Access to Alternative Mortgage Financing Products, including Halal Mortgages

The federal government announced that it is looking at additional measures to “expand access to alternative financing products, like halal mortgages. This could include changes in the tax treatment of these products or a new regulatory sandbox for financial service providers, while ensuring adequate consumer protections are in place.” It also announced that consultations are in process and an update will be provided in the 2024 Fall Economic Statement.

Mortgage Income Verification Tool

The federal government announced that it intends to consult with the mortgage industry on making available a tool through the Canada Revenue Agency to verify borrower income for mortgages.

3. Financial Crime Developments

The Budget states that the federal government intends to amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) to, among other things:

• enhance information sharing between reporting entities in respect of money laundering, terrorist financing, and sanctions evasion, while maintaining privacy protections for personal information. This would include an oversight role for the Office of the Privacy Commissioner;
• permit the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) to disclose financial intelligence to provincial and territorial civil forfeiture offices and, Immigration, Refugees and Citizenship Canada;
• expand the scope of the PCMLTFA to cover factoring companies, cheque cashing businesses, and leasing and finance companies; and
• allow FINTRAC to publicize more information around violations of obligations under the PCMLTFA when issuing administrative monetary penalties.

In addition, the federal government intends to amend the Criminal Code to:

• allow courts to issue an order to require a financial institution to keep an account open to assist in the investigation of a suspected criminal offence; and,
• allow courts to issue a repeating production order to authorize law enforcement to obtain ongoing, specified information on activity in an account or multiple accounts connected to a person of interest in a criminal investigation.

The federal government also announced additional financial crime related funding:

• for FINTRAC “to enhance its cyber resiliency and ensure the implementation of additional data security safeguards over the long-term“;
• to help finalize the design and legal framework of the Canada Financial Crimes Agency (“CFCA”) in 2024-2025. Once formed, the CFCA will be the new lead enforcement agency against financial crime; and
• for the Canada Border Services to help combat trade-based financial crime, including to assist with the creation of its Trade Transparency Unit.

4. Crypto-Asset Taxation Updates

Crypto-Asset Reporting Framework

Further to the joint statement released by Canada and other participating jurisdictions in November of 2023, Budget 2024 proposes to implement the framework of the Organisation for Economic Co-Operation and Development (OECD) for the automatic exchange of tax information relating to crypto-asset transactions, referred to as the Crypto-Asset Reporting Framework (“CARF”), in Canada.

The proposed framework will require certain crypto-asset service providers that are resident or carry on business in Canada and provide services in respect of crypto-asset exchange transactions to collect and report information on an annual basis in respect of their customers and crypto-assets. Crypto-asset service providers subject to these reporting rules will include crypto-exchanges, crypto-asset brokers and dealers, and operators of crypto-asset automated teller machines.

Information required to be reported in respect of crypto-assets will include the annual value of:

• exchanges between crypto-assets and fiat currencies;
• exchanges of crypto-assets for other crypto-assets; and
• transfers of crypto-assets (including certain transfers in respect of which the crypto-asset service provider acts as a payment processor for a merchant, where crypto-assets are exchanged for goods or services from the merchant with a value in excess of US$50,000).

Reportable crypto-assets will exclude central bank digital currencies and certain specified electronic money products (e.g., in respect of fiat currencies), which will instead be subject to the Common Reporting Standard (“CRS”).

Information required to be collected and reported in respect of customers (including Canadian and non-Canadian residents) will include each customer's name, address, date of birth, jurisdiction of residence and taxpayer identification number. This information will also need to be provided in respect of the individuals who control customers that are corporations or other entities.

Common Reporting Standard

Budget 2024 will also introduce certain related changes to CRS, including to expand the scope of CRS to central bank digital currencies and certain specified electronic money products. The Government indicates that there will also be amendments to “ensure effective coordination between the CRS and the CARF and limit instances of duplicative reporting between the two frameworks” as well as to “require that additional information be reported in respect of financial accounts and account holders”. For example, based on the OECD’s commentary, it is reasonable to expect that the definition of “investment entity” in subsection 270(1) of the Income Tax Act will be amended to include crypto-assets within the categories of investments that would bring an entity within the scope of the CRS. As a further example, a new category of “non-reporting financial institutions”, defined in subsection 270(1), may be created to ensure that registered charities do not have an obligation to report under the CRS.

5. Deposit Insurance Framework Review

The federal government announced its intention to undertake a review of the federal deposit insurance framework, starting in 2024, including consultations later in 2024.

6. Amendments to Financial Institutions Statutes

Diversity Disclosure

The federal government announced that it plans to amend the Financial Institutions Statutes to adopt similar diversity model disclosure requirements in respect of boards and senior management as those under the Canada Business Corporations Act.

Notice-and-Access/ Electronic Delivery of Governance Materials

The federal government announced that it plans to amend the Financial Institutions Statutes to introduce a “notice-and-access” method of delivery of governance documents.

Extending the Sunset Date of Financial Institutions Statutes

The federal government proposes amendments to the Financial Institutions Statutes to extend their respective sunset dates from June 30, 2025 to June 30, 2026.