Budget 2026: Financial institutions update

The 2026 federal budget (the “Budget”) proposes a number of initiatives impacting the financial services sector, including (i) initiatives to promote competition and facilitate entry and growth; (ii) amendments to prudential regulation of federally regulated financial institutions (“FRFIs”); (iii) deposit insurance reforms; (iv) payments modernization, including the incoming stablecoin regime; (v) financial consumer protection; (vi) anti-fraud, anti-money laundering/anti-terrorist financing (“AML/ATF”) and other financial crime initiatives; and (vii) other financial sector legislative and regulatory changes.

Overall, the Budget aims to advance a competitive and modern financial sector, while ensuring that consumer protection and the system’s resilience to fraud and financial crime keep pace.

Prudential measures to enhance competition of federally regulated financial institutions

• OSFI’s mandate. The government intends to amend the Office of the Superintendent of Financial Institutions Act (“OSFI Act”) to introduce a secondary “competition” objective for the Office of the Superintendent of Financial Institutions (“OSFI”) to ensure that competition considerations are more explicitly considered in OSFI’s approach to regulation and supervision of FRFIs, such as proportionality, compliance burden, and market impacts.
• New entrants and exit options. Proposed amendments to the Bank Act, Trust and Loan Companies Act and Insurance Companies Act would establish a maximum statutory one-year timeline for decisions on applications by prospective entrants, as well as exempt new entrants from self-dealing requirements that constrain how they are permitted to organize and establish their businesses while awaiting final entry approvals. The Minister of Finance also intends to issue a policy statement on the use of ministerial tools to support entry, including credit union continuance, and a more proportionate, competition-supportive framework. Amendments to the Bank Act and Trust and Loan Companies Act are also proposed to expand voluntary exit options for deposit-taking institutions, including greater flexibility to transfer assets and liabilities, while retaining depositor safeguards and oversight over significant transfers.
• Flexibility on ownership structure for mid-sized challenger banks. The government proposes to raise the equity threshold at which banks must become widely held from $12 billion to $25 billion. Certain foreign bank subsidiaries with less than $8 billion in equity would be exempt from the 35% public holding requirement where their foreign parent is widely held and listed on a recognized foreign stock exchange.
• Flexibility on shareholder participation and control of federal credit unions. Bank Act amendments are also proposed to provide greater flexibility for qualifying cooperative shareholders to invest in and control federal credit unions, subject to ministerial approval, potentially allowing credit unions more opportunity to expand their client reach.

Other proposed prudential measures impacting FRFIs

• Prudential modernization. The Budget also describes certain OSFI initiatives that are already underway to make Canada’s regulatory framework “more transparent, proportionate and responsive, while maintaining resilience”, including adapting capital and prudential frameworks for small- and medium-sized deposit-taking institutions and making targeted capital adjustments across FRFIs to support sustainable economic growth. It also notes that OSFI has lowered the Domestic Stability Buffer, which is additional capital required to be held by Canada’s largest banks; this reduction aims at enabling such capital to be deployed in the Canadian economy.
• National security review of bank investments. The government proposes to amend the Bank Act to allow the Minister of Finance to order divestiture of investments in Canadian businesses by banks, bank holding companies, and foreign banks and their affiliates, where required to address national security risks.
• Changes to OSFI Act administrative monetary penalty regime. The government also proposes to amend the OSFI Act to strengthen OSFI’s administrative monetary penalties regime, including increasing maximum penalties and establishing a statutory basis for OSFI’s actuarial services including cost recovery arrangements.

Deposit insurance modernization  

• The government proposes to modernize the Canada Deposit Insurance Corporation Act, including to (i) increase the deposit insurance limit to $250,000, (ii) provide temporary high-balance coverage for certain life events, such as selling a home, and (iii) remove the limit for eligible deposits in registered and tax-free accounts. In addition, the Budget proposes legislating a review of the deposit insurance framework every 10 years, ensuring data access for the Canada Deposit Insurance Corporation (“CDIC”) to support evidence-based policy development, and a requirement that provincial trust and loan companies seeking CDIC membership must continue as federal trust and loan companies.

Payments modernization

• Real-Time Rail launch. The Budget identifies November 9, 2026 as the scheduled launch date for Payments Canada’s Real-Time Rail, which is intended to enable instant, data-rich payments with immediate access to funds.
• Canadian Payments Act review. The government intends to launch a public consultation in early 2027 on future payments priorities and the statutory review of the Canadian Payments Act.
• RPAA amendments and harmonized consumer protection rules. The government would work with provinces and territories to develop harmonized consumer protection requirements for payment service providers (“PSPs”) regulated under the Retail Payment Activities Act (“RPAA”). The government also proposes targeted amendments to the RPAA to support the Bank of Canada’s supervision of PSPs and administration of the legislation.
• Stablecoin framework. The Budget proposes amendments to the Bank Act, Trust and Loan Companies Act and Insurance Companies Act to prohibit FRFIs from issuing stablecoins directly. Instead, issuance would be required to occur through non-financial institution subsidiaries of such FRFIs regulated under the Stablecoin Act.
  
  The government also proposes amending the Stablecoin Act to extend to foreign financial institutions not prudentially regulated in Canada and to clarify that stablecoin issuance does not constitute engaging in the business of accepting deposits for foreign banks and their affiliated entities regulated under Part XII of the Bank Act.
  
  The government also proposes to conduct further stakeholder engagement to consider stronger consumer protections in the event of a stablecoin issuer’s or custodian’s insolvency.
• Digital identity pilot. The Canadian Digital Service, in collaboration with the Department of Finance Canada, intends to develop a pilot project for voluntary digital credentials in financial services to support innovation and help combat identity fraud.

Financial consumer protection

• New cap on liability for consumer fraud. The government intends to amend the Bank Act to cap maximum consumer liability at $0 for any form of transaction across all account types resulting from unauthorized access to a consumer’s bank account, in the absence of gross negligence on the part of the consumer.
• Modernization of financial consumer protection framework. The federal Financial Consumer Protection Framework will be modernized through amendments to the Bank Act and the Financial Consumer Agency of Canada Act (the “FCAC Act”) that would (i) better reflect the Financial Consumer Agency of Canada’s (“FCAC”) role in handling complaints, (ii) confirm consumers’ entitlement to redress where interest is unpaid or incorrectly credited and (iii) streamline approval requirements for information-sharing agreements.
• Additional disclosure of bank fees. Following the $10 cap on non-sufficient funds fees that came into force in March 2026, regulations are planned to be developed requiring banks to give consumers a single, clear annual statement of fees paid on their chequing and savings accounts. This annual statement would consolidate account costs to help consumers compare products.
• Application of credit card payments. Consultation is being planned on legislative amendments requiring credit card payments above the minimum payment to be applied first to balances carrying the highest interest rate.
• Branch closures.  Proposed Bank Act amendments would require banks to (i) publish branch closure notices online and (ii) waive fees for closing or transferring affected accounts during the prescribed period.
• Remote account opening. Further amendments to the Bank Act would establish processes to authenticate government-issued personal identification when opening accounts remotely, consistent with existing in-person requirements.
• Economic abuse. Work is underway to establish the terms of the Code of Conduct for the Prevention of Economic Abuse first announced in Budget 2025. The proposed code would outline expectations for banks to prevent abuse, recognize warning signs, respond to concerns and support affected customers. It would include employee training, internal safeguards, escalation processes, public reporting and FCAC oversight.
• FCAC enforcement.  An amendment to the FCAC Act would clarify that the current maximum administrative monetary penalty applies where conduct began before the present maximum came into force but continued afterward.
• Payday lending. Proposed amendments to the payday lending exemption in the criminal rate of interest provisions of the Criminal Code would require a minimum repayment term of 42 days and repayment in instalments, and prohibit credit insurance charges on payday loans.

Financial crime measures

• National Anti-Fraud Strategy. The government intends to introduce legislation to create a Multi-Sector Anti-Fraud Framework (the “Framework”) covering financial institutions, telecommunications providers and digital platforms, following consultations on a national anti-fraud strategy earlier this year. The government intends to consult on draft Framework legislation and amendments to sector-specific legislation in 2027, with the intent to introduce final legislation before the end of 2027.
  
  Organizations would be required to prevent, detect, disrupt and respond to fraud, and to cooperate across sectors to resolve fraud-related complaints. In addition, the government intends to introduce amendments to sector-specific legislation to support the Framework, including the proposed amendments to the Bank Act capping consumer liability discussed above.
  
  The Department of Finance Canada published a policy statement (the “Policy Statement”) on next steps with respect to the Framework concurrently with the Budget.  The Policy Statement states that the policy objectives of the national anti-fraud strategy are to “(i) reduce the prevalence and impact of fraud in Canada; (ii) strengthen public confidence in key institutions; (iii) improve clarity for industry on their responsibilities; and, (iv) protect consumers when fraud does occur.”
• FRFI AML/ATF supervisory responsibility shifting from FINTRAC to OSFI. The government proposes to transfer responsibility for AML/ATF supervision of FRFIs from the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) to OSFI. This would be implemented through amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”), the OSFI Act and related legislation and regulations.
• Financial Crimes Agency, money services businesses, crypto ATMs and cash. The Budget reaffirms ongoing efforts to combat financial crime. The Financial Crimes Agency, which will be Canada’s new lead enforcement agency on the issue, is still being set up. Reforms from Bill C-2 that were not carried into Bill C-12 now appear in Bill S-8, which would address cash-based money laundering, ban unlawful crypto ATMs and protect money services businesses (“MSBs”) from illicit activity. For more on these bills, see Bill C-2: Canada’s Crusade to Reform AML and Enhance FINTRAC Powers and Canada’s AML Reform Advances: Bill C-12 Brings Hefty Penalties and Higher Compliance Expectations into Force.
• FINTRAC information sharing and access. The government proposes expanding FINTRAC’s ability to share information with OSFI and expanding FINTRAC’s access to supervisory information from regulated entities.
• FINTRAC exams. The government proposes to amend the PCMLTFA to clarify FINTRAC’s powers of examination.
• PCMLTFA scope. Proposed PCMLTFA changes would extend requirements to higher-risk gambling activities, including certain pari-mutuel betting on horse racing, while exempting lower-risk activities. The Budget does not provide further detail on what those lower-risk activities are. 
• PCMLTFA registration. The government intends to expand the FINTRAC registration regime to additional sectors, including dealers in precious metals and stones, following industry engagement, and make technical amendments. Such registration regime would be in addition to the proposed universal enrolment of all reporting entities with FINTRAC.
• Canada Revenue Agency and tax information exchange. The government proposes to provide $182.4 million over four years to strengthen the CRA’s abilities to investigate tax evasion and work with law enforcement partners to combat money laundering and disrupt the flow of illicit income. The government also proposes to amend the Canada Revenue Agency Act so that the CRA can provide an income verification service under agreements with mortgage lenders and insurers, in order to improve the mortgage application process and deter mortgage fraud. The CRA would receive $13 million over three years to develop and pilot the income verification service, after which it is expected that industry will contribute to the cost of the service via funding agreements. The government will also consult on how it should address two specific gaps in Canada’s implementation of the OECD Common Reporting Standard, the global standard for exchanging financial account information with other countries to combat offshore tax evasion.
• Beneficial ownership and fraudulent corporations. Proposed amendments to the Canada Business Corporations Act, Canada Not-for-profit Corporations Act and Canada Cooperatives Act would expand government access to non-public information in beneficial ownership registries and strengthen the powers available to dissolve fraudulent corporations.
• Criminal Code amendments. The government intends to propose legislation to strengthen investigative tools targeting organized crime, modernize Criminal Code offences to address evolving forms of financial crime and strengthen penalties for financial crime, and to facilitate the recovery of proceeds of crime. These proposals respond directly to several of the Financial Action Task Force’s findings regarding Canada’s AML/ATF framework, which we unpack in Canada’s AML report card: Better marks, but more work ahead.

Other financial sector initiatives

The Budget outlines the following proposed legislative and regulatory changes:

• Expansion of emergency lending assistance. Amendments to the Bank of Canada Act would allow the Bank of Canada to establish a foreign currency portfolio to support the provision of Emergency Lending Assistance in foreign currencies to banks facing extreme liquidity pressures.
• Expanded infrastructure investment powers for life insurers. Amendments to the Insurance Companies Act and the Investments in Permitted Infrastructure Entities Regulations would broaden the scope of permitted infrastructure investments for Canadian life insurers. The stated objective is to unlock additional long-term private capital for transportation networks, energy infrastructure and other infrastructure assets.

McCarthy Tétrault’s expertise

By leveraging our deep industry expertise and experience, we help our clients navigate Canada’s complex, highly regulated financial institutions environment to achieve their business goals. Please contact the authors or any other member of our Financial Institutions Regulatory group if you have any questions or for assistance.