Department of Finance Canada Launches Financial Sector Legislative Review
The Department of Finance Canada (“Finance Canada”) has launched financial sector legislative review consultations with respect to the federally regulated financial institutions (“FRFIs”) statutes, including the Bank Act, the Insurance Companies Act, and the Trust and Loan Companies Act (“FRFI Statutes”). The consultations are being done in anticipation of the forthcoming sunset date for the FRFI Statutes, which was set as June 30, 2025 pursuant to the 2022 federal budget. The deadline for submissions to the consultation is December 4, 2023.
The purpose of the consultations is for Finance Canada to obtain industry feedback on how FRFI legislation and policies should adapt to various factors such as access to financial services, technological trends, national security, fair competition, geopolitical trends and the safety and integrity of the Canadian financial system.
Finance Canada notes that its review of digital assets is continuing and is separate from these consultations.
In connection with the consultations, Finance Canada is seeking input from Canadians, including financial market participants, academics and civil society groups, in a variety of areas including:
- National Security and Integrity
Security Risks - Emerging risks to the security and integrity of the Canadian financial sector and Canadian financial institutions, including national security threats, foreign interference or technological changes.
This comes in the context of Budget 2023 and Bill C-47, the Budget Implementation Act, whereby the federal government introduced amendments to require FRFIs, starting on January 1, 2024, to “have and adhere to adequate policies and procedures to protect themselves from threats to their integrity and security, including foreign interference.” The Office of the Superintendent of Financial Institutions (“OSFI”) will also have the authority to examine each FRFI’s integrity and security policies and procedures to assess whether they are adequate, and will report on its examinations to the Minister of Finance Canada. OSFI noted earlier this year that it will release a final guideline on integrity and security in January 2024.
- Federal Finance Sector Structure Matters
Industry Consolidation – Risks and benefits of consolidation in the federal financial sector.
This follows a consultation earlier this year by Finance Canada with regards to the proposed acquisition of HSBC Bank of Canada by Royal Bank of Canada. Finance Canada is currently reviewing the feedback it received to help inform its decision regarding the acquisition and whether it is in the best interests of the financial sector, taking into account factors such as stability, efficiency, utility to consumers and integrity of the financial sector.
- Sector Integrity - Measures for the federal legislative and policy framework to better protect the interests of Canadian consumers and the integrity of the financial sector.
- New Entrants - Risks and benefits from new financial services providers and means for the federal legislative and policy framework to adapt to such new entrants.
- Foreign Expansion – Need for any changes to the legislative framework of Canada’s financial sector given the current trend of continuing foreign expansion of Canadian FRFIs.
- Consumer Protection
- High Quality and Low-Cost Banking - Additional consumer protection measures that may be necessary to ensure high-quality and low-cost banking services for Canadians.
- Barriers to Access - Barriers facing Canadians when accessing banking services, including cost barriers.
- Innovation and Digital Products - Protection of financial consumers when using innovative or digital financial products.
- Financial Sector Legislative Framework Modernization
AI and Other innovations – Use, benefits and risks of artificial intelligence (“AI”) and other innovations in the financial sector.
Earlier this year, OSFI partnered with the Global Risk Institute (“GRI”) to release a report on the ethical, legal, and financial implications of AI on financial services institutions (“AI Report”). The partnership between OSFI and GRI created the Financial Industry Forum on Artificial Intelligence (“FIFAI”) which gathered Canada’s financial services experts from industry, government and academia on the application, safeguards and risk management of AI. The AI Report also noted that OSFI will be releasing an enhanced version of Guideline E-23: Enterprise Model Risk Management for draft public consultation later this year.
- Modernization – Updates to the financial sector legislative framework to ensure its efficacy, technical soundness and reflection of modern business practices and technologies.
- Federal-Provincial Co-operation - Opportunities for collaboration with provinces and territories to more effectively address policy issues.
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