Finance Minister William Morneau tabled his first budget on March 22, 2016 (Budget). Several
proposals in the Budget will be of interest to financial services
clients, including proposals for a consumer protection framework
for banks, an extended timeline for renewal of financial sector
legislation, a bank recapitalization ("bail-in")
framework, increased housing sector oversight and legislative
measures for federal credit unions.
CONSUMER PROTECTION FRAMEWORK FOR BANKS
The government proposes to modernize the existing financial
consumer protection framework by amending the Bank Act to
include a new chapter. Currently, the provisions of the financial
consumer protection framework are dispersed throughout the Bank
Act and its regulations; thus, the new chapter is meant to
consolidate these provisions to create a comprehensive framework.
The new framework will include a set of principles to guide bank
conduct. Details of the requirements and prohibitions that make up
the framework have not been provided in the Budget, and it remains
to be seen to what extent the consumer provisions under the
Bank Act and its many regulations will be consolidated.
The Financial Consumer Agency of Canada will continue to oversee
the consumer protection regulatory framework.
The Budget states that the proposed amendments will
"reaffirm the Government's intent to have a system of
exclusive rules to ensure an efficient national banking system from
coast to coast". This appears to be intended to address the
Supreme Court of Canada's decisions in the Marcotte cases (see
our September 2014
Blakes Bulletin: Marcotte: Can the Provinces Regulate Banking in
Canada?). However, this statement is followed by an
indication that the government will collaborate with the provinces
and territories in the implementation of the framework. It remains
to be seen whether the amendments to be proposed will require such
collaboration in order to have the intended effect of establishing
RENEWING FINANCIAL SECTOR LEGISLATION
All federal financial institution statutes contain sunset
provisions mandating renewal of such legislation by Parliament
every five years, with the next scheduled renewal in March 2017.
The Department of Finance will begin consultations on this renewal
in the coming months and proposes to extend the current statutory
sunset date by two years to March 29, 2019.
BANK RECAPITALIZATION (OR BAIL-IN) REGIME
The government proposes to introduce a new bank recapitalization
(or "bail-in") regime that will allow authorities to
convert eligible long-term debt of a failing but systemically
important bank into common shares to recapitalize the bank and
allow the bank to remain viable and operating. The regime will
consist of framework legislation, as well as regulations and
guidelines setting out additional features. The new regime is
intended to ensure that Canada's resolution framework remains
consistent with best practices of other G20 nations in addressing
potential risks to the financial system and broader economy of
institutions perceived as "too big to fail".
HOUSING SECTOR OVERSIGHT
The Budget refers to the December 11, 2015, announcement of the
coordinated actions of the Department of Finance, the Office of the
Superintendent of Financial Institutions and the Canada Mortgage
Housing Corporation, the purpose of which was to increase market
discipline in residential lending (see our January 2016
Blakes Bulletin: New Federal Rules for the Residential Mortgage
Market) and states that vulnerabilities related to housing
and consumer debt will continue to be monitored closely and the
government will implement further measures as needed.
Recognizing that housing market data is necessary in order to
design effective housing policy, the government proposes to
allocate C$500,000 to Statistics Canada in 2016–17 to develop
methods for gathering data on the purchases of Canadian housing by
foreign homebuyers. This initiative may involve collaboration with
the provinces such as British Columbia, which recently announced
its intention to have homebuyers disclose whether they are citizens
or permanent residents of Canada or another country.
FEDERAL CREDIT UNIONS
The government indicates in the Budget that it will introduce
new legislative measures to provide protection against transitional
risks for provincial credit unions seeking to grow regionally or
nationally by incorporating or continuing as federal credit unions
under the Bank Act.
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