The March 4, 2010 federal budget, Leading the Way on Jobs and Growth, contains a number of initiatives related to the financial sector. There are a few new (and not so new) structural proposals, such as facilitating the development of federal co-operative banking, instituting a review of the Canadian payments system and establishing a national securities regulator, but most of the initiatives relate to consumer protection.
The Government proposes further measures to assist federally regulated financial institutions to diversify their funding sources. The Government will introduce legislation establishing a framework for covered bonds, possibly structured on a European model, that may make it easier for Canadian financial institutions to access this low-cost source of funding while increasing legal certainty for investors in these debt instruments. We note, however, that the Office of the Superintendent of Financial Institutions (Canada) currently restricts the amount of covered bonds that a federal deposit-taking institution can issue to four per cent of total assets so the effectiveness of this measure in allowing funding diversification may be limited.
Canada Deposit Insurance Corporation (CDIC)
Likely emulating recent U.S. Federal Deposit Insurance Corporation measures to require member institutions to use standardized data templates, the Government proposes to provide CDIC with the authority to establish new information and capabilities requirements for member institutions to improve CDIC's ability to quickly respond to the needs of insured depositors. This may require member institutions to ensure that their information systems can readily generate a standardized package of information about their insured deposits.
In addition, Budget 2010 states that the Government will propose measures to enhance the effectiveness of the resolution tools of CDIC by clarifying certain aspects of CDIC's bridge institution regime.
National Securities Commission
Budget 2010 restates the Government's commitment to establish a national Canadian securities regulator. While not new information, the next steps in the establishment of the national securities regulator will be:
- this spring, the release of the draft Canadian securities bill;
- the referral of the bill to the Supreme Court of Canada for its opinion whether Parliament has the constitutional authority to enact and implement a federal securities regulatory regime;
- this summer, the delivery by the Canadian Securities Transition Office of an organizational and administrative transition plan; and
- ongoing work on the rules and regulations that will complement the Canadian securities act.
Based on consultations with the credit union system, the Government will introduce legislation to enable credit unions to incorporate or continue their operations as federal entities, presumably under the Bank Act. Budget 2010 suggests that this will broaden choices for consumers by helping credit unions attract new members and improve services to existing members across provincial borders. Credit unions that would seek to continue under the proposed federal regime will have to obtain any necessary approvals from their provincial regulators and/or deposit insurers to leave their present jurisdictions.
Budget 2010 proposes the following consumer protection measures applicable to federally regulated financial institutions:
- regulations will be made to require financial institutions to offer products and services on an opt-in basis only. Consumers must have sufficient disclosure about the terms and conditions before accepting the offer;
- regulations will be made to standardize the calculation and disclosure of mortgage pre-payment penalties;
- regulations will be made to reduce the maximum cheque hold period from 7 days to 4 days and provide consumers access to the first $100 within 24 hours, which may effectively become a cost of conducting retail banking business;
- the Government will require that banks belong to an approved third-party dispute handling body that meets certain criteria, presumably based on the 2007 guideline The Financial Services OmbudsNetwork: A Framework for Collaboration developed by the Joint Forum of Financial Market Regulators with the federal Department of Finance. In addition, the Government will make regulations, in consultation with the industry, to establish minimum standards for institutions' internal complaints procedures. The federal consumer regulator, the Financial Consumer Agency of Canada (FCAC), would monitor compliance with the standards; and
- the FCAC will be given greater responsibilities, increasing its field testing and stakeholder engagement to enable it to provide information to the Government on financial consumer trends and emerging issues.
Canadian Payment System
With the completion of stakeholder consultations on a proposed Code of Conduct for the Credit and Debit Card Industry in Canada, the Government will soon release the Code for adoption by credit and debit card networks. The Code aims to promote fair business practices and ensure that merchants and consumers clearly understand the costs and benefits associated with credit and debit cards.
The FCAC's mandate will be amended to enable it to monitor compliance with the Code. Additionally, the Government will propose legislation that will provide the Minister of Finance with the authority to regulate the market conduct of credit and debit card networks.
The last review of the Canadian payments system occurred over a decade ago, but technology is revolutionizing how payments are processed. In the spring, the Government will appoint an independent task force to conduct a comprehensive review of the Canadian payments system, examining its safety, soundness and efficiency, innovation in a competitive landscape, and the sufficiency of its oversight. The task force is expected to report to the Minister of Finance by the end of 2011 on its recommendations.
Anti-money Laundering and Anti-terrorist Financing
Amendments to the Criminal Code provisions that apply to crimes relating to money laundering and terrorist financing will permit them to be invoked in cases of tax evasion prosecuted under Canada's tax statutes.
Funding for the Financial Transactions and Reports Analysis Centre of Canada, the federal financial intelligence unit, will increase by $8 million per year to help it combat money laundering and terrorist financing.
Budget 2010 states that Canada's financial sector has been widely acknowledged as being one of the strongest in the world. While governments elsewhere are overhauling the regulation of their financial sectors, this Budget's financial sector focus is substantially on consumer protection.
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