The Government tabled Budget 2017 on March 22. The financial services proposals are aimed at the following:
- Greater resiliency for the Canadian financial sector;
- A modernized deposit insurance framework that continues to protect the deposits of Canadians and promote financial stability; and
- Strengthened ability for Canada to combat money laundering and terrorist financing.
Financial Sector Stability Measures
Bank Resolution Regime
Legislative amendments are proposed to do the following:
- Formally designate Canada Deposit Insurance Corporation (CDIC) as the resolution authority for its members and require Canada’s biggest banks to develop and submit resolution plans;
- Clarify the treatment of, and protections for, eligible financial contracts—such as derivatives—in a bank resolution process.
- Reinforce the Superintendent of Financial Institutions’ powers to set and administer the requirement for systemically important banks to maintain a minimum capacity to absorb losses in a resolution.
These proposals are in addition to the bank resolution regime changes that were implemented last year. We expect that the proposed amendments would be aimed at providing more specific and formalized powers to CDIC and OSFI.
Deposit Insurance Review
The Government proposes to introduce legislative amendments to modernize and enhance the Canada deposit insurance framework. There were two consultation papers released on the topic of deposit insurance in Fall 2016 by each of the Department of Finance and the CDIC. No specifics of the proposed amendments are included in Budget 2017. Based on the Department of Finance’s consultation paper, the proposed amendments might expand the categories of covered deposits and may address brokered deposits within the deposit insurance framework.
Strengthening the Oversight of Financial Market Infrastructures
The Government proposes to introduce legislative amendments to the Payment Clearing and Settlement Act to expand and enhance the oversight powers of the Bank of Canada. The Bank of Canada currently has oversight over designated financial market infrastructures (FMIs) that are considered to have the potential to pose systemic or payments system risk. The current designated systemically important FMIs are listed here. The Government proposes to increase the Bank of Canada’s ability to identify and respond to risks to FMIs and to implement an FMI resolution framework to allow for government intervention if a designated FMI fails.
Strengthening Corporate and Beneficial Ownership Transparency
Budget 2017 provides that the Government will collaborate with the provinces and territories to put in place a national strategy to strengthen the transparency of legal persons and legal arrangements and improve the availability of beneficial ownership information. This appears to be a response to criticism of the Financial Action Task Force (on money laundering) (FATF) that was included in 2016 FATF Mutual Evaluation of Canada. As there are currently no public registers that collect beneficial ownership information, FATF’s concern is that Canadian legal entities and legal arrangements are at a high risk of misuse for money laundering and terrorist financing.
Strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime
The Government proposes to introduce legislative amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to:
- Expand the list of disclosure recipients that can receive financial intelligence related to threats to the security of Canada to include the Department of National Defence and the Canadian Armed Forces;
- Support more effective intelligence on beneficial owners of legal entities; and
- Make various technical and other changes to: strengthen the framework, support compliance, improve operational aspects of compliance for reporting entities, and ensure the legislation functions as intended.
The Government will release a consultation paper on a new retail payments oversight framework in 2017. Based on the results of consultations, the Government will propose legislation to implement an oversight framework. We note that the previous government consulted on this topic in June of 2015.
Budget 2017 states that the Government is committed to working with stakeholders to assess developments in the fintech sector and consider implications for the federal financial sector legislative and regulatory framework. This process will be included in the 2019 federal financial sector review which is currently underway.
The Budget Plan does not set out any timing for the introduction of legislation to implement these measures. As in previous years, we would expect that bills to implement Budget 2017’s proposals will begin to be released in the coming months.