On August 26th, the federal Department of Finance launched a review of the legislation governing banks, insurance companies and trust companies under federal jurisdiction by issuing an initial consultation paper. The initial paper sets out some key facts relating to the sector and comments on trends that are currently impacting and are expected to continue to impact the sector. The paper concludes by inviting comment on certain high level policy questions.

As most financial institutions are, at least in part, governed by federal legislation, the 2019 review could have wide-ranging implications for the sector. Comments on the questions set out in the paper are due by November 15, 2016.

Key facts and noted trends

The paper describes the current economic environment in which the sector operates which is marked by low interest rates and historically high levels of consumer debt. It also notes the high levels of concentration in certain of the financial services sectors but also notes that there has been a trend towards internationalization by the largest Canadian institutions. Other key trends mentioned in the paper are noted below.

Growing acceptance of electronic transactions

The paper notes that most routine financial transactions are now conducted electronically and that many consumers are embracing new technologies such as online and mobile banking. To put this in context, for many years, the banking sector in Canada has been dominated by six large banks that maintain extensive branch networks covering the entire country. The trend towards greater acceptance of electronic means of transacting has led many of the large banks to pursue efficiencies and adjust their branch networks.

The paper notes concerns about the implication of this trend both for consumers and for the profitability of some banks.


Closely related to consumer attitudes to electronic commerce is the emergence of a financial technology sector. The paper notes that much of the recent innovation respecting financial services is the product of emerging fintech start-up companies.  Some of these fintech start-ups have developed consumer-facing technology in the areas of payments, lending and investment management. Others have focused on supporting infrastructures including data analytics, funds transfers, smart contracts, cybersecurity and currency exchanges. Some fintech companies have adopted distributed ledger technology (blockchain) to record and validate transactions.

While the paper notes the positive contribution that fintech companies are making to innovation and competition in the financial services sector, it also notes that this trend raises questions about the adequacy of existing consumer protection laws to address the changes being introduced through this technology. It also questions whether it is necessary to introduce changes to the regulatory framework to ensure a level playing field between fintech companies and regulated financial institutions.

Higher level of concentration

Concentration continues to be a feature of the sector with the largest competitors in the banking and life insurance industries controlling 93% and 90% of the total assets of their respective industries. Again, the concern expressed is whether there is adequate competition in these sectors given the high levels of concentration.

The policy objectives

The paper identified three objectives that the government says must be balanced in the policy framework. They are described as:

stability: is the sector is safe, sound and resilient in the face of stress

efficiency: does the sector provides competitively priced products and services, and does it pass efficiency gains to customers, accommodate innovation, and does it effectively contribute to economic growth

utility: does the sector meets the financial needs of an array of consumers, including businesses, individuals and families, and are the interests of consumers are protected

Questions for consultation

The paper invites comment on the following questions:

  1. What are your views on the trends and challenges identified in this paper? Are there other trends or challenges that you expect to significantly influence the financial sector going forward?
  2. How well does the financial sector framework currently balance trade-offs between the three core policy objectives of stability, efficiency and utility?
  3. Are there lessons that could be learned from other jurisdictions to inform how to address emerging trends and challenges?
  4. What actions could be taken to strengthen the financial sector framework and promote economic growth, including with respect to the identified themes? How should those actions be prioritized?For example:
    • How should the financial sector framework support innovation and competition while maintaining stability of the system?
    • How can the financial sector framework best promote competition, including by encouraging new entrants and fostering the growth of small entities and other players?
    • How can the benefits of an internationalizing financial sector best be obtained while ensuring the safety and soundness of the sector?
    • How can the financial sector framework support financial firms to best serve the evolving needs and interests of consumers?
    • Are Canada’s federal financial sector oversight bodies well-positioned to support the sector in the future?
  5. What other actions should be taken to ensure the financial sector framework remains modern and technically sound?

Again, comments are requested by November 15, 2016.