March 23, 2016
The 2016 Federal Budget, released Tuesday, March 22, includes measures to enhance the financial consumer protection framework, the Bank Act, federal financial institution legislation and the management of systemic risk in Canada’s capital markets.
The budget commits the government to “advancing measures that will foster conditions that allow federally regulated financial institutions and pension funds to build on their current strengths and adapt to a changing world, while ensuring risks and vulnerabilities are monitored closely and addressed effectively.”
Financial Sector Highlights:
Enhancing Consumer Protection
Canadians deserve financial consumer protection that keeps pace in meeting their needs. In addition, the financial consumer protection framework must provide clarity to guide the operations of federally regulated banks.
Amendments to the Bank Act will be proposed to modernize the financial consumer protection framework by clarifying and enhancing consumer protection through a new chapter in the Act. They will reaffirm the Government’s intent to have a system of exclusive rules to ensure an efficient national banking system from coast to coast to coast. The Government will collaborate with provinces, territories, and stakeholders to support the implementation of the framework, as well as to enhance consumer education and financial literacy.
Renewing Financial Sector Legislation
The federal financial institutions statutes contain sunset provisions* mandating renewal of banking and insurance legislation by Parliament every five years, providing an opportunity to examine the legislative and regulatory framework in light of emerging trends and developments, to ensure it remains robust and technically sound.
The Department of Finance will undertake a financial sector legislative review and begin consulting stakeholders in the coming months. To support the review, Budget 2016 proposes to provide the Department of Finance with $4.2 million over five years, starting in 2016–17, and to extend the current statutory sunset date by two years to March 29, 2019.
Introducing a Bank Recapitalization “Bail-in” Regime
To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks - not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail.”
The Government is proposing to introduce framework legislation for the regime along with accompanying enhancements to Canada’s bank resolution toolkit. Regulations and guidelines setting out further features of the regime will follow. This will provide stakeholders with an additional opportunity to comment on elements of the proposed regime.
Monitoring Systemic Risks to the Financial System
The ability to monitor and respond to emerging systemic risks and vulnerabilities in Canada’s financial system is critical to promoting financial stability and economic growth.
In December 2011, the Supreme Court of Canada found that Parliament has a role in the management of systemic risks in Canada’s capital markets and Canada-wide data collection. The Government intends to fulfil these responsibilities in a manner that is collaborative and respectful of provincial and territorial jurisdiction. A consultation draft of the proposed federal Capital Markets Stability Act was released for public comment in September 2014. Based on the findings of this consultation, the Government will release a revised draft of the proposed federal Capital Markets Stability Act by the summer.
The Government will also invest to enhance the quality and timeliness of economic and financial data to support domestic and international financial stability. Budget 2016 proposes $13.5 million over five years, starting in 2016–17, to allow Statistics Canada to produce four new data products and fill existing data gaps to meet the International Monetary Fund’s Special Data Dissemination Standard Plus.
Read the full Federal Budget.
*CPA legislation is not included in the five-year financial industry legislation review/sunset clause provisions. However CPA is subject to review under our own legislation in 2018.