Officers, Directors of regulated businesses and advisors must keep up with evolving regulatory and other policy priorities as a matter of effective risk management. Few could deny that this can be challenging in the face of the avalanche of reviews and proposed revisions to the financial and capital markets landscape since the meltdown of the past decade. Whether it be aimed at ushering in a national / common / cooperative capital markets regime, reforming the provincial financial services regulatory regime, or the regulatory framework for registered market participants, investors, consumers and regulated businesses alike have faced an avalanche of reform initiatives. Now it is the federal government’s turn as it embarks on a wide ranging review of its financial legislation and regulatory framework.

In Canada, the federal statutes (the Bank Act, Insurance Companies Act, Trust and Loan Companies Act and Cooperative Credit Associations Act) that regulate the financial sector have sunset provisions that effectively force the government to review these federal statutes on a periodic basis and, after consultation with the relevant stakeholders, propose updates to the legislation. This periodic review does not always result in extensive changes. Next time, however, may be different. Earlier this year, the Canadian government extended the statutory sunset date in these statutes by two years until 2019 to facilitate a review of Canada’s federal financial sector legislative and regulatory framework. This review has now been launched with the August 26, 2016 release of a consultation paper by Canada’s Department of Finance titled “Supporting a Strong and Growing Economy: Positioning Canada’s Financial Sector for the Future.” The full text of this paper can be accessed at http://www.fin.gc.ca/activty/consult/ssge-sefc-eng.pdf.

Consultation paper

The consultation paper states that three core policy objectives guide financial sector policy and frame this review:

  • stability: The sector is safe, sound and resilient in the face of stress
  • efficiency: The sector provides competitively priced products and services, and passes efficiency gains to customers, accommodates innovation and effectively contributes to economic growth
  • utility: The sector meets the financial needs of an array of consumers, including businesses, individuals and families, and the interests of consumers are protected.

The purpose of the consultation paper is to launch the first stage of the review process by setting out the current landscape of the Canadian financial sector, identifying key trends that may influence the future directions, and seeking input on these trends and related implications and areas for potential action.

The consultation paper provides a useful high-level summary of Canada’s financial sector and a summary of financial sector reforms adopted by the Canadian government since the financial crisis is included in the appendix. The consultation paper acknowledges that the environment in which Canadians interact with financial institutions is evolving especially because of technological advancements. It also notes the growing importance of fintech companies and the greater role they are expected to play in Canadian consumers’ financial transactions as well as the related concerns regarding consumer protection and how best to support a level playing field with regulated financial institutions.

Questions for public comments

The consultation paper solicits feedback on several questions. Following this consultation, the government expects to develop and publish specific proposals for further public comments.

Public input on the following questions is due by November 15, 2016:

  • 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?
  • How well does the financial sector framework currently balance trade-offs between the three core policy objectives of stability, efficiency and utility?
  • Are there lessons that could be learned from other jurisdictions to inform how to address emerging trends and challenges?
  • 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?
  • What other actions should be taken to ensure the financial sector framework remains modern and technically sound?

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?

Implications and Likely Outcome

The review of the federal regulated financial sector comes at a time when significant change is advancing in capital markets regulation, including the federal government’s continued support of the Cooperative Capital Markets Regime. Directors and general counsel alike would be wise to stay atop of these developments which reflect the potential for significant change.