Finance Minister William Morneau tabled his first budget on March 22, 2016 (Budget). Several proposals in the Budget will be of interest to financial services clients, including proposals for a consumer protection framework for banks, an extended timeline for renewal of financial sector legislation, a bank recapitalization (“bail-in”) framework, increased housing sector oversight and legislative measures for federal credit unions.
CONSUMER PROTECTION FRAMEWORK FOR BANKS
The government proposes to modernize the existing financial consumer protection framework by amending theBank Act to include a new chapter. Currently, the provisions of the financial consumer protection framework are dispersed throughout the Bank Act and its regulations; thus, the new chapter is meant to consolidate these provisions to create a comprehensive framework. The new framework will include a set of principles to guide bank conduct. Details of the requirements and prohibitions that make up the framework have not been provided in the Budget, and it remains to be seen to what extent the consumer provisions under the Bank Act and its many regulations will be consolidated. The Financial Consumer Agency of Canada will continue to oversee the consumer protection regulatory framework.
The Budget states that the proposed amendments will “reaffirm the Government’s intent to have a system of exclusive rules to ensure an efficient national banking system from coast to coast”. This appears to be intended to address the Supreme Court of Canada’s decisions in the Marcotte cases (see our September 2014 Blakes Bulletin: Marcotte: Can the Provinces Regulate Banking in Canada?). However, this statement is followed by an indication that the government will collaborate with the provinces and territories in the implementation of the framework. It remains to be seen whether the amendments to be proposed will require such collaboration in order to have the intended effect of establishing exclusive rules.
RENEWING FINANCIAL SECTOR LEGISLATION
All federal financial institution statutes contain sunset provisions mandating renewal of such legislation by Parliament every five years, with the next scheduled renewal in March 2017. The Department of Finance will begin consultations on this renewal in the coming months and proposes to extend the current statutory sunset date by two years to March 29, 2019.
BANK RECAPITALIZATION (OR BAIL-IN) REGIME
The government proposes to introduce a new bank recapitalization (or “bail-in”) regime that will allow authorities to convert eligible long-term debt of a failing but systemically important bank into common shares to recapitalize the bank and allow the bank to remain viable and operating. The regime will consist of framework legislation, as well as regulations and guidelines setting out additional features. The new regime is intended to ensure that Canada’s resolution framework remains consistent with best practices of other G20 nations in addressing potential risks to the financial system and broader economy of institutions perceived as “too big to fail”.
HOUSING SECTOR OVERSIGHT
The Budget refers to the December 11, 2015, announcement of the coordinated actions of the Department of Finance, the Office of the Superintendent of Financial Institutions and the Canada Mortgage Housing Corporation, the purpose of which was to increase market discipline in residential lending (see our January 2016 Blakes Bulletin: New Federal Rules for the Residential Mortgage Market) and states that vulnerabilities related to housing and consumer debt will continue to be monitored closely and the government will implement further measures as needed.
Recognizing that housing market data is necessary in order to design effective housing policy, the government proposes to allocate C$500,000 to Statistics Canada in 2016–17 to develop methods for gathering data on the purchases of Canadian housing by foreign homebuyers. This initiative may involve collaboration with the provinces such as British Columbia, which recently announced its intention to have homebuyers disclose whether they are citizens or permanent residents of Canada or another country.
FEDERAL CREDIT UNIONS
The government indicates in the Budget that it will introduce new legislative measures to provide protection against transitional risks for provincial credit unions seeking to grow regionally or nationally by incorporating or continuing as federal credit unions under the Bank Act.