Regulatory frameworkRegulatory authorities
What national authorities regulate the provision of financial products and services?Financial institutions
The Department of Finance is the government body responsible for federally regulated financial institutions (FRFIs), including banks, trust and loan companies, insurance companies, and credit unions. The Department of Finance is principally responsible for proposing changes to legislation and adopting new regulation governing FRFIs.
The Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC) are two key regulatory authorities supervising FRFIs. Generally, OSFI is responsible for prudential regulation and establishing guidelines for capital, reporting and business practices, and FCAC is responsible for consumer protection.
In addition to OSFI and FCAC, each province has regulatory authorities that oversee financial institutions outside of the exclusive jurisdiction of the federal government. These include, among others, the Financial Services Regulatory Authority of Ontario, the Autorité des marchés financiers (AMF) in Quebec and the British Columbia Financial Services Authority.
Deposit-taking institutions are members of the Canada Deposit Insurance Corporation (CDIC) and Payments Canada (formally known as the Canadian Payments Association). CDIC is a statutory corporation that provides deposit insurance for certain types of small deposits to member institutions. Payments Canada operates Canada’s payment clearing and settlement systems. Membership in Payments Canada and CDIC is mandatory for Canadian banks as well as for certain trust and loan companies that accept deposits.
Payments Canada is a not-for-profit association responsible for the clearing and settlement infrastructure, processes and rules for Canada’s non-credit-card-related national payments systems, which are:
- Lynx, the new high-value payment system that has replaced the Large Value Transfer System; and
- the retail payments system, the Automated Clearing Settlement System (ACSS).
The participant members of Payments Canada are mostly made up of regulated financial institutions (ie, banks, authorised foreign banks, trust and loan companies, credit unions, and financial cooperative credit associations and caisses). The Minister of Finance must approve all by-laws (other than those that relate to administration of Payments Canada) and can direct that the rules be amended or repealed, or that new rules be adopted. The governor of the Bank of Canada also has oversight responsibilities because both Lynx and the ACSS are designated clearing and settlement systems under the Payment Clearing and Settlement Act.
The definition of ‘securities registrants’ includes:
- securities dealers and advisers;
- derivatives dealers and advisers;
- investment fund managers;
- exchanges and other alternative trading systems;
- designated ratings organisations and clearing agencies; and
- commodities futures dealers and advisers.
It also includes, in certain circumstances, persons benefiting from an exemption from registration in any of the aforementioned categories.
Canada does not currently have a federal securities regulator. The securities market is regulated by the provincial and territorial securities commissions (the securities regulators). Despite the lack of a federal regulator, the provincial and territorial regulators coordinate the development of national rules and standards through the Canadian Securities Administrators (CSAs), which administer a passport system for extra-provincial registration. The most active securities regulators in Canada are the Ontario Securities Commission (OSC), the AMF, the Alberta Securities Commission and the British Columbia Securities Commission (BCSC). Investment dealers are regulated by a national self-regulatory organisation, the Investment Industry Regulatory Organization of Canada (IIROC).
Previous attempts to create a national securities regulator in Canada were deemed to improperly fetter the jurisdiction of the provincial legislatures and therefore considered to be unconstitutional (Reference re Securities Act, 2011 SCC 66,  3 SCR 837). In August 2014, the provincial governments of British Columbia, Ontario, Saskatchewan and New Brunswick entered into a memorandum of agreement (MOA) with the government of Canada with respect to the creation of a cooperative capital markets regulatory system. The MOA proposed uniform provincial capital markets acts, complementary federal legislation and the creation of a federal capital markets regulator. On 9 November 2018, the Supreme Court of Canada ruled that the proposed cooperative regulatory system is constitutional (Reference re Pan-Canadian Securities Legislation, 2018 SCC 48). The proposed system is not yet in effect, but a new structure of regulation of capital markets in Canada has been proposed.
The Capital Markets Act is draft legislation intended to replace the Securities Act and the Commodity Futures Act in Ontario in an effort by the Ontario government to modernise the province’s capital markets. Ontario is home to Canada’s major stock exchange, the country’s largest capital markets regulator and a major share of Canadian market participants, meaning that a change to the province’s capital markets legislation will likely have national consequences.
The draft legislation proposes to define a cryptoasset as a digital representation of value or contractual rights, which may be transferred and stored electronically using distributed ledger or similar technology. Under the draft legislation, the Ontario Securities Commission’s designation powers are expanded to include the designation of cryptoassets as securities or derivatives, in addition to its existing powers to make other designating orders in the public interest.
What activities does each national financial services authority regulate?Financial institutions
OSFI and FCAC both regulate many financial services industries, including the business of banking, acceptance of deposits, and the provision of insurance, trust services and mortgage lending by FRFIs. Also, OSFI regulates the administration of pension plans and FCAC regulates the operation of payment card networks through voluntary codes of conduct. Provincial and territorial financial service regulators regulate financial institutions including provincial trust and loan corporations, credit unions, insurers, and the distribution and sale of financial products offered by these financial institutions.
The securities regulators regulate securities markets, including the activities of trading, advising and dealing in securities, capital raising, and the administration of investment funds and marketplaces. They also regulate the creation and trading of derivatives, including over-the-counter (OTC) derivative contracts and commodities futures contracts.
What products does each national financial services authority regulate?Financial institutions
OSFI or FCAC, or both, regulate the following financial products:
- deposits including term deposits and retail deposit accounts;
- registered investment products and principal protected notes;
- offering of credit;
- contracts of insurance, including life insurance, property and casualty insurance, and mortgage insurance;
- pension plans; and
- payment cards.
Securities regulators regulate any product that falls under the definition of a ‘security’, which is an open-ended category involving a fact-specific analysis but includes bonds, shares, stocks, investment contracts, subscriptions, profit-sharing agreements, income or annuity contracts not issued by an insurance company, options, OTC derivatives and commodities futures contracts. More recently, digital assets, including cryptocurrencies, have received the attention of securities regulators in Canada. Depending on how these digital assets are offered to the public, many have been characterised by regulators as investment contracts or derivatives, including contracts for difference.
The concept of an ‘investment contract’ is not defined within the provincial securities acts but has been the subject of substantial consideration by Canadian courts and securities regulators across Canada. The courts in Canada have applied the tests from Pacific Coast Coin Exchange of Canada Ltd v Ontario Securities Commission (1978) 2 SCR 112 to determine whether an instrument is an investment contract in a four-part analysis as to whether the scheme involves:
- an investment of money;
- with an intention or expectation of profit;
- in a common enterprise, in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment of third parties; and
- where the efforts made by those other than the investor are significant and those managerial efforts affect the failure or success of the enterprise.
What is the registration or authorisation regime applicable to financial services firms and authorised individuals associated with those firms? When is registration or authorisation necessary, and how is it effected?Banks and other deposit-taking institutions
To carry on the business of banking in Canada as a Canadian institution, a bank must incorporate or be continued under the Bank Act. OSFI administers the application process for certificates of incorporation and makes recommendations to the Minister of Finance, who makes the ultimate determination, taking into account a number of factors considered relevant to the application, including the sufficiency of financial resources and the character and integrity of the applicants. Once approved, a new bank will be listed under Schedule I of the Bank Act and will be referred to as a Schedule I bank. A foreign bank may also make an application to the Minister of Finance to acquire control of an entity that offers or will offer banking services to the public. These banks are listed in the Bank Act and referred to as Schedule II banks. Finally, Schedule III banks are foreign banks that are authorised to operate branches in Canada. The activities of a branch can be restricted to lending or may be full service, which includes the offer of retail deposit accounts.
A similar application process (but not classification) applies to federally incorporated credit unions (under the Bank Act) and trust and loan companies (under the Trust and Loan Companies Act (TLCA)).
Finally, deposit-taking institutions may also be required to register with or become members of Payments Canada and CDIC.
To operate as an insurance company, an insurer must apply to obtain a certificate of incorporation or analogous constative documents from the regulator or, as a foreign insurer, obtain an approval to insure risks in Canada. In addition, for each province and territory, any person or company that offers contracts of insurance for sale must obtain a licence from the applicable provincial regulator for such activity.
Securities legislation generally requires persons or companies to be registered (or to benefit from an exemption from registration) to engage in the businesses of trading in securities or advising with respect to buying or selling securities. The registration requirement has been described by the OSC as an ‘important cornerstone of the Securities Act (Ontario) because through the registration process, the Commission attempts to ensure that those who engage in the trading of securities meet the necessary proficiency requirements, are of good character and satisfy the appropriate ethical standards’ (Re Gregory Co v Québec (Securities Commission)  SCR 584, 4).
Securities regulation also covers the operation of ‘marketplaces’, which includes exchanges, quotation and trade reporting systems, and alternative trading systems.
National Instrument 21-101 – Market Place Operation defines a ‘marketplace’ to include both exchanges and quotation and trade reporting systems, and also to include ‘alternative trading systems’, which are facilities that:
- constitute, maintain or provide a market or facility for bringing together buyers and sellers of securities or derivatives;
- bring together the orders for securities or derivatives of multiple buyers and sellers; and
- use established non-discretionary methods under which the orders interact with one other.
If a marketplace is an exchange, it is also required to be recognised by the securities regulator or benefit from an exemption from recognition, which is generally only available to foreign-regulated exchanges. Recognition will involve an assessment of the exchange’s corporate governance and its rules, policies, and listing and access requirements as well as how effective it is at enforcing these requirements. Exchanges are also subject to more stringent ongoing regulatory requirements, including monitoring the conduct of their members and periodic reviews of conduct.Legislation
What statute or other legal basis is the source of each regulatory authority’s jurisdiction?
In Canada, jurisdiction with respect to the regulation of financial services is shared between the federal and provincial governments. Pursuant to subsection 91(15) of the Constitution Act 1867, the federal government has exclusive jurisdiction over banks. Other financial institutions, including insurance companies, trust and loan companies, and credit unions are subject to both federal and provincial regulation, depending on the province in which they offer services to the public.
This is not to say that provincial legislation does not apply to financial institutions. Provisional provisions can apply to bank activities provided that the provisions do not ‘in any way impair any activities that are "vital or essential to banking" such that Parliament might be forced to specifically legislate to override the provincial law’ (Bank of Montreal v Marcotte  2 SCR 725).
FCAC and OSFI derive their powers from federal legislation: the Financial Consumer Agency of Canada Act and the Office of the Superintendent of Financial Institutions Act, respectively. Payments Canada was created by, and its legislative authority comes from, the Canadian Payments Association Act.
The securities regulators derive their powers from provincial securities legislation. For example, the powers of the OSC are given to it by the Securities Act (Ontario) and the Commodity Futures Act (Ontario).
What principal laws and financial service authority rules apply to the activities of financial services firms and their associated persons?Financial institutions
The primary legislation that applies to banks is the federal Bank Act and its regulations. The Bank Act sets out the incorporation and continuance of banks, permitted business activities, corporate governance and prohibitions on participating in certain investments or activities. The regulations pursuant to the Bank Act also have detailed provisions relating to consumer protection, including requirements for disclosure to customers of interest rates, account charges and customers’ consent to receive information electronically. The federal legislation that applies to trust and loan companies is the TLCA and the federal legislation that applies to insurers is the Insurance Companies Act. The construction and principles of these acts are similar to those found in the Bank Act.
Aside from banks, which are subject to exclusive federal jurisdiction, each of the provinces has its own legislation with respect to other regulated financial institutions. Except for Quebec, which applies civil law and a distinct regulatory framework, the provincial statutes governing financial institutions and those dealing in financial products and services are substantially similar to one another. Each province and territory also has legislation with respect to the incorporation, governance and permitted activities of credit unions, provincially incorporated insurance companies, and trust and loan companies. Regulation of brokers and agents, and the distribution of financial products and services, is provincial. For example, the qualification and licensing of insurance agents and brokers in a given province are governed by regulations adopted under provincial insurance legislation, such as the Registered Insurance Brokers Act (Ontario).
Provincial securities laws and regulations apply to persons engaging in regulated securities activities, including registrants and reporting issuers (ie, companies listed on a stock exchange). Each province has its own securities legislation and regulations thereunder. The provincial regulators attempt to harmonise securities regulation across Canada through the CSAs. To facilitate this process, they have adopted a common numbering system for regulations by subject matter, which are:
- procedures and related matters;
- capital markets participants;
- registration and related matters;
- distribution requirements (including a prospectus);
- ongoing issuer and insider requirements;
- takeover bids and special transactions;
- transactions outside the jurisdiction;
- investment funds; and
As a result, other provincial and territorial securities regimes are substantially similar, including the Securities Act (Quebec) that, in contrast to the other provinces and territories across Canada, has a civil law regime. Given this relative uniformity, we use the term ‘securities laws’ to refer to the Canadian securities legislative framework, including all laws, regulations and guidance, and we make certain distinctions, as needed.
The purpose of securities laws is to protect the investing public from unfair, improper or fraudulent activity while fostering efficient capital markets and public confidence in those markets. In furtherance of these purposes, securities laws seek to protect prospective investors by ensuring that the dealers of various investment products are registered with securities regulators and that investors are provided with sufficient disclosure. This objective is met through prospectus and registration requirements. Exemptions to these requirements are available in certain prescribed circumstances.
Financial services firms must also comply with privacy legislation. The Office of the Privacy Commissioner of Canada is responsible for overseeing compliance with privacy legislation. In Canada, the Personal Information Protection and Electronic Documents Act applies to federally regulated businesses including banks and other private sector organisations that conduct business in any Canadian province or territory except Alberta, Quebec and British Columbia, where provincially incorporated financial institutions must comply with the applicable provincial privacy legislation. Generally, privacy legislation in Canada provides that financial institutions must obtain express or implied consent before collecting, using or disclosing information that can be used to identify an individual and they must provide the individual with a right of access to that information. The guidelines of the Privacy Commissioner require that consent be meaningful. Privacy legislation also establishes a positive duty on institutions to safeguard personal information and places limits on the retention of that personal information.
Anti-money laundering and terrorist financing
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its regulations are the basis of Canada’s anti-money laundering and terrorist financing (AML/TF) regime, The PCMLTFA applies directly to financial institutions and securities registrants. Canada’s AML/TF regulator is the Financial Transactions and Reporting Analysis Centre of Canada (FINTRAC). These entities are considered ‘reporting entities’ under the PCMLTFA and are therefore subject to record-keeping, customer identification and transaction reporting requirements. These requirements under the PCMLTFA also apply to both domestic and foreign money services businesses (MSBs), which include businesses that offer any of the following:
- foreign exchange;
- money transfers; or
- the sale of money orders or travellers’ cheques to the public.
MSBs are required to separately register with FINTRAC as a condition to doing business in Canada.
MSBs are defined by FINTRAC as persons or entities offering one or more of the following services to the public:
- engaged in the business of foreign exchange dealing;
- transferring funds from one person or entity to another using an electronic funds transfer network or any other method such as Hawala, Hundi, Fei Ch'ien and Chitti;
- issuing or redeeming money orders, travellers’ cheques or other similar negotiable instruments except for cheques payable to a particular person or entity; or
- dealing in virtual currency, which includes virtual currency transfer services and exchange services.
Financial institutions and securities regulators regularly publish bulletins, guidelines and staff notices on the provision of financial products and services.Scope of regulation
What are the main areas of regulation for each type of regulated financial services provider and product?
The areas of regulation depend on which statutes and regulations apply to a given financial service provider or product.
Federal legislation restricts the types of activities that financial services providers may engage in. For example, banks are only permitted to carry on the ‘business of banking’ and may not ‘deal in goods, wares, or merchandise or engage in any trade or other business’ subject to certain exceptions (Bank Act, c 46, section 409). FRFIs are also restricted from making certain types of investments. The applicable legislation also contains restrictions on certain types of ‘unfair practices’.
As part of its mandate to maintain financial markets, OSFI publishes guidelines and advisories for the purpose of ensuring compliance with requirements under federal financial institution legislation. The guidelines and advisories fall into four general categories:
- capital adequacy requirements (ie, Tier 1 and Tier 2 capital, liquidity and leverage ratios);
- limits and restrictions on lending, accounting and disclosure; and
- sound business and financial practices.
OSFI had a role in supervising the AML/TF programmes of financial institutions. However, from the end of 2020, OSFI has confirmed that FINTRAC is the primary agency conducting AML/TF assessments of financial institutions to ensure compliance with the PCMLTFA and associated regulations. OSFI instead focuses on the prudential implications of financial institutions' AML/TF compliance as part of its ongoing assessment of their regulatory compliance management frameworks. Consistent with Basel Committee on Banking and Supervision guidance on cooperation and information exchange, OSFI and FINTRAC will coordinate on the state of the AML/TF regime relative to their respective mandates and as it relates to financial institutions.
The areas of regulation that apply to securities registrants include:
- registration requirements;
- capital and insurance requirements; and
- business conduct, including know-your-client, suitability of investment and disclosure of conflicts of interest.
AML/TF legislation requires regulated financial institutions, MSBs and securities registrants (and several entities benefiting from registration exemptions) to engage in transaction reporting. United Nations sanctions and special economic measures legislation impose certain compliance obligations on financial institutions and securities registrants with respect to sanctions. Finally, all financial services providers are generally subject to privacy legislation.Additional requirements
What additional requirements apply to financial services firms and authorised persons, such as those imposed by self-regulatory bodies, designated professional bodies or other financial services organisations?
FCAC is an independent agency of the government of Canada created under the Financial Consumer Agency of Canada Act. FCAC is responsible for ensuring compliance with the consumer protection provisions of federal statutes that address matters including the proper disclosure of cost of borrowing charges and complaint procedures. In October 2018, FCAC released a new Supervision Framework. The Supervision Framework provides FCAC stakeholders with a description of a general approach to typical supervision matters. FCAC is also responsible for the Code of Conduct for the Credit and Debit Card Industry in Canada, which is a voluntary code of conduct for the payment card industry involving policies for disclosure of fees to merchants.
In certain provinces, there are self-regulatory organisations (SROs) that oversee the licensing and conduct of intermediaries in financial markets, such as insurance brokers or agents.
SROs also serve the purpose of setting standards for stakeholders in capital markets and securities regulators have the power to issue recognition orders for SROs. The primary SROs for capital markets are IIROC and the Mutual Funds Dealers Association (MFDA), which operate as national organisations (except for the MFDA in Quebec). They are structured as not-for-profit corporations and apply a membership model. IIROC sets industry standards and rules for investment dealers, while the MFDA similarly oversees dealers of mutual funds and certain other exempt products. Both SROs have enforcement powers including the discipline of members, which is instituted before discipline committees.