On October 19 2015 a new federal Liberal government was elected, ending nine years of rule by the Conservative Party. With the election of a new government comes the appointment of a new minister of finance, with responsibility for the federal financial services sector – including all banks and most trust companies and insurance companies in Canada. While the Office of the Superintendent of Financial Institutions (OSFI) provides day-to-day administration of the legislation, the minister must approve all important transactions and certain other matters relating to the financial institutions governed by federal legislation. Ultimately, the minister will also have to determine whether the government will set a new policy direction for the sector, which may result in the introduction of new legislation to redefine the regulatory framework.
In terms of regulatory approvals under the statutes, one of the first decisions that the new minister must make is how closely he wishes to be involved with the decision-making process. At present, all applications for an approval under the statutes are submitted to OSFI for analysis, even if only ministerial approval is required. Historically, most ministers have tended to accept OSFI's recommendations as the expert regulatory authority and processed approvals quickly, unless the application was identified as raising significant policy concerns. However, new ministers often take time to develop a feel for which applications warrant additional consideration and which may be processed quickly. As a result, it is not unusual for obtaining approval to take longer than normal following the election of a new government. Eventually, the minister will signal to OSFI a preferred approach which it will in turn pass on to applicants. For the moment, there will be some uncertainty about the approach that the minister will take and how that might affect the timing for transactions and other important approval matters.
When the election was called, the financial sector had been anticipating important new regulatory measures. For example, just days before the election was called, draft amendments to the regulations made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act introducing long-awaited changes to Canada's anti-money laundering rules were released for comment. The amendments were never brought into force. OSFI has launched a new round of consultations on these regulations and will be hosting a number of meetings in the coming weeks with various stakeholders. This suggests that OSFI has now been given approval by the minister to move this process forward.
The previous government had focused considerable attention on consumer protection measures and promised to introduce a new consumer protection code for banks. In addition to extending new protections for consumers and potentially strengthening the powers of the Financial Consumer Agency of Canada, a new federal code was seen by many as an important development in light of recent court decisions – including by the Supreme Court – that appear to have given the provinces more scope to subject banks to provincial consumer protection laws. It will be interesting to see whether the new minister shares a similar interest in consumer protection matters and in the inter-jurisdictional issues created by the court decisions.
In August 2014 the Department of Finance released a proposal for a bail-in regime for the large domestic systemically important banks. The previous government reiterated its intention to bring the regime into force when it released its budget last spring. However, the proposed regime required certain legislative amendments. These amendments had not been introduced when the election was called. As the implementation of a bail-in regime is an important part of Canada's international commitments to strengthening the regulatory regime for these large banks, it is fairly certain that the new minister will ultimately proceed with a bail-in regime. However, as the legislative agenda tends to be initially devoted to the important election promises of the new government, it is not certain when time will become available to pursue a bail-in regime.
The new minister arrives just in time for the scheduled review of all of the federal financial institution legislation. In Canada, the federal legislation applicable to financial institutions contains a sunset clause that requires the legislation to be re-enacted by Parliament at least every five years. The requirement is intended to ensure that the legislation remains relevant, given changes in the sector and in the national and global environments. The current five-year limit expires in March 2017. Traditionally, the minister launches the review process by releasing a discussion paper describing potential areas for review. With the sunset occurring early in 2017, a discussion paper would be expected in 2016 – perhaps as early as Spring. Given the change in government, it remains to be seen whether the new minister will want to stay the course, leaving the regulatory framework largely unchanged, or whether he will want to undertake a wholesale reconsideration of the existing framework.
In the December 4 2015 Speech from the Throne, the new government promised to end the practice of the previous government of using omnibus legislation (typically a budget implementation bill) to amend a host of existing statutes. While the omnibus bills were often criticised for lacking transparency, they did speed up the parliamentary process. Time will tell whether this commitment will result in a further delay in legislation affecting the sector.
For further information on this topic please contact John Jason at Norton Rose Fulbright Canada by telephone (+1 416 216 4000) or email ([email protected]). The Norton Rose Fulbright Canada website can be accessed at www.nortonrosefulbright.com/ca/en/.
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