As most Canadians are aware, the federal government released its 2021 budget - Budget 2021: A Recovery Plan for Jobs, Growth and Resilience on April 19, 2021 (Budget). This bulletin will summarize the provisions of the Budget that affect or deal with financial services and related issues.
1. THE PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT (PCMLTFA)
The Budget reiterates the earlier commitment of the federal government to bring armoured car services into the legislative scope of the PCMLTFA. It is unclear if this will be a separate category of regulated entity or whether it will be made part of the money services business category.
In addition to regulating armoured car services, the Budget notes that the PCMLTFA will strengthen criminal penalties and the registration framework for money services businesses. This is likely meant to address the threat that “underground banking” poses to the Canadian financial system and the perceived exploitation of “soft” laws and weak enforcement in this area.
The Budget also indicates that the amendments will enable the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to recover its compliance costs as well as to clarify its ability to obtain information from reporting entities. This will likely result in assessments being levied on regulated entities, similar to how OSFI and the FCAC recover their expenses from federally regulated financial institutions.
The Budget also notes that the government proposes to introduce amendments to reduce the administrative burden for financial institutions filing reports under the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law). This appears to signal that the government will remove the monthly sanctions filing requirement under this legislation, but no corresponding amendment is included to remove the monthly filing requirement under the Criminal Code. As such, financial institutions may still be required to file monthly sanctions reports, although limited to the Criminal Code terrorism list only. In the context of anti-money laundering compliance costs, these burdens are somewhat minimal.
2. BENEFICIAL OWNERSHIP REGISTRY
Related to anti-money laundering measures, the Budget contemplates the implementation of a publicly accessible corporate beneficial ownership registry by 2025 to identify individuals who own and control corporations. It is hoped that the creation and maintenance of such a registry will lessen the administrative burden placed on regulated entities under the PCMLTFA who are responsible for obtaining and verifying non-public beneficial ownership information in respect of their clients.
3. THE RETAIL PAYMENTS OVERSIGHT FRAMEWORK (RPOF)
The federal government released a consultation paper in respect of the RPOF in 2017 (see Blakes Bulletin: Department of Finance Proposes New Oversight Framework for Retail Payments) but although there have been consultations on putting the framework in place since that time, there has been no real legislative progress. In the Budget, the government indicates (in the context of digital payment services) that it proposes to introduce legislation to implement the new retail payments framework. In this regard, addressing constitutional issues that the RPOF gives rise to, the Budget indicates that the government will work with the provinces to introduce the legislative framework.
4. THE BANK ACT - CONSUMER PROTECTION FRAMEWORK
Recent amendments to the Bank Act pursuant to Bill C-86 (see Blakes Bulletin: A New Federal Financial Consumer Protection Framework) established a consumer protection framework for banks that allowed, in certain circumstances, for a party to be able cancel a contract with a bank. The Budget provides that this cancellation right will only apply to retail consumers, which it defined to include “individuals and small and medium sized businesses”, excluding large businesses. While this is likely a welcome clarification to many, it should be noted that Bill C-86 continues to expand the “consumer” provisions of the Bank Act to corporations and other business entities.
The Bank Act and the Trust and Loan Companies Act contain provisions dealing with unclaimed deposits and assets, and provide measures for such funds to be remitted to the Bank of Canada if depositors cannot be found or are unresponsive to prescribed notifications. These provisions only apply to deposits and cheques payable in Canada in Canadian currency and exclude foreign denominated deposits and cheques. The Budget proposes to expand the scope of the regime for unclaimed deposits to include deposits from terminated pension plans as well as foreign denominated bank accounts. The Budget also suggests that electronic communication may be permitted to be used to provide the mandatory notices required under the federal legislation.
6. CREDIT CARD ACCEPTANCE FEES AND REWARDS
The Budget speaks to three main objectives in respect of interchange fees. These objectives are:
Lowering the average overall cost of interchange fees for merchants
Ensuring that small businesses benefit from pricing that is similar to large businesses
Protecting existing rewards points of consumers
The regulation of rewards points is something that is currently legislated in the provinces of Ontario and Quebec (see Blakes Insights). This will now be addressed at the federal level as well.
In respect of interchange rates, this topic has been the subject of ongoing discussion for many years. To date, the Government of Canada has chosen not to expressly regulate interchange, but rather to protect merchants through the Canadian Code of Conduct for the Credit and Debit Card Industry and voluntary average interchange caps introduced by the card networks. The Budget provides that following consultation with stakeholders, legislative amendments to the Payment Card Networks Act may be made to regulate interchange fees if necessary. This shows a willingness of the federal government to consult with stakeholders to reach arrangements in respect of acceptable interchange fees on a more informal basis, but if acceptable arrangements cannot be reached, the government is sending a clear signal that it will regulate interchange rates.
7. CHANGES TO CRIMINAL RATE OF INTEREST
The Budget proposes a consultation on lowering the criminal interest rate applicable to, among other things, installment loans offered by payday lenders to address predatory lending practices. Depending on the scope of the amendment, this may have significant implications for certain categories of lenders.
8. PAYMENT SYSTEMS
The Budget notes that the government intends to clarify the Bank of Canada’s authority to oversee payment exchanges under the Payment Clearing and Settlement Act (PCSA), in addition to the Bank of Canada’s current authority to regulate designated prominent payment systems and systemically important clearing and settlement systems. This is noteworthy in light of all of the changes being undertaken to the Canadian payments regime and the fast paced innovation that is occurring in the payments ecosystem.
9. CANADA DEPOSIT INSURANCE CORPORATION ACT (CDIC ACT)
The Budget notes that amendments will be introduced to the CDIC Act resolution framework to support and clarify the scope of the cross-border enforceability of the stay provisions applicable to eligible financial contracts, and to clarify the compensation scheme that applies in the context of Canada Deposit Insurance Corporation (CDIC) resolution actions. Similar amendments will be introduced to the resolution framework for clearing and settlement systems designated under the PCSA.
The Budget also proposes to introduce amendments to the CDIC Act to provide greater flexibility to CDIC in facilitating a transaction in circumstances where it takes control of a failed bank.
10. SUNSET PROVISION
The Bank Act, the Insurance Companies Act, and the Trust and Loan Companies Act are each subject to a sunset provision that requires the government to re-enact the legislation, effectively triggering a periodic policy review of the legislation. The next “sunset” review is due in 2023 and will be extended to 2025. We note that some of the amendments introduced to the federal financial institutions legislation as part of the 2018 sunset review, including the amendments supporting greater technology-based activities and investments by federal financial institutions, have not yet been fully implemented.
For further information, please contact:
Jacqueline Shinfield 416-863-3290
Vladimir Shatiryan 416-863-4154
or any other member of our Financial Services group.
Blakes and Blakes Business Class communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.
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