2024 Federal Budget: Banking, Financial Services Highlights

On April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister Chrystia Freeland unveiled Budget 2024 (Budget). The Budget, titled “Fairness for every generation,” sets out the federal government’s policy initiatives for the next fiscal year. The legislative amendments to implement the Budget’s policy goals will follow in the federal government’s Budget Implementation Act. Our Blakes Financial Services Regulatory group has highlighted the major policy initiatives impacting financial services regulation below. 

Consumer-Driven Banking

Consumer-driven banking, more commonly known as open banking, is effectively a system that supports the use of application programming interfaces (APIs) for the secure transfer of financial information to approved financial services providers, including banks, credit unions and accredited fintech companies. At its core, it is intended to allow consumers and small businesses to have greater control over access to and use of their financial data to better manage their finances and improve their financial outcomes. Although progress on open banking in Canada has been slow to materialize and has garnered criticism from and frustrated proponents of open banking, the consumer-driven banking announcements included in the Budget and the 2024 Budget: Policy Statement on Consumer-Driven Banking (Policy Statement) released concurrently with the Budget, represent a significant step forward. 

Canada’s Consumer-Driven Banking Framework (Framework) consists of six core elements: 

1. Governance: The federal consumer protection regulator, the Financial Consumer Agency of Canada (FCAC), will be responsible for oversight, administration and enforcement of the Framework. In addition to expanding the FCAC’s mandate, legislative amendments to the FCAC Act will establish a new position, called the Senior Deputy Commissioner of Consumer-Driven Banking at the FCAC, to be responsible for fulfilling the FCAC’s consumer-driven banking mandate. C$1-million in funding will be allocated to the FCAC to support preparation for its new responsibilities, but the FCAC will transition to a cost-recovery model once the Framework is established.
2. Scope: The Framework will be adopted using a phased approach with respect to participants, breadth of data sharing and functionality, but all entities entering the Framework will be required to comply with technical and security requirements. The Framework will be limited to “read” access, enabling the exchange of data only. As part of the initial phase, Canada’s largest banks (i.e., those that meet a specified threshold for retail volumes) will be required to participate. Remaining federally regulated financial institutions (FRFIs), credit unions, and other entities seeking accreditation can participate in an opt-in basis, and clear requirements will be established for allowing fintech companies and other entities to participate. Provincial credit unions and Crown corporations that act as banks and that opt-in to the Framework will not be subject to direct oversight by the federal market conduct regulator – the provinces and territories will retain the authority to impose their own requirements on entities subject to their jurisdiction. 
   
   As part of the initial phase, the type of data that can be shared at the request of a consumer will be limited to chequing and savings account operations, investment products available through online portals, and lending products, such as credit cards, lines of credit, and mortgages. Notably, the scope of the Framework contemplates the movement of data, and when authorized by the consumer, the in-scope data must be shared in its unaltered, original format, free of charge.
3. Accreditation: Entities wishing to become accredited to participate in the Framework need to apply to the FCAC, which will also be tasked with maintaining a central registry listing authorized participants and will have the authority to suspend or revoke the accreditation of a participant if it fails to meet its obligations or presents a risk to consumers. Once accredited, the entity will be permitted to request financial data, at the instruction of a consumer, from another financial services provider and participants will, in turn, be obligated to follow all common rules and make available any in-scope data to other participants. Authorized participants will be subject to mandatory reporting of key information on a regular basis to maintain their accreditation. 
4. Common rules: The Framework will include rules to address consumer protection interests, including: 
   • Privacy – Participants will be required to reconfirm consent every 12 months or following certain events. Participants will also be required to: (i) provide consumers with “consent dashboards” to ensure consumers have real-time knowledge of who has their data and who can maintain control over the accessibility of their data and the ability to revoke it, and (ii) adopt user experience guidelines to govern all areas of consent and revocation. 
   • Liability – The Framework outlines a clear liability structure that provides that liability moves with the data and rests with the party at fault if anything goes wrong. In each case, the consumer will not be liable for financial losses incurred because they shared their data within the Framework. The data provider maintains liability toward the consumer for data under its control. Participants will also be required to institute policies and procedures for complaint handling and redress, which are requirements that the Policy Statement suggests will align with current financial sector practices.  
   • Security – Legislation will be passed to establish security requirements for all participants that will serve as a “floor” to safeguard consumer data. Ongoing reporting obligations that the FCAC will oversee will also apply.  
5. National Security: Legislation will be introduced to expand the Minister of Finance's existing authority to issue directions to the FCAC to, for instance, ensure the protection of national security and the best interests of Canada’s financial system.
6. Technical Standard: The Framework will also include a government-mandated single technical standard for data sharing that forms the specifications to which APIs are built and which will be compatible with policies managed by the U.S. Consumer Financial Protection Bureau to ensure interoperability with Canada’s largest trading partner.
    

The government will review the Framework after three years to ensure it continues to meet core policy objectives, and reflects the needs of Canadians.

For the next steps, the Budget notes that the federal government intends to introduce two separate pieces of legislation to establish the Framework. In Spring 2024, the government intends to lay the groundwork for the foundational aspects of the Framework, including governance, scope and details for the technical standard, with the remaining elements slated to be introduced as part of additional legislation that will follow later in Fall 2024.

Anti-Money Laundering Legislation

The Budget contemplates significant changes to Canada’s anti-money laundering legislation.

More Regulated Entities

Specifically, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) will be amended to add even more regulated entities within its scope. The Budget indicates that factoring companies, cheque-cashing businesses, and leasing and financing companies will now be subject to the PCMLTFA. As such, almost all entities providing financial services in Canada or to Canadians will now be subject to the PCMLTFA and required to comply with all of its requirements.

Information Sharing

It has long been recognized that for anti-money laundering purposes, information sharing between regulated entities assists in developing a clearer picture of criminal networks and thus is a cornerstone to an effective anti-money laundering regime. In that regard, the Budget contemplates amendments to the PCMLTFA to allow for information sharing among regulated entities to detect and deter money laundering, terrorist financing and sanctions evasion, with an oversight role for such sharing to be carried out by the Office of the Privacy Commissioner. This should greatly benefit the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), law enforcement, and the regulated entities themselves. Hopefully, information sharing will not be subject to onerous process requirements.

Transparency for Penalties

While FINTRAC has recently been providing more information for the reasons that it imposes a monetary penalty on a regulated entity, the Budget contemplates allowing FINTRAC to publicize an even greater level of detail regarding violations to strengthen transparency and compliance. This will help regulated entities understand how FINTRAC interprets the requirements of the PCMLTFA that they may not have otherwise been aware of.

Criminal Code Amendments

The Budget also contemplates amending the Criminal Code to allow courts to issue an order requiring a financial institution to keep an account open to aid in the investigation of a criminal offence. This change was contemplated in the consultation paper on the PCMLTFA released by the Department of Finance in 2023. It is hoped that with respect to any orders issued under this provision, a corresponding safe harbour will be granted in the PCMLTFA that insulates a financial institution from liability for keeping an account open in these circumstances.

Another amendment to the Criminal Code enables courts to issue repeating production orders that would allow law enforcement to obtain ongoing specified information on activity in an account or in multiple accounts connected to a person of interest in a criminal investigation. Where such an order is in place, it will require a financial institution (or other regulated entity) to provide ongoing information to law enforcement regarding account activity. It is hoped that where such an order is in place, there will be an exemption from the additional burden of filing suspicious transaction reports, given that the information is shared directly with law enforcement. 

In addition, as announced in the 2023 budget, the Canada Financial Crimes Agency (CFCA) will become Canada’s lead enforcement agency against financial crime. It will bring together the expertise necessary to increase money laundering charges, prosecutions, convictions, and the seizure of criminal assets. Notably, concerning funding, the Budget proposes to provide the Department of Finance with C$ 1.7-million over two years, starting in 2024–25, to finalize the design and legal framework for the CFCA.

Enhancing the Canadian Mortgage Charter

The Budget expanded on the Canadian Mortgage Charter (Mortgage Charter) introduced in the 2023 Fall Economic Statement (see our November 2023 Blakes Bulletin: Key Updates: Open Banking and Canadian Mortgage Charter in Fall Economic Statement). In that regard, the Budget provides for additional measures to benefit consumers, including:

• It is contemplated that a consumer’s rent payment history will now be reportable to consumer reporting agencies, which could improve renters’ credit scores and make it easier for a renter to be approved for a mortgage. We note that for non-financial institutions to report to credit bureaus (i.e., landlords), significant technology builds may be required. As such, the Budget requests that landlords, banks, credit bureaus, and fintech companies prioritize the development of technologies that will allow rent payments to be reported to credit bureaus. It is unclear who will bear the cost for this and whether consumers can be charged for this benefit.
• The Mortgage Charter contemplates allowing for a 30-year amortization period for first-time home buyers buying newly constructed insured homes. The longer amortization period will reduce monthly payments, making it somewhat easier to afford a first mortgage. Of course, this means that consumers will ultimately incur more household debt, something that the federal government has previously expressed concern about.
• The Budget indicates that greater expectations will be placed on lenders to proactively contact borrowers, including making permanent mortgage relief measures available, where appropriate, to help borrowers make informed mortgage decisions, such as before their mortgage renewal. In some instances, the expectation is that lenders should contact borrowers at least 24 months in advance to begin discussing options. While this works in principle, in practice, understanding a mortgagor’s financial circumstances two years before a renewal period may prove challenging.
• The Budget also notes that the federal government is exploring new measures to allow for alternative financing products, such as halal mortgages. Under the current regulatory regime, these products are difficult to offer because the required disclosures and mortgage laws do not work well with halal products. The Budget indicates that there may be changes in the tax treatment for these types of products or the creation of a new regulatory sandbox for financial service providers. 

Predatory Lending Initiatives

While the Budget does not contemplate further lowering the criminal rate of interest below 35% annual percentage rate, it does include several new measures intended to protect financially at-risk Canadians from predatory lending. For example, the Budget indicates that the criminal rate of interest provision in the Criminal Code will be expanded to also include the “offering of credit” at a criminal rate of interest. Aside from civil actions, criminal actions for a breach of the Criminal Code where a “criminal rate of interest” is charged are rare. As a result, the Budget provides that the Criminal Code will be amended to allow for the prosecution of illegal and predatory lenders without the approval of the Attorney General, currently a requirement under the Criminal Code. It will be interesting to see if this results in more criminal prosecutions under the criminal interest rate provision of the Criminal Code.

The Budget also indicates that the federal government intends to work with provinces and territories to harmonize and enhance consumer protections regarding predatory lending. This includes enhancing transparency and marketing practices for high-cost and payday loans and limiting advertising of these products. Other recommendations include strengthening payday loan regulations, requiring borrowers to repay in installments, and prohibiting loan rollovers. These provisions will have a significant effect on those engaged in subprime lending.

Affordable Banking Products

The Budget indicates that the FCAC is currently working with banks to secure new agreements for enhanced free and affordable banking accounts. These include no monthly fee product offerings and offerings capped at C$4 per month. Additionally, the Budget proposes significant changes to non-sufficient funds (NSF) fees, to be captured in new NSF fee regulations to be released in the coming months. These changes include:

• Capping the NSF fees charged by banks to C$10 per instance
• Requiring banks to alert consumers that they are about to be charged an NSF fee and providing a grace period to deposit additional funds to avoid the fee
• Prohibiting multiple NSF fees when the same transaction reoccurs
• Restricting the number of NSF fees that may be charged every 72 hours
• Prohibiting NSF fees for small overdrawn amounts under C$10

These new measures may require significant reprogramming of bank systems to implement. We note that this will apply only to banks and not to provincially regulated credit unions, nor will it apply to commercial organizations that accept cheques in the normal course of their business and charge NSF fees where there are insufficient funds. 

Federal Deposit Insurance Review

The Budget notes that the federal government will review the federal deposit insurance framework. Hopefully, this will include CDIC flow-through insurance, as is in place in the United States, to protect consumers where a third party is holding their funds in the third party’s own account.

Diversity Disclosure in the FRFI Statutes

The federal government will introduce legislative amendments to the FRFI Statutes to adapt the Canada Business Corporations Act (CBCA) diversity disclosure model for application to FRFIs. As a result, FRFIs will need to provide annual disclosure of diversity on boards and in senior management.

Amending the Bank Act to Support the Transition from CDOR to CORRA

The Budget indicates that legislative amendments to the Bank Act will clarify the definitions of deposit-type instruments and principal-protected notes to ensure that financial instruments using interest rate benchmarks such as the Canadian Overnight Repo Rate Average (CORRA) are treated as deposit-type instruments for the purposes of the Bank Act. This change is required to support operations following the phase-out of Canadian Dollar Offered Rate (CDOR) as of June 28, 2024.

For more information, please contact:

or any other member of our Financial Services Regulatory group.