2024 Federal Budget: Update on Financial Services Regulatory Policy Changes

Introduction

On April 30, 2024, the federal government tabled a Notice of Ways and Means Motion to introduce the Budget Implementation Act, 2024, No. 1 (Bill) to codify many of the provisions of the 2024 budget (Budget 2024) (see our April 2024 Blakes Bulletin: 2024 Federal Budget: Banking, Financial Services Highlights). The over 660-page omnibus Bill includes the outline of a framework for consumer-driven banking and other important provisions affecting financial services. Our Blakes Financial Services Regulatory group highlights the significant provisions of the Bill below.

Consumer-Driven Banking

Building on the Consumer-Driven Banking Framework (Framework) set out in the Budget 2024: Policy Statement on Consumer-Driven Banking (which we discussed in our earlier Blakes Bulletin mentioned above), the Bill sets out key legislative components of the government's open banking initiative. These components include: 

1. Enacting the Consumer-Driven Banking Act (CDB Act) to establish the Framework
2. Clarifying the application of the CDB Act
3. Enabling the Minister of Finance to establish a technical standards body to develop consumer-driven banking (CDB) technical standards
4. Setting out offences and punishments for contravention of certain provisions of the CDB Act
5. Formalizing the role of the Financial Consumer Agency of Canada (FCAC) within the Framework

The CDB Act: Purpose and Application  

The Bill enacts the CDB Act, which sets out Canada’s open banking framework enabling consumers, including small businesses, to direct that their data be shared among participating entities of their choice. In that regard, the CDB Act will be limited in application to:

• Deposit accounts 
• Registered and non-registered investment accounts
• Payment products, including credit cards and pre-paid payment products
• Lines of credit, mortgages or hypothecs and other kinds of loans
• Other products or services provided for in the regulations

Notably, with respect to the scope of products and services included, the CDB Act excludes from its scope “derived data,” which is defined as “data about a consumer, product or service that has been enhanced by a participating entity to significantly increase its usefulness or commercial value.” Importantly, the CDB Act limits data-sharing to “read access” only, meaning that data must be shared in a manner that does not enable the receiving participant to edit the data on servers used by the providing participant. “Read access” can be contrasted with “write access,” which would allow the receiving participant to carry out certain authorized activities (such as authorizing payments and transacting) on behalf of the customer, and which is not in scope for the initial Framework phase. The CDB Act clarifies that the restrictions imposed on banks with respect to sharing consumer information with insurance companies or brokers continue to apply.

Technical Standards 

The CDB Act provides for the Minister of Finance to designate by order a technical standards body that will be responsible for establishing, maintaining and overseeing the technical standards (referred to in Budget 2024 as the “pipes”) for the flow of data that falls within the scope of the CDB Act. 

The CDB Act also sets out certain obligations for the technical standards body, including a requirement to submit an annual report to the Senior Deputy Commissioner in accordance with the regulations, as well as to notify the Senior Deputy Commissioner of any change that has a significant impact on the technical standards body or the technical standards. 

The FCAC: Expanded Mandate and the Senior Deputy Commissioner

Finally, the Bill also makes important related amendments to the Financial Consumer Agency of Canada Act (FCAC Act) to support CDB. The amendments include expanding the FCAC’s mandate to supervise participating entities, the external complaints body and the technical standards body, monitoring and evaluating trends and emerging issues that may impact consumers and CDB, fostering participation in CDB (in cooperation with federal and provincial organizations), and fostering consumers’ understanding of CDB and related issues. 

Like other federal statutes, the FCAC Act specifies that activities carried out by the FCAC in furtherance of its CDB objects are to be carried out on a cost-recovery basis, with the Commissioner assessing the amount of expenses incurred in connection with the objects annually. This process parallels what is currently in place for assessing expenses incurred in relation to the FCAC’s supervision of payment card networks and operators.

Related amendments have also been made throughout the FCAC Act to reflect the regulator’s new role, including expanding penalties to include violations of the CDB Act and the powers of the Senior Deputy Commissioner.

At this point, the coming into force date of these provisions remains uncertain.

Changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act 

The Bill makes important amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) to address the sharing of personal information among regulated entities. In that regard, the PCMLTFA will now permit an entity regulated under the PCMLTFA (Regulated Entity) to share an individual’s personal information with another Regulated Entity without that person’s knowledge or consent if:

1. The information was collected in the course of the Regulated Entity’s activities
2. The disclosure is reasonable for the purpose of detecting or deterring money laundering, terrorist financing or sanctions evasion
3. Making the disclosure with the individual’s knowledge or consent would risk compromising the ability to detect or deter money laundering, terrorist financing or sanctions evasion, and
4. The disclosure is made in accordance with the regulations

The PCMLTFA will also expressly allow a Regulated Entity to collect and use personal information that is shared with them under these provisions without consent, if the collection and use is carried out in accordance with the regulations.

Importantly, the PCMLTFA has a safe harbour in respect of the sharing of information and, in that regard, provides that no civil or criminal proceedings will lie against a person who collects, uses or discloses information under these provisions in good faith.

While regulations are needed to obtain a full understanding on the conditions that will be applied to permit the collection, use and disclosure of personal information in these circumstances, this is a positive step forward in assisting Regulated Entities. The PCMLTFA contemplates that there will be regulations containing codes of practice in respect of the collection, use and disclosure of personal information and that the Privacy Commissioner will have a role in relation to those codes.

In keeping with the changes proposed to the PCMLTFA, the Consumer Privacy Protection Act is being amended to permit disclosure of personal information without a person’s consent as permitted under the PCMLTFA.

In addition to the foregoing, we note the following changes to the PCMLTFA:

• With respect to the categories of Reporting Entities that are subject to the PCMLTFA, we note that currently the PCMLTFA defines a money services business (MSB) to include persons or entities that issue or redeem money orders, traveller’s cheques or other similar negotiable instruments except for cheques payable to a named person or entity. The exclusion in respect of “cheques payable to a named person or entity” has now been deleted with the result that entities that engage in cheque cashing activities will now be considered to be MSBs under the provisions of the PCMLTFA.
• Similarly, the provisions that will apply to armoured car carriers (defined as those that transport currency, money orders, cheques and similar negotiable instruments) previously excluded the transportation of cheques payable to a named person or entity. That exclusion has now been removed as well.
• With respect to notices of violation, as noted in Budget 2024, the PCMLTFA is being amended to expressly allow the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to disclose the reasons for its decision when it makes a notice of violation public, including relevant facts, analysis and considerations that formed a basis for the decision.
• As indicated in our earlier Blakes Bulletins (see here and here) one of the recent changes made to the PCMTLFA was to require MSBs to undertake criminal record checks on their agents. The PCMTLFA provides that the penalty for breaching those provisions will be a fine of up to C$500,000 or imprisonment of up to five years or both.

The Criminal Code: Keep Open Orders

As outlined in Budget 2024, the Criminal Code (Canada) (Criminal Code) is being amended to allow an officer to apply to court to require a financial institution to keep an account open when dealing with a person who may be engaged in money laundering or terrorist financing activity so that their actions may be monitored. Given the expectation that Regulated Entities are required to continuously file suspicious transaction reports where there are reasonable grounds to suspect that a client may be engaged in money laundering or terrorist financing activity, many Regulated Entities make the choice to derisk these types of clients.  

These amendments allow law enforcement to require that a financial institution keep an account open unless the holder themself requests that it be closed. In order to make such an order, a judge must be satisfied that (upon being provided with an oath in a prescribed form) there are reasonable grounds to suspect that an offence under a federal or provincial act has or will be committed and that keeping the account open will assist in the investigation of the offence. Unless renewed, these orders will stay in force for 60 days. Persons who receive these orders are required to notify law enforcement in the event that the account is closed or deactivated at the request of the account holder.

In addition to requiring that an account be kept open, the Criminal Code will provide a right to law enforcement to apply to a court to require the production of documents, which may include copies of reports submitted to FINTRAC (including suspicious transaction reports). This will allow law enforcement to obtain information from Regulated Entities more expeditiously without having to go through FINTRAC to receive this information.

Because the threshold to obtain these orders is “reasonable grounds to suspect,” it follows that upon the receipt by a Regulated Entity of any order under these provisions of the Criminal Code, suspicious transaction reports will be required to be filed with FINTRAC.

The Bill also includes a new provision that provides that nothing in the Criminal Code is meant to prohibit an officer from voluntarily requesting that an account be left open or from requesting documentation. Any person who does so on a voluntary basis will not be subject to criminal or civil liability for doing so.

The Criminal Code (Criminal Rate of Interest)

As part of its continued efforts to crack down on predatory lending announced in last month’s Budget 2024, the government is introducing more changes to the criminal interest rate provisions in the Criminal Code, including new offences related to the “offering of credit” and “advertising” of credit offers at a criminal rate of interest. 

Under the current criminal interest rate provision, there are two separate categories of possible offences: it is an offence to (1) enter into an agreement or arrangement to receive interest at a criminal rate; and to (2) receive a payment or partial payment of interest at a criminal rate. This round of amendments to section 347(1) of the Criminal Code paves the way for two additional categories of offences that will apply to every person who “offers to enter into an agreement or arrangement to receive interest at a criminal rate or advertises an offer to enter into an agreement or arrangement that provides for the receipt of interest at a criminal rate.” 

From a lending perspective, these changes could result in additional compliance challenges and related costs for certain lenders and may be particularly impactful for non-prime lenders. Specifically, in addition to the increased compliance burden and potential costs associated with the operational changes required in connection with the impending lowering of the criminal interest rate to 35% APR, lenders charging fees that may be captured within the definition of “interest” for the purposes of the criminal interest rate provision will now also need to pay more particular attention to their credit advertising and marketing strategies for all channels that they operate. 

The Bill also includes updates to contemplate the new offences in the definitions of “credit advanced” and “interest,” as those terms apply for the purposes of the criminal interest rate provisions. Specifically, “credit advanced” would now also include credit that “…would be advanced if an agreement or arrangement — as offered, including in an advertisement — was entered into,” whereas the definition of “interest,” which is already very broadly defined for the purposes of the current criminal interest rate provisions, would be further expanded to include all charges and expenses “…that would be paid or payable if such an agreement or arrangement was entered into …. or would be advanced…or would be paid or payable….” An additional change to the definition of “interest” is proposed to specifically include the concept of “hypothec,” the Quebec equivalent of a mortgage, as part of the carve-outs from the fees and charges that constitute “interest” for the purposes of the criminal interest rate. Notably, under the existing provisions, the concept of “mortgage” is already used. So, while a helpful clarifying change, it is likely less significant from an operational perspective as hypothecs would likely already have been interpreted as being captured as a “mortgage.” 

Separately from these changes but consistent with the government’s promise in Budget 2024 to amend the Criminal Code to enhance enforcement of the criminal rate of interest, the Bill repeals the requirement for consent of the Attorney General to initiate criminal interest rate proceedings under section 347(7) of the Criminal Code, thereby allowing for the prosecutions of illegal and predatory lenders without the approval of the Attorney General. 

Additionally, as part of the proposed reforms, consequential amendments are being introduced for consumer payday lenders that fall within the exemption provisions under section 347(1). While the exemptions will remain unchanged and continue to apply only to consumer payday lenders where certain prescribed conditions are met, the amendments are intended to ensure that payday lenders that meet the prescribed conditions will continue to be exempt from all of the categories of criminal interest rate offences, including the two new offences related to the offering of credit and advertising of credit at a criminal rate of interest. These prescribed conditions include (1) the province at issue must have in place a payday loan regime that provides for limits on the total cost of borrowing and must be designated by the federal government as exempt from the application of the criminal interest rate provisions; (2) the loan must be C$1,500 or less and for a maximum term of 62 days or less; and (3) the lender must be provincially licensed as a payday lender. Specifically, the proposed changes would exempt payday lenders that meet the prescribed conditions in circumstances where the payday lender “…has entered into or has offered to enter into a payday loan agreement to receive interest, has advertised an offer to enter into a payday loan agreement that provides for the receipt of interest or has received interest under a payday loan agreement, if (a) the amount of money that is or would be advanced under the agreement is $1,500 or less and the terms of the agreement is or would be 62 or less….” 

Finally, the Bill also includes coordinating amendment provisions relating to changes proposed but not yet in force under the Budget Implementation Act 2023, No.1 (Budget 2023). Given the uncertainty surrounding the implementation timeline for other amendments to the criminal interest rate provisions, the coordinating amendment provisions contemplate that technical changes may be required to the statutory provisions in the Bill. For example, with respect to section 347.01, which provides for possible exemptions from the criminal interest rate provisions that were introduced as part of the proposed changes in Budget 2023, the coordinating amendments in the Bill would ensure that any exemptions made under section 347.01(1) also include the new offences to the criminal interest rate introduced in this Bill. 

With respect to the timeline for implementation, the Bill provides that the proposed amendments to add the two new offences for offering and advertising credit, the related changes to the definition of “interest” and “credit advanced” as well as the changes to the exemption provisions applicable to payday lenders discussed above will come into force by order of the Governor in Council, but the repeal of the requirement for the consent of the Attorney General to commence a criminal interest rate proceeding will not come into force until 30 days after the Bill receives Royal Assent.  

Bank Act: CORRA and Deposit type Instruments

In order to support the phase-out of the Canadian Dollar Offered Rate (CDOR) and transition to the Canadian Overnight Repo Rate Average (CORRA) on June 28, 2024, amendments are proposed to the Bank Act. These changes introduce a new definition for “interest rate benchmark,” which will be defined as “a rate that is determined from time to time by reference to an assessment of one or more underlying interests, is made available to the public, either free of charge or on payment, and is used for reference for determining the interest payable, or other sums that are due, under loan agreements or other financial contracts or instruments.”

Related to that change, references to “bankers acceptance rate” used in the Bank Act, including in the definition of “deposit type instrument” will be replaced with the new concept of “interest rate benchmark.” Additionally, as promised in Budget 2024, the definition of “principal protected note” will also be amended to clarify that financial instruments using interest rate benchmarks such as CORRA are treated as deposit-type instruments for the purposes of the Bank Act, thereby providing clarity to bank issuers offering CORRA-linked financial instruments.

Diversity Disclosure in the FRFI Statutes

The Bill also introduces legislative amendments to the Bank Act, the Insurance Companies Act, and the Trust and Loan Companies Act (FRFI Statutes) to adapt the Canada Business Corporations Act diversity disclosure model for application to FRFIs. While many of the important details surrounding the specific information requirements will be set out in regulations, the new provisions will require FRFIs to make available on an annual basis prescribed information respecting diversity among directors and members of senior management.

Extending the Sunset Date of the FRFI Statutes

The Bill also introduces legislative amendments to the FRFI Statutes to extend the sunset date (beyond which the financial institutions can no longer carry on business) to June 30, 2026, from the current date of June 30, 2025.

For more information, please contact:

or any other member of our Financial Services Regulatory group.