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Budget 2017 – Lessons From Canada On Financial Sector Stability Measures

Budget and Plans	3569 VIEWS
Budget and Plans
3569 VIEWS

Friday, May 19, 2017 03.43PM / By Norton Rose Fulbright Canada LLP

Introduction

On March 22 2017 the government tabled its 2017 Budget. The financial services proposals are aimed at facilitating:

a more resilient Canadian financial sector;
a modernised deposit insurance framework that continues to protect the deposits of Canadians and promote financial stability; and
increased powers to combat money laundering and terrorist financing.

Financial sector stability measures

Bank resolution regime
The 2017 Budget proposes legislative amendments that would:

formally designate the Canada Deposit Insurance Corporation (CDIC) as the resolution authority for its members and require Canada's biggest banks to develop and submit resolution plans;
clarify the treatment of, and protections for, eligible financial contracts – such as derivatives – in a bank resolution process; and
reinforce the Office of the Superintendent of Financial Institutions' powers to set and administer the requirement for systemically important banks to maintain a minimum capacity to absorb losses in a resolution.

These proposals are in addition to last year's bank resolution regime changes. It is expected that the proposed amendments will aim to provide more specific and formalised powers to the CDIC and the Office of the Superintendent of Financial Institutions.

Deposit insurance review

The government proposes to introduce legislative amendments to modernise and enhance the deposit insurance framework. Two consultation papers were released on the topic of deposit insurance in Autumn 2016 by the Department of Finance and the CDIC. No specifics of the proposed amendments are included in the 2017 Budget. Based on the Department of Finance's consultation paper, the proposed amendments might expand the categories of covered deposit and address brokered deposits within the deposit insurance framework.

Strengthening oversight of financial market infrastructures

The government proposes to introduce legislative amendments to the Payment Clearing and Settlement Act to expand and enhance the oversight powers of the Bank of Canada. The Bank of Canada oversees designated financial market infrastructures (FMIs).(1) The government proposes to increase the Bank of Canada's ability to identify and respond to risks to FMIs and to implement an FMI resolution framework to allow for government intervention if a designated FMI fails.

Strengthening corporate and beneficial ownership transparency

The 2017 Budget provides that the government will collaborate with the provinces and territories to put in place a national strategy to strengthen the transparency of legal persons and legal arrangements and improve the availability of beneficial ownership information. This appears to be a response to criticism of the Financial Action Task Force (FATF) that was included in the 2016 FATF Mutual Evaluation of Canada. As no public registers that currently collect beneficial ownership information, the FATF's concern is that Canadian legal entities and legal arrangements are at high risk of misuse for money laundering and terrorist financing.

Strengthening anti-money laundering and anti-terrorist financing regime

The government proposes to introduce legislative amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to:

include the Department of National Defence and the Canadian Armed Forces in the list of disclosure recipients that can receive financial intelligence related to national security threats;
support more effective intelligence on beneficial owners of legal entities; and
make various technical and other changes to:
- strengthen the framework;
- support compliance;
- improve operational aspects of compliance for reporting entities; and
- ensure that the legislation functions as intended.

Supporting innovation

The government will release a consultation paper on a new retail payment oversight framework in 2017. Based on the results of consultations, it will propose legislation to implement an oversight framework. The previous government consulted on this topic in June 2015.

The 2017 Budget states that the government is committed to working with stakeholders to assess developments in the financial technology sector and consider implications for the federal financial sector legislative and regulatory framework. This process will be included in the 2019 federal financial sector review which is underway.

Next steps

The budget plan does not set out any timing for the introduction of legislation to implement these measures. As in previous years, it is expected that bills will begin to be released in the coming months.

For further information on this topic please contact Sharissa Ellyn at Norton Rose Fulbright Canada by telephone (+1 416 216 4000) or email (sharissa.ellyn@nortonrosefulbright.com). The Norton Rose Fulbright Canada website can be accessed at www.nortonrosefulbright.com