The financial services sector, as always, got its share of attention in Tuesday’s federal budget — from promises to help foster competition in the banking sector to a commitment to try and reduce the compliance burden where certain reporting requirements are concerned.
For the most part, the budgetary measures that are directed at the financial services sector specifically amount to either technical tweaks, or more general promises for consultation. In the former case, the budget includes a couple of promised changes to the Bank Act to facilitate reforms to the over-the-counter (OTC) derivatives markets and to financial benchmarks (in the wake of the LIBOR scandal).
In particular, the government is proposing to amend bank legislation to “create an explicit regulation-making authority” regarding the OTC derivatives markets; which, it says, will make it easier for foreign regulators to assess the equivalency of the Canadian regime, and help consolidate derivatives rules, if and when, the co-operative securities regulator is finally established.
Similarly, it plans to create a rule-making authority that would apply to Canadian banks’ submissions as part of the financial benchmark process. “This will strengthen Canada’s regulatory framework and respond to the new international standards,” it says.
In terms of other specific measures, the government promises to move ahead with a pledge from last year’s budget to ban the use of government-insured mortgages in securitization vehicles that are not sponsored by Canada Mortgage and Housing Corp. (CMHC). It isn’t taking any other immediate steps to cool the housing market, although it notes that it continues to monitor the market and will “make further adjustments as necessary”.
As for the broader brush proposals, the budget also includes a pledge to study ways of enhancing competition in the financial sector. “Potential measures include requiring large banks to provide access to deposit products from small federally regulated banks and trusts through dealers,” it suggests.
This would follow other steps to stoke competition, such as improving small banks’ access to CMHC, and greater outreach by the Office of the Superintendent of Financial Institutions (OSFI) focusing on the challenges faced by small banks.
The government also says that it will adopt new administrative measures, and introduce legislation if necessary, to make it easier for financial firms to comply with their obligations when it comes to applying financial sanctions imposed by the government — such as freezing assets, or refusing to deal with certain regimes.
In addition, the budget promises that the government will undertake the legislative and regulatory changes needed to create a demutualization framework in the property and casualty (P&C) sector in the wake of recent damaging flooding, notably in Alberta. And Ottawa indicates that it will undertake consultations on the oversight of retail payments systems in the next few months; that it will enhance the governance and accountability mechanisms in place at the Canadian Payments Association; and, that it will expand the Bank of Canada’s oversight powers in this area.
Finally, the government says that it will establish a streamlined process for merging provincially-regulated credit unions to form federal credit unions, in an effort to facilitate their move to the new federal regulatory framework. It also plans to consult with both the provinces and the industry on a plan for eliminating joint supervision of provincial credit union centrals by OSFI.