The federal government announced in this year’s federal budget that it is planning to introduce a bank recapitalization “bail-in” regime that would hold bank shareholders and creditors, — and not taxpayers — responsible for a bank’s risks should one of Canada’s big banks fail.
The proposed legislation would “allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating,” the budget document states. “Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as ‘too big to fail’.”
The government plans to release regulations and guidelines setting out the regime’s features later on, which would provide stakeholders with an additional opportunity to comment on proposed changes.
In addition, the feds aim to propose amendments to the Bank Act and introduce a new chapter focused on enhancing consumer protection. The existing consumer protection provisions are dispersed throughout the Bank Act and related regulations.
“The new consumer chapter of the Act will bring together these disparate provisions to create a comprehensive, consolidated framework and include targeted and more flexible consumer protection rules to better respond to Canadians’ changing needs,” the budget document states.
“It will also provide a set of guiding principles, reflecting that banks should act fairly and responsibly and that consumers should be able to make informed financial decisions for themselves.”
The feds also announced that they intend to renew financial sector legislation. To that end, the budget states that the feds will provide Department of Finance Canada with $4.2 million over five years, starting in fiscal 2016–17, to undertake a legislative review of the financial services sector and begin consulting stakeholders in the coming months. In addition, the current sunset provisions mandating Parliament’s renewal of banking and insurance legislation every five years will be extended by an additional two years to March 29, 2019.