Federal Fall Economic Statement 2023: measures relating to the financial services sector

On November 21, 2023, the federal government (the Government) released its 2023 Fall Economic Statement (the Statement). The Statement included several measures relating to the financial services sector. These measures can be categorized as follows: 1) measures fostering competition, 2) consumer-focused measures, and 3) measures to protect the safety and integrity of Canada’s financial system.

What you need to know

• In the 2024 federal budget, the Government intends to introduce changes to:
  • provide for the establishment of a consumer-driven banking (open banking) framework by creating legislation to address the following core elements: governance, scope, accreditation, common rules and technical standards;
  • amend the Canadian Payments Act to expand membership eligibility in Payments Canada to payment service providers, credit union locals that are members of a credit union central, and operators of designated clearing houses; and
  • address financial crimes and strengthen Canada’s AML/ATF regime through proposed legislative measures that build on the steps outlined in Budget 2023.

Measures fostering competition

Several of the measures announced in the Statement will encourage competition by opening up the financial services sector to non-financial-institution players, such as fintechs and payment service providers.

New legislation announced on open banking

Following months of consultations and the publication of various reports, the Government has announced that it will introduce legislation in the 2024 federal budget to establish a consumer-driven (open banking) framework (the Framework). The “Policy Statement on Consumer-Driven Banking” (the Open Banking Statement) released with the Statement provides details on the core elements of the Framework.

1. Governance. Notwithstanding the Government’s prior commitment to a “hybrid” approach to the Framework where both the Government and the industry would collaborate, the Government now seems to be leaning towards an approach where the Government would take on a larger role, as the legislation will establish a government-led entity that will supervise and enforce the Framework. To respect provincial jurisdiction, the Framework will allow provincial entities to “opt in” to governance, supervision and participation.
2. Scope. The Government will adopt a phased-in approach to the following three elements:
   
   
   • Participation. Initially, all federally regulated institutions that meet a certain threshold for retail volume will be required to participate, whereas other regulated institutions and accredited third parties will have the option to opt in.
   • Sharing customer data. All entities will be equally subject to consumer-permissioned data-sharing requests (reciprocal access).
   • Functionality. When authorized by a consumer, in-scope data would be shared in its unaltered, original format, free of charge.
3. Accreditation. The proposed accreditation process appears very similar to the registration requirements under the Retail Payment Activities Act (RPAA), as entities who wish to share financial data will need to be formally accredited by an accrediting body that will evaluate applications and publish the list of accredited entities in a central registry. Prudentially regulated financial institutions will be exempted from accreditation. The Open Banking Statement is silent as to how this accreditation system will align with the RPAA’s registration requirements but notes that the national security safeguards imposed by the Framework would align with existing financial sector frameworks.
4. Common Rules. To ensure that consumers benefit from consistent protection, the Framework will establish a common set of rules for privacy, security and liability.
   
   
   • Privacy. In addition to complying with pre-existing privacy obligations, participants will be required to comply with the Framework’s new rules focused on financial data-sharing, particularly with respect to consumer consent where participants will be required to establish a standardized process for consent and revocation.
   • Liability. Liability has been one of the more heavily debated issues during consultations. The Open Banking Statement clarifies that the Framework will clearly set out that the liability moves with the data and rests with the party at fault. For example, a data provider’s liability towards that consumer for how the data is managed or protected ceases once it leaves the institution. Participants will also be required to implement policies and procedures to address consumer complaints and redress.
   • Security. To ensure accredited and mandated entities protect consumers’ data, Canada’s framework will establish clear security requirements. The key security requirements relate to operational risks; namely, information security and cybersecurity.
5. A single technical standard. The Framework will mandate the adoption of a single technical standard for customer-permissioned financial data-sharing. Secure application programming interfaces (APIs) will replace screen-scraping and, as a result, decrease the risk of personal data being compromised. The government is currently conducting consultations and will announce later the technical standard.

Once in force, we expect the Framework will facilitate greater competition in the financial services sector because it will encourage customers to use financial services provided by fintechs and payment service providers (who will be governed by the Framework through platforms that use secured methods of data-sharing).

Amendments to Canadian Payments Act

Delivering on its commitment announced in June 2023, the upcoming budget will amend the Canadian Payments Act to expand membership eligibility in Payments Canada to payment service providers supervised by the Bank of Canada, credit union locals that are members of a credit union central, and operators of designated clearing houses.

Proposed amendments to federally regulated financial institution legislation

The government will introduce legislation to permit virtual meetings and clarify the scope of permitted non-financial activities and adjust the scope of permitted non-financial activities by financial institutions.

Consumer-focused measures

The Statement also referred to several consumer-focused measures that had previously been announced, including the following:

• The 2024 Budget will provide an update to the previously announced plans to reduce non-sufficient funds (NSF) fees.
• The Financial Consumer Agency of Canada (FCAC) will continue its current efforts to expand low- and no-cost accounts and services by making these accounts and services available to more Canadians, and by improving the features of these products.
• The Statement also confirmed the Government’s decision that, as of November 1, 2024, the Ombudsman for Banking Services and Investments (OBSI) will be the sole external complaints body for the banks.

Measures to protect the safety and integrity of Canada’s financial system

Anti-Money Laundering and Anti-Terrorist Financing Regime (AML/ATF regime) measures

The Statement announced measures from the Government to amend legislation to address financial crimes and strengthen Canada’s AML/ATF regime. These proposed legislative measures build upon steps addressed in Budget 2023.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its regulations are proposed to be amended to:

• combat sanctions evasion by permitting the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to use its expertise to develop intelligence products and, where appropriate, disclose its findings to law enforcement partners to support law enforcement and Canada’s sanction-based asset seizure and forfeiture regime;
• address fraud and money laundering risks in the real estate sector by extending requirements under the PCMLTFA to title insurers and by requiring real estate representatives to identify unrepresented parties and third parties in real estate transactions;
• broaden the PCMLTFA framework to apply to intermediary companies, known as “acquirers”, offering cash withdrawal services for white-label automated teller machines;
• improve FINTRAC’s strategic intelligence products by allowing it to list names of foreign entities that present AML/ATF risks; and,
• make technical amendments to the PCMLTFA to address inconsistencies and close loopholes.

Several of these points were previously addressed in the Government’s June 2023 “Consultation on Strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime”, in which feedback was sought in connection with the 2023 Parliamentary Review.

The Government also proposed changes in the Statement to the Criminal Code to increase the operational effectiveness of Canada’s AML/ATF regime by:

• addressing challenges with prosecuting third-party money launderers by amending the money laundering offence;
• responding to the rapidly evolving nature of financial crime by adapting the production order for financial data so that it more effectively applies to accounts associated with digital assets; and
• modernizing provisions related to the search, seizure and restraint of proceeds of crime.

Lastly, the Government proposed to enhance the authorities of the Canada Border Services Agency (CBSA) and create a Trade Transparency Unit within the CBSA to detect, deter and disrupt trade-based financial crime.

Other initiatives underway

The Government also took the opportunity in the Statement to remind Canadians of a number of other financial services-related initiatives that are currently underway, such as 1) the development of a national security review process of payment service providers (as required under the RPAA); 2) the Office of the Superintendent of Financial Institutions (OSFI) consultation regarding its draft Integrity and Security Guideline; and 3) the Government consultation regarding its review of federal financial sector legislation.