Introduction

The Canadian Bankers Association (CBA) welcomes the opportunity to respond to the consultation issued by the Department of Finance (Finance) as part of its Financial Institutions Statutes Review titled: Consultation on Upholding the Integrity of Canada’s Financial Sector (Consultation). The CBA is the voice of more than 60 domestic and foreign banks that help drive Canada’s economic growth and prosperity. The CBA advocates for public policies that contribute to a sound, thriving banking system to ensure Canadians can succeed in their financial goals.

Canada’s banks have a longstanding record of supporting Canada’s economy. In 2022 they contributed approximately $70 billion (or 3.6%) to Canada’s GDP, paid close to $18 billion in taxes, and provided $26 billion in dividend income to Canadian seniors, families, pension plans, charities, and endowments. The industry has invested approximately $115 billion in technology across Canada over the last decade and operates a network of over 5,600 branches across Canada providing accessible, affordable, and competitive banking services. The banking industry employs more than 280,000 people throughout the country, a workforce that is inclusive and talent‑driven.

Banks also play an important role in the finance and business ecosystem. According to CBA statistics, at the end of 2022, Canadian banks have lent, in total, over $1.5 trillion in residential mortgages and authorized $1.7 trillion in business credit. Of business lending, $278 billion was authorized to small businesses.

Our system is well‑managed and well‑regulated, and banks operating in Canada are internationally recognized as among the world’s most stable, demonstrating stability for the long term and in challenging times. During the Covid pandemic, banks offered significant relief, including over 800,000 mortgage deferrals, 1.29 million individual payment deferrals, and waiving $117 million in fees. Banks also partnered with the government to help deliver CEBA loans to nearly 900,000 small businesses, representing $49.2 billion in credit. Banks were able to achieve this broad outreach to Canadians, in large part, through digital communication.

The banking sector is part of an ever‑expanding financial sector eco‑system that is increasingly seeing new players with new business models emerging in the competitive landscape. The combination of maturing digital technology, the growth of ecommerce, and a strong investment climate for innovative business models has fostered the growth of new types of financial sector firms such as payment services providers, buy‑now‑pay‑later companies, digital currency exchanges, robo‑advisors, and other business models that were never contemplated when most of Canada’s financial sector legislative architecture was designed. Layered on top of that is the increasing entry of large technology firms, with strong brand presence, into the financial services marketplace. These global technology giants are becoming central players in the Canadian financial sector, yet they are not subject to the robust bank regulatory framework that helps keep the sector safe and secure. Nor are these new entrants hindered by outdated rules around electronic communications that exist under the Bank Act. Upholding the integrity of Canada’s financial sector should clearly take into account this evolving landscape.

We have focused our commentary below under the following key themes drawn from the Consultation:

1. The Evolving Financial Sector
2. Federal‑Provincial/Territorial Cooperation
3. Consumer Protection
4. Competitiveness of Small and Mid‑Sized Banks
5. Corporate Governance
6. Implementation of Previous Policy Initiatives

We draw particular attention to prioritizing the regulations that will bring into force amendments passed under the previous Financial Institutions Statutes Review (the "Fintech Amendments") that provide greater flexibility for federally regulated financial institutions (FRFIs) to undertake and leverage broader fintech activities that enable the delivery of financial services in new and innovative ways. Given the dynamic nature of the financial services market, these amendments to the legislative framework were appropriately recognized as critical to ensure it maintains its utility and is responsive to the evolving preferences and expectations of Canadians while continuing to foster stability for the benefit of the Canadian economy. The criticality of the Fintech Amendments has only grown since first introduced in 2018 in light of the evolving financial sector‑ecosystem, the rapid continued expansion of non‑bank service providers, and the ever‑increasing demand for technology‑enabled services.

We have also attached an appendix that will address some of our more technical recommendations that Finance should consider as part of the Financial Institutions Statutes Review.

1. The Evolving Financial Sector

Banks operate under a robust prudential and consumer protection regulatory framework overseen by the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC). It is well recognized that OSFI has worked to create a regulatory and supervisory system that addresses not only financial risks, but also new and emerging non‑financial risks. Indeed, OSFI already oversees a broad range of policies to ensure FRFIs have strong governance and risk management practices which include identifying and mitigating against non-financial risks. In our view, there is already a robust framework in place to address integrity and security and we are actively working with OSFI on its draft guideline that enhances OSFI’s guidance in these areas. We have elaborated on the consumer protection framework applicable to banks below under the heading "Consumer Protection".

Looking to the broader financial sector landscape, the CBA strongly supports a regulatory framework based on the principle of "same activity, same risk, same regulation". The financial sector now includes a rapidly expanding number of non‑bank actors that engage in equivalent activities as banks, carrying equivalent risk, without being subject to the same regulatory framework. This growth in underregulated and unregulated actors creates an uneven playing field and increases risk exposure, including integrity and security risk, as they are not subject to the same prudential standards. We appreciate that given jurisdictional considerations this will often necessitate federal‑provincial/territorial cooperation and believe Finance should play a leadership role in this regard to ensure that Canadians continue to benefit from safe, secure and reliable financial services and that the unregulated players do not introduce risks into our existing stable financial system.

For example, the Retail Payment Activities Act (RPAA) was passed on June 29, 2021 and the final regulations under the RPAA were released on November 22, 2023. The RPAA creates a legislative framework for federal regulation of payments services providers (PSPs). It creates a registration and oversight body within the Bank of Canada which will set and enforce standards for PSPs. At present, these PSPs are largely unregulated and pose various risks, including the risk of loss of consumer funds (financial risks), the risk of operational and security failures, and market conduct risk.

While the RPAA addresses certain risks related to PSPs, the federal framework is silent on market conduct. It is important that the consumer protection component of this framework is addressed.

We also note there is no legislative review provision within the RPAA. We recommend that a 5 year sunset clause be introduced into the RPAA and be reviewed concurrently with the financial sector legislative review going forward. Given the dynamic nature of payments, this will help ensure its relevance and applicability.

2. Federal‑Provincial/Territorial Cooperation

We encourage federal and provincial/territorial cooperation to help achieve a harmonized set of rules and regulations to help foster innovation and competition in financial services by allowing participants to more quickly and cost effectively respond to customer demand by developing and enhancing products and services that are available and consistent in all provinces and territories.

Where there is a robust federal regime such as the new financial consumer protection framework introduced under the Bank Act, provinces and territories may wish to rely on the federal regime to reduce their own regulatory burden and promote a consistent consumer experience. Where a harmonized framework is lacking, we believe Finance can play a leadership role by developing model financial consumer protection standards for unregulated or under‑regulated financial service providers (such as e‑commerce platforms and similar entities) for provincial and territorial adoption, and work with provinces and territories to adopt these standards. To the greatest extent possible, the standards should emulate relevant consumer protection regulations to which FRFIs must adhere.

This coordination could be achieved by building on Finance’s long‑standing process for consultations with provinces and territories (Federal‑Provincial Relations - Canada.ca) by including consumer protection matters as an area for consideration to ensure better awareness and alignment.

We also recommend greater cooperation and coordination at the federal level. There is a multiplicity of initiatives ongoing in federally regulated spaces including in the areas of prudential and market conduct regulation and supervision, payments, open banking, housing, competition law, privacy law, and anti‑money laundering. While these initiatives tend to travel on distinct paths, they often converge around the same timelines which adds to complexity, resource burdens and operational risk for market participants. Ensuring appropriate prioritization of these initiatives and proper sequencing of key elements within and across multiple projects is crucial.

3. Consumer Protection

We believe the tools are in place for banks to continue to successfully protect financial consumers. Having said this, we do believe that the rules by which banks may deliver documents to their customers must be modernized to reflect the growing use of digital financial products and electronic interfaces in customer‑bank interactions.

Banks have a long‑standing trusted relationship with their customers. This trust is not only based on the financial stability of Canada’s banking system but also on the banks’ compliance with the Bank Act consumer protection provisions, which have historically protected consumers by ensuring they receive all the necessary disclosures to make informed decisions. The Bank Act’s disclosure-based regime was further enhanced in June 2022 with amendments that consolidated existing requirements and introduced robust new regulatory requirements under a single financial consumer protection framework (the "FCP Framework"). As an example, the enhanced consumer protections include responsible business conduct obligations, including the development of policies and procedures to ensure that products and services provided to customers are appropriate based on their financial needs and circumstances. In addition, the FCP Framework requires banks to establish robust consumer complaint management frameworks where all customer complaints are tracked and rapidly addressed and requires banks to create a whistleblowing program to allow bank employees to report any wrongdoings of the bank without fear of retribution. The FCP Framework’s new redress provisions, together with amendments to the Financial Consumer Agency of Canada (FCAC) Act that came into effect in 2020, further advance consumers’ rights when dealing with banks.

To address compliance with the FCP Framework, banks undertook a comprehensive review of their existing processes, procedures, policies and agreements. Many banks also took this opportunity to improve existing documentation and to develop and implement additional policies and processes to improve compliance monitoring. This exercise resulted in many consumer‑centric improvements such as enhancing customer facing documentation, sending electronic alerts when deposit accounts, credit cards and lines of credit hit a threshold amount, and sending notices when certain products are to be renewed.

The FCP Framework, combined with the various FCAC Guidelines setting out the FCAC’s expectations with respect to the banks’ compliance with the FCP Framework, as well as numerous non‑legislative voluntary commitments, public commitments and codes of conduct, provide Canadian financial services consumers with a comprehensive set of protections that range from ensuring the delivery of banking services to seniors to providing information on mortgage security.

Banks have a long history of assisting Canadians in difficult times and are attuned to the needs of Canadians. During the pandemic, banks worked with their customers to provide them with flexible solutions and worked closely with the Government in the setting up of emergency government programs, and in 2023, banks are continuing to stand by Canadians whose personal finances may be strained because of the current challenging economic environment. In addition to their efforts in strengthening Canadian’s financial knowledge, banks have collaborated with the FCAC in the development of the FCAC Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances, which leverages the banks’ existing hardship programs. Banks are also covered by the recently announced Mortgage Charter and are currently working with the FCAC to update the existing Guideline on the Expansion of Low‑cost and No‑cost Bank accounts.

Electronic Communications

While the financial industry was already undergoing rapid and accelerating digitalization (e.g., increased usage of online or mobile devices to conduct financial service activities), the Covid pandemic accelerated this trend by many years. As the Covid pandemic showed us, consumers are now significantly more capable of managing their banking affairs in an electronic manner. This evolution ought to be reflected in the fundamental assumptions for communications from banks to consumers.

For example, the onerous, unnecessary requirements imposed by the Electronic Documents Regulations (EDRs) under the Bank Act (which date from the early days of electronic communication) fail to recognize the ways in which banks can communicate with their customers in a significantly more timely and cost‑effective manner, while still effectively providing information to customers. They also fail to recognize how consumers have become significantly more capable of managing their banking affairs electronically. Specifically, the EDRs should be modernized to enable banks to communicate electronically with their customers unless they have been specifically advised by their customers that the customer prefers another form of communication.

Our proposed change to make electronic communications as the default approach would ensure modern business practices and technologies are being used to provide digital documents that are more customer friendly and easier to: search (e.g., via searching one’s email); store (e.g., in one central digital location that does not require physical space); and/or access (e.g., if a customer is disputing an error in a branch or with a phone agent, they don't need to go find the paper document in a box somewhere). The proposed change could also result in documents becoming more accessible (e.g., can be read aloud by accessibility tools) and enhance the use of "alerts" to notify customers that credit card or other bills are due or have been posted online. The elimination of paper will reduce the significant costs to banks of printing and mailing, tasks involving millions of documents which can impact the cost of banking products and services and can have a detrimental impact on the environment. Finally, we do not believe there is any policy reason to resist the proposed change, as sending a document digitally does not mean the consumer cannot print the document if they feel the need, and customers would still be able to request for documents to be delivered in paper form, if that is their preference.

If the concern is that a customer wants a paper statement to serve as a reminder to pay a bill, allow this issue to be addressed by electronic alerts, the same way that federally‑mandated electronic alerts serve as a reminder when credit cards, lines of credit or deposit account available credit or balances reach specified thresholds. An alert will serve as a reminder to pay a bill in a way that is more effective than a paper bill sitting in a mailbox.

If the EDRs are not changed as recommended above, we propose the following:

• That other provisions of the new FCP Framework that require banks to send notifications or disclosures to customers within specific time frames be amended to make it clearer that banks are able to send such notifications/disclosures by "electronic means" without express consent (e.g., sections 627.6 (for products that automatically renew) and section 627.61 (for promotional offers)).
• Allow banks to inform the consumer that banks will communicate electronically, together with the information in the EDRs, and allow a consumer to indicate expressly that it does not want electronic delivery. This will ensure that banks are only required to deliver paper to customers who really want paper delivery.
• Alternatively, simplify the consent requirement by allowing for a simple "yes" or "no" decision for electronic delivery options with the ability of the bank to subsequently notify the customer of the regulatory matters set out in the EDRs, with the ability to revoke consent after receipt.
• Provide that consent is not needed for the electronic delivery of notices of changes to agreements. These notices frequently involve the mailing out of a significant amount of paper which seems unnecessary given the agreement is accessible electronically on the bank’s website and other public websites.

Insurance Restrictions

Reflecting the Government’s priorities to address affordability, enhance competition, and improve access to good quality financial information, products and services, the existing restrictions in the Bank Act that limit the ability of Canadians to obtain insurance information, advice and products from their bank branches do not seem consistent with these priorities.

Light Vehicle Leasing

Banks were given the power to enter into leases in 1980, subject to the restriction from leasing vehicles weighing less than 21 tonnes. In the 1998 report Change, challenge, opportunity: report of the Task Force / Task Force on the Future of the Canadian Financial Services Sector¹, it was noted that auto dealers and manufacturers argued that allowing banks to lease would reduce auto dealer profitability and lead to job losses in many communities; however, notwithstanding these arguments, the Task Force recommended on page 98 that the restrictions on light vehicle leasing be removed, noting that the additional competition would be beneficial to consumers. That recommendation was not ultimately implemented, but we believe that the original policy concerns are no longer relevant today given most of the smaller individual auto dealer lease programs have either disappeared (in favour of the programs of large corporate dealerships or the manufacturers) or are now largely funded by the FRFIs in any event. We also believe that manufacturers may welcome the ability of banks to provide light vehicle leasing. Further, we do not believe that there are any significant prudential concerns with allowing FRFIs to be involved in auto leasing and would note that increasing competition by permitting FRFIs to engage in leasing may be one way to make leasing more cost effective.

We also believe that the removal of the restriction should be reconsidered in light of the Government’s carbon net zero targets. We understand there is still considerable consumer hesitancy around purchasing electric vehicles until the technology has matured or resale value is better established; however, if leasing were a more cost‑effective option, more consumers may be willing to lease electric vehicles.

4. Competitiveness of Small and Mid‑sized Banks (SMSBs)

SMSBs play an important role in the competitive landscape for banking products and services in Canada. By focusing on specific product areas, market segments or geographic regions, SMSBs help to foster innovation in the financial sector and enhance the breadth and depth of banking product offerings available to Canadians.

It is widely understood that the cost of regulation is scale‑dependent, and therefore that an efficient regulatory system needs to have an element of proportionality embedded into it to ensure that it fosters competition. In 2022, OSFI introduced a proportional regulatory framework to give effect to this principle in the prudential regulatory space. While this was welcomed by the industry, SMSBs are concerned that more recently the Government’s overall commitment to the principle of proportionality has been wavering. While it is generally recognized that regulation needs to evolve as circumstances change, the principle of proportionality needs to remain embedded in the regulatory system. This is particularly relevant in the current environment as OSFI undertakes its Supervisory Framework Renewal, which will transform the manner in which the regulator reviews and engages with regulated financial institutions.

5. Corporate governance

Banks deeply value their relationship and engagement with shareholders and to ensure that these dialogues continue to be effective and productive, we recommend amending the Bank Act to align more closely with certain aspects of the approach to shareholder proposals in the United States and certain provincial jurisdictions in Canada. The U.S. regime has broader substantive bases for exclusion than are available under the Bank Act. We believe that a modernized shareholder proposal regime should provide for the following additional bases for excluding a shareholder proposal, which the SEC rule permits: (1) the exclusion of proposals or supporting statements that contain materially false or misleading statements; (2) the exclusion of a proposal if it clearly appears that the primary purpose of the proposal is to enforce or redress a personal grievance against any person (and not just against the issuer or its directors, officers, or security holders); and (3) the ability to exclude any proposal where the issuer has already substantially implemented the proposal.² We also believe it would be prudent to consider limiting the maximum number of shareholder proposals a single shareholder could submit. This would foster engagement because it would facilitate a detailed discussion of the issues. Where a single shareholder submits a large number of proposals, it can be challenging to engage deeply on the issues given the volume. Streamlining the proposal process would help to ensure that banks engage with investors on proposals that are appropriate and reflect proper governance. Banks strongly support constructive engagement with their shareholders and a robust shareholder proposal mechanism. In addition, banks have developed other avenues for shareholder communication, including robust processes for shareholder outreach and engagement throughout the year and outside the shareholder proposal process.

6. Implementation of Previous Policy Initiatives

Fintech Amendments

As noted above, the Fintech Amendments were introduced by the Government and passed in 2018 as priority amendments to provide greater flexibility for FRFIs to undertake and leverage broader fintech activities that enable the delivery of financial services in new and innovative ways. However, the accompanying regulations that are required to enable FRFIs to rely on the Fintech Amendments still have not been promulgated. Since 2018, the continuing acceleration of innovation and integration of technological advances into our daily lives (e.g., generative AI) and the pandemic-fueled massive shift to digital channels have significantly shifted customer expectations and only serve to underscore the urgent need for FRFIs to begin utilizing the tools that the Fintech Amendments were intended to provide. Many underregulated or unregulated serviced providers, including technology giants, have entered the financial sector to provide technology-enabled services, and banks are eager to deploy additional powers under the Fintech Amendments to more effectively compete, innovate, and ultimately provide customers with the products and services that they expect and demand.

Expansion of Use of Electronic Communications with the FRFI’s Owners

As a logical progression of the electronic delivery of certain issuer documents to the FRFI’s owners (e.g. shareholders, members of credit unions, certain insurance policyholders) that is permitted and already substantially taking place under securities regimes and corporate statutes in Canada, we support the adoption of an access equals delivery model (AED). We understand there is universal stakeholder support for modernizing in this area and as such, suggest Finance should harmonize the Bank Act with the AED model being developed by provincial securities regulators.

Many issuers, including the banks, are already using electronic delivery for continuous disclosure materials and the process is well established. Along with the environmental benefits of lessening paper distributions which is widely supported by investors, the AED model will help make communications with investors more timely, efficient and accessible through enhanced electronic delivery. Further, similar to the notice and access system, the adoption of the AED model provides the flexibility to offer both electronic and print formats as options for disclosures. The AED model offers greater electronic access and the flexibility to continue disclosures in electronic or print format for those investors who prefer that form of distribution.

Conclusion

The CBA strongly supports the government’s commitment to upholding the integrity of Canada’s financial sector, as well as improving consumer protection and safeguarding the stability of the financial sector, and our recommendations support these objectives.

Appendix – Technical amendments to the Bank Act³

Set out below are our more technical recommendations that Finance should consider as part of the Financial Institutions Statutes Review.

Consumer redress thresholds

Division 4 of the FCP Framework introduced redress provisions that require banks to credit or refund a person certain charges or penalties in certain circumstances (including the accumulation of interest from the day on which said charge or penalty was imposed). While we fully support the inclusion of this provision, we believe there should be a de minimis threshold below which, and in very specific circumstances, no direct consumer remediation would be required, and no redress interest payment would be required (as the requirements could create customer confusion and a significant administrative burden on the bank, which could otherwise deploy those resources to more material consumer issues). As an example, no direct consumer remediation would be required where the refund is under $2 and the person is no longer a customer of the bank (i.e., we no longer have reliable contact information), and the bank is instead required to provide said amount (including the interest component) to a charity.

Specialized Financing Regulations

The Bank Act generally allows banks to acquire control of, or acquire or increase a substantial investment in, any entity, where the bank does so in accordance with the Specialized Financing Regulations. One of the constraints imposed by the Regulations is that the book value of individual investments shall not exceed $250 million. We believe this should be materially increased, as that threshold was implemented in 2001 (increased from the previous threshold of $90 million).

Updating public holding company requirement

The Bank Act requires a bank with more than $2 billion but less than $12 billion in equity to have shares with at least 35% of the voting rights listed and traded on a recognized stock exchange and not held by any major shareholders. This threshold was initially $750 million in 1992, then was increased to $1 billion in 2001 and to $2 billion in 2007. We believe that the threshold should be increased to at least $5 billion in equity. There should also be an ability for a bank that exceeds the threshold to subsequently fall below in the future and no longer be subject to the restriction. In addition, we believe that there should be an explicit exemption for a FRFI which is the subsidiary of another FRFI that satisfies the public float requirement under its governing legislation, as we do not believe there is a policy reason to require such institutions to seek a statutory exemption from the Minister.

Ministerial approval of foreign financial institutions

The Bank Act provides that a bank with equity of $2 billion or more must obtain approval from the Minister where it acquires control of a foreign regulated financial institution and the value of that entity’s assets, plus the aggregate value of the assets of all other foreign regulated financial institutions acquired by the bank in the preceding 12 months, exceeds 10% of the bank’s consolidated assets. Accordingly, if a bank exceeds the threshold as a result of a large cross-border acquisition, it would need to obtain Ministerial approval for any acquisition of a foreign regulated financial institution in the 12 months following, regardless of the size of that entity. We believe that a materiality threshold should be added to the Bank Act which would exempt a bank from the requirement to obtain approval from the Minister in certain cases where the 10% threshold had already been exceeded.

CEO as Director

The Bank Act requires the Chief Executive Officer (CEO) of a bank to also act as a director. While, in practice, most CEOs do serve as directors, we do not believe it should be a legislative requirement. For example, the CEO of a provincial credit union is not typically a member of the board of directors, and the Bank Act requirement has generated considerable unnecessary debate in the board meetings of provincial credit unions that are considering continuing federally.

Exempt market dealer and portfolio manager

An entity that primarily acts as a portfolio manager/investment advisor may, as an ancillary part of its business, have an exempt market dealer registration. The Bank Act could be read so as to restrict a bank from acquiring such an entity due to the registration. There is no prudential or policy reason for such a restriction and we are of the view that the Bank Act could benefit from addressing this technical issue.

¹ (MacKay Report) BT22-61-1998-eng.pdf (publications.gc.ca)
² See the SEC rule here: Shareholder Proposals §240.14a-8 (sec.gov). The SEC rule is structured in a Question and Answer format and the grounds for exclusion are listed in the response to Question 9 of the rule.
³ Certain of these proposed changes would also be relevant to the Insurance Companies Act and the Trust and Loan Companies Act.