Canada’s Department of Finance has launched the first part of a two-stage consultation process to review the federal financial sector framework.
In this year’s federal budget, the new Liberal government extended the statutory sunset date for reviewing the financial institutions statutes by two years until 2019.
Now it is seeking comment by Nov. 15 on a paper titled ‘Supporting a strong and growing economy: Positioning Canada’s financial sector for the future,’ which describes the current landscape and identifies key trends that may influence future directions.
Responses to the paper are invited from all stakeholders and submissions will be used for the development of a policy paper for further consultation in 2017.
The government is seeking feedback on whether the current legislative framework meets three core policy objectives:
1. Stability: the sector is safe and sound, and resilient in the face of stress;
2. Efficiency: the sector provides competitively priced products and services and passes efficiency gains to customers, accommodates innovation, and effectively contributes to economic growth, and
3. Utility: the sector meets the needs of an array of consumers, including businesses, individuals and families, and is committed to protecting the interests of consumers.
The government says in the paper that financial institutions are facing an array of new and emerging risks, including catastrophic risks, that have a low probability of occurring and yet could result in high potential losses.
“Factors such as increased urbanization, terrorism, and climate and environmental change have increased the potential for losses from catastrophic events.”
It says cyber threats are also a growing concern for government and industry due to their potential to disrupt financial services.
“Fears over the theft of personal information, financial loss and compromised individual privacy can erode consumer trust and confidence in the marketplace.”
The government says that with the emergence of fintech companies, a corresponding shift in consumer demand and the possibility of significant cost savings is changing how incumbent financial institutions operate.
“Financial institutions are responding to these trends with significant investments in technology and partnerships with fintech companies.”
But while fintech companies are creating the potential for more innovation and competition in the financial services sector, concerns have been raised regarding appropriate regulation of fintech companies, consumer protection and how best to support a level playing field with regulated financial institutions.
“Canada is in a position to take advantage of its many strengths to be a leader in financial innovation, whether through independent fintech companies or those partnering with incumbents.
“These strengths include the scale and sophistication of its established financial sector, abundant human capital, access to long-term investment, and innovation hubs clustered in several cities.”
The paper sets out five questions for stakeholders:
1. What are your views on the trends and challenges identified in this paper? Are there other trends or challenges that you expect to significantly influence the financial sector going forward?
2. How well does the financial sector framework currently balance trade-offs between the three core policy objectives of stability, efficiency and utility?
3. Are there lessons that could be learned from other jurisdictions to inform how to address emerging trends and challenges?
4. What actions could be taken to strengthen the financial sector framework and promote economic growth, including with respect to the identified themes? How should those actions be prioritized?
For example: How should the financial sector framework support innovation and competition while maintaining stability of the system? How can the financial sector framework best promote competition, including by encouraging new entrants and fostering the growth of small entities and other players? How can the benefits of an internationalizing financial sector best be obtained while ensuring the safety and soundness of the sector? How can the financial sector framework support financial firms to best serve the evolving needs and interests of consumers? And are Canada’s federal financial sector oversight bodies well positioned to support the sector in the future?
5. What other actions should be taken to ensure the financial sector framework remains modern and technically sound?