Canada’s 2017 Budget – Regulatory implications for Canada’s financial sector

  • Kashif Zaman
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Mar 23, 2017

 

Canada’s Finance Minister Bill Morneau delivered the government’s 2017 federal budget on March 22, 2017.  For financial institutions doing business in Canada, the budget document signals the government’s intention to introduce legislation to address three key areas: (1) protecting financial stability in Canada, (2) strengthening corporate and beneficial ownership transparency, and (3) strengthening Canada’s anti-money laundering and anti-terrorist financing regime.  Similar to previous budget documents, the 2017 budget document does not include detailed provisions but rather gives directional guidance on the government’s plan on proposed legislative changes.

Protecting financial stability in Canada

Enhancing the Bank Resolution Regime: The government intends to introduce legislative amendments to:

  • formally designate Canada Deposit Insurance Corporation as the resolution authority for its members and require Canada’s biggest banks to develop and submit resolution plans;
  • clarify the treatment of, and protections for, eligible financial contracts — such as derivatives — in a bank resolution process; and
  • reinforce the Superintendent of Financial Institution’s powers to set and administer the requirement for systemically important banks to maintain a minimum capacity to absorb losses in a resolution.

Deposit Insurance Review:  The government intends to introduce legislative amendments to modernize and enhance the Canadian deposit insurance framework to ensure it continues to meet its objectives, including supporting financial stability.

Strengthening the Oversight of Financial Market Infrastructures: The government intends to introduce legislative amendments to the Payment Clearing and Settlement Act to implement a financial market infrastructure (FMI) resolution framework to enable government intervention in the event that a systemically important FMI fails. 

The government has previously designated the following FMIs as systemically important to Canada’s financial system and subject to Bank of Canada’s oversight:  (i) the Large Value Transfer System; (ii) CDSX, a Canadian system that consists of a central securities depository and a securities settlement system; (iii) Canadian Derivatives Clearing Service (CDCS), a Canadian central counterparty that clears transactions in certain fixed-income securities, repurchase agreements (repos), equity derivatives, and all derivatives traded on the Montréal Exchange; (iv) CLS Bank, a global payment system for the settlement of foreign exchange transactions, including those involving the Canadian dollar; and (v) SwapClear, a global system for the central clearing of interest rate swaps and other over-the-counter interest rate derivatives.

Strengthening corporate and beneficial ownership transparency

The government intends to collaborate with provinces and territories to put in place a national strategy to strengthen the transparency of legal persons and legal arrangements and improve the availability of beneficial ownership information.  The government is also examining ways to enhance the tax reporting requirements for trusts in order to improve the collection of beneficial ownership information. These actions are intended to ensure that law enforcement and other authorities have timely access to the information needed to crack down on money laundering, terrorist financing and tax evasion and to combat tax avoidance.

Strengthening Canada’s anti-money laundering and terrorist financing regime

The government intends to introduce legislative amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to:

  • expand the list of disclosure recipients that can receive financial intelligence related to threats to the security of Canada to include the Department of National Defence and the Canadian Armed Forces
  • support more effective intelligence on beneficial owners of legal entities
  • make various technical and other changes to: strengthen the framework, support compliance, improve the ability of reporting entities to operationalize the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, and ensure the legislation functions as intended.