Financial institutions

Budget 2022: update of financial institutions

The 2022 federal budget (the “Budget”) includes a number of measures aimed at the financial services sector, including measures relating to the fight against money laundering (“AML”), complaints handling, interchange fees and climate-related disclosures, as well as a number of other planned changes to financial sector legislation. Relevant to participants in the insurance industry, the budget also proposes a new income-tested dental program and a national pharmacare program.

Please also see our Tax Group’s separate update on the budget for a discussion of tax measures affecting financial institutions.

Anti-money laundering measures

The federal government has proposed several measures related to Canada’s anti-money laundering regime:

  • Extend the scope of AML regulation to payment service providers (PSPs) and crowdfunding platforms – The federal government is proposing to introduce new regulations that extend anti-money laundering obligations to PSPs and crowdfunding platforms.
  • Extend the scope of AML regulation to the mortgage sector – The federal government is proposing to expand anti-money laundering requirements to all businesses that issue mortgages in Canada over the next year, citing growth in mortgages issued by lending businesses not regulated by current anti-money laundering legislation that applies to other financial institutions, such as banks.
  • Financial Crimes Agency of Canada – The federal government proposes to establish a new Canadian Financial Crimes Agency, which will become Canada’s main law enforcement agency in the area of ​​financial crimes. Public Safety Canada will undertake the initial work to develop and design the new agency, and further details will be announced in the Fall 2022 Economic Update.
  • Strengthening of the AML regime – The federal government is also proposing to make other legislative changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“LRPCFAT“), the criminal codeand other legislation, and will conduct a comprehensive review of the anti-money laundering regime over the coming months.

Budget will provide additional funding to the Financial Transactions and Reports Analysis Center of Canada (“FINTRAC”) to implement new anti-money laundering and anti-terrorist financing requirements for crowdfunding platforms and payment service providers, support oversight of federally regulated financial institutions (“IFF”), develop expertise related to virtual currency, modernize its compliance functions and update its financial management, human resources, intelligence and disaster recovery systems.

  • Amendments to the AML legislation – The federal government also proposes to strengthen the PCMLTFA, criminal code and other laws for:
    • strengthen the ability of authorities to detect, deter, investigate and prosecute financial crimes;
    • ensure that the government is well placed to manage emerging threats outside the scope of the current AML/ATF regime; and
    • ensuring that the government has the tools necessary to preserve financial integrity and economic security.
  • Register of beneficial owners – The federal government is accelerating by two years its plans to amend the Canada Business Corporations Act (“CBCA”) to implement a public, searchable beneficial ownership registry, which will now be accessible before the end of 2023. The registry will cover CBCA-regulated companies and will be scalable to allow access to beneficial ownership data held by provinces and territories that agree to participate in a national registry. The federal government further intends to work with the provinces and territories to advance a national approach to a register of beneficial owners of real estate, similar to other countries such as the United Kingdom. To ensure that business data provided to the registry is accurate and timely, the government will also examine approaches that support the validation and verification of information in the registry.

Scanning the Money Review

The federal government proposes to launch a legislative review of the financial sector focused on digitizing money and maintaining the stability and security of the financial sector.

The first phase of the review will focus on digital currencies, including cryptocurrencies and stablecoins, which will be led by the Department of Finance Canada. The review will consider, among other factors:

  • how to adapt the regulatory framework of the financial sector to manage the new risks linked to digitalisation;
  • how to maintain the safety and stability of the financial system in light of changing business models and technological capabilities; and
  • the potential need for a central bank digital currency (CBDC) in Canada.

In addition, the government proposes to invest in FINTRAC and to strengthen the LRPCFAT, the criminal codeand other legislation to investigate and prosecute financial crimes related to the digitization of money.

Complaint handling

The federal government is proposing to make legislative changes to the Banking Act and the Financial Consumer Agency of Canada Act provide for a single non-profit external complaints handling body in the banking sector and strengthen the external complaints handling system.

The budget says banks should not be able to choose which complaints body they participate in and that the system should not be run on a for-profit basis.

Interchange fees

The federal government will continue to consult with key stakeholders on developing solutions to reduce the cost of fees for merchants by reducing the cost of credit card fees in a way that benefits small businesses and protects rewards points. existing consumers.

Climate Disclosures

The federal government is committed to moving to mandatory reporting of climate-related financial risks across a broad spectrum of the Canadian economy, according to the International Task Force on Climate-Related Financial Disclosures (“TCFD“) framework. In particular, the Office of the Superintendent of Financial Institutions (“OSFI”) will consult with FRFIs on climate disclosure guidelines this year. OSFI:

  • require IFFs to publish climate information, aligned with the TCFD framework, using a phased approach from 2024; and
  • expect FRFIs to collect and assess information regarding climate risks and greenhouse gases (“GHG”) emissions from their customers.

Changes in financial sector legislation

In addition, the federal government is proposing to modify the Banking Act, Insurance Companies Act, Trust and Loan Companies Act and Canada Deposit Insurance Corporation Act for:

  • facilitate access to capital for P&C insurance companies;
  • ensure that approval requirements for financial sector transactions apply regardless of their structure;
  • adjust the time-limited authorizations of the investment regime to ensure that they are used appropriately;
  • strengthen the governance of the Canada Deposit Insurance Corporation; and
  • update the proxy solicitation provisions for certain FRFIs.

Accounting standards for insurance contracts

The federal government is proposing legislative changes to the income tax law to cope with the impact of IFRS 17, the new international accounting standard for insurance contracts. The proposed amendments will confirm support for the use of IFRS 17 accounting standards for income tax purposes, except for a new qualification known as the contractual service margin, subject to certain modifications. Without this exception, profits incorporated into the new reserve would be deferred for income tax purposes. The federal government estimates that this measure will increase federal revenues by $2.35 billion over the next five years.

The federal government is also proposing to relax the transitional rules and consequential changes to protect the minimum tax base.

Changes Affecting the Life and Health Insurance Industry

As expected, the budget proposed a new income-tested dental plan as well as a drug plan:

  • Dental care – the budget proposes to provide dental care to Canadians with household incomes of less than $90,000 per year, starting with those under 12 in 2022, moving to under 18s, seniors and people with disabilities in 2023, with full implementation by 2025. No co-payment would be required for those earning less than $70,000 per year.
  • Pharmacy – The budget provides $35 million over four years for Prince Edward Island to advance the implementation of a universal pharmacare program. The federal government also proposes to continue ongoing work toward a universal national pharmacare program, which would include introducing legislation and working to have it passed by the end of by 2023, then directs the Canadian Medicines Agency to develop a national essential medicines formulary and bulk procurement plan.