The federal budget introduces regulatory changes for banks and aims to boost local investments by pensions
Businesses and wealthy Canadians are set to face higher taxes, but Canada's largest banks and pension managers likely felt relieved upon reviewing Finance Minister Chrystia Freeland’s latest federal budget.
This budget outlines next steps for competitive "open" banking and encourages pensions to invest more domestically, as reported by Financial Post.
A significant relief for banks comes from the appointment of the Financial Consumer Agency of Canada (FCAC) to oversee open banking. This arrangement allows banks to compete with fintech companies over a range of products and services.
Banks are already familiar with the FCAC, which promotes financial literacy and ensures that federally regulated institutions adhere to consumer-protection rules.
Previously, there was talk of creating a new government agency for this purpose, like developments in the United Kingdom. However, the Canadian Bankers’ Association had lobbied for utilizing existing regulators to avoid redundant or conflicting obligations.
Their efforts proved successful; the FCAC was chosen in the budget to “oversee, administer, and enforce” Canada's open banking framework. Ottawa has also allocated $1m for the agency to prepare for these new responsibilities and to develop a consumer awareness campaign.
Geoff Rush, KPMG’s national industry leader for financial services, commented on the banks' relationship with regulators, noting that adding responsibilities to an existing regulator should encounter little resistance.
He suggested that involving the FCAC could accelerate the implementation of open banking, easing the process for Canadians to transfer financial data between banks and fintech companies, thereby fostering competition.
Despite this progress, some details of the open banking framework are still pending, with more information expected later this year. Rush expressed a need for further details on the scope, timing, accreditation process, and common rules in the upcoming autumn update.
On pension fund investments, Canada's largest pension funds received a reprieve in the budget after an initial shock in the previous fall's economic update, which included a plan to encourage more domestic investment.
This plan gained traction when CEOs from various sectors supported the initiative through an open letter to finance ministers.
While there were concerns about the government potentially introducing a dual mandate that might conflict with pensions' aim for the highest risk-adjusted returns, the only new development was the appointment of former Bank of Canada governor Stephen Poloz to lead a working group.
This group is tasked with identifying more opportunities for pension funds to spur economic growth domestically.
The budget also hinted at potential investments in airport facilities, aligning with Canadian pensions' interest in similar domestic opportunities.
Michel Leduc, senior managing director and global head of public affairs for the Canada Pension Plan Investment Board, endorsed the budget's approach and the choice of Poloz.
He emphasized the importance of creating new and substantial investment opportunities, something previous government efforts lacked.
Leduc also highlighted the government's focus on infrastructure, the digital economy, and artificial intelligence as positive steps, considering the pension funds' long-term capital deployment strategy.
He pointed out that a crucial aspect for the pensions would be whether investing in Canada reduces various risks compared to other markets, as their primary concern remains achieving risk-adjusted returns.
