Special Feature

Budget 2017

News and insight for advisors from the 2017 federal budget tabled on March 22 in Ottawa. Photo copyright: jvaillancourt/123RF.

Economy & Markets

The federal government will propose legislation to formally designate the CDIC as the resolution authority for banks and to reinforce OSFI’s authority

By James Langton |

 

The federal government's 2017 budget adds a little meat to the bones to reforms aimed at bolstering financial services sector stability that have been in the works since the global financial crisis, including measures to curb the threat of taxpayer bailouts for critical components of the financial system.

The budget promises legislative work in several areas designed to enhance financial services sector stability, including the ongoing effort to establish a "bail-in" regime for big banks; to adopt a framework for resolving certain essential elements of financial market infrastructure (such as clearing and settlement firms); and to modernize the deposit insurance system.

"These changes will further protect consumers and financial stability in the unlikely event of the failure of a financial institution," the government says in the budget document.

In terms of the framework for dealing with a failing bank, the budget indicates that the government will propose legislation to formally designate the Canada Deposit Insurance Corp. (CDIC) as the resolution authority for banks and require banks to develop resolution plans.

The budget also promises amendments to reinforce the authority of the federal banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), to set loss-absorbency requirements for the big banks and to clarify the treatment of derivatives in the resolution process.

Although the measures announced on Wednesday would contribute to the creation of a bank "bail-in" regime, this is an ongoing process; legislation to introduce new "bail in" powers was passed last year and the rules required to implement that framework are still required.

At the same time, the budget also indicates that the government will introduce legislative amendments to bolster the Bank of Canada's oversight of so-called financial market infrastructure (FMI) firms, such as payment and clearing and settlement organizations. The prospect of failure in a critical component of the plumbing of the global financial system has also been a priority for global policymakers since the global financial crisis.

Read: Budget 2017

Wednesday's budget indicates that the federal government will seek changes designed to better enable the central bank to uncover and respond to emerging risks to FMIs. It also pledges to introduce legislation to facilitate the resolution of FMIs in the event of failure.

In addition, the budget reveals that the government plans to publish a consultation paper on a new oversight framework for retail payments later this year. The goal will be to enhance customer protection and facilitate innovation, it suggests. Based on the results of this consultation, the government says it will draft legislation to implement a new oversight framework.

The retail payments space is a popular one for financial technology (fintech) firms, which see significant potential for making the existing payments system more efficient and consumer friendly. To that end, the government notes that it's committed to assessing the impact of the emergence of fintech firms on the existing federal regulatory framework for financial services.

Finally, the government is promising reforms to the deposit insurance framework in this year's budget. This follows a review that was carried out last autumn to consider a variety of possible changes, including streamlining the categories of deposit insurance, revising coverage and improving consumer understanding of the system.

The budget doesn't provide any details on the specific changes the government intends to introduce, except to say that it aims to modernize the system to ensure that it's meeting its objectives, including the goal of ensuring financial stability.

Photo copyright: jvaillancourt/123RF