The federal government is tackling Canada’s concentrated banking industry with measures in the federal budget to boost competition by making it easier to switch lenders, regulating stablecoin, lowering fees and reducing hurdles for smaller lenders.
Calls to improve competition in Canada’s financial-services sector have been mounting amid concerns over the sluggish economy and the blow from U.S. tariffs. As part of his budget, Prime Minister Mark Carney is taking a swing at cracking open the banking market.
In a bid to reduce barriers to switching banks, Ottawa has set a timeline to introduce open banking legislation next year. By mid-2027, the federal government said it will allow consumers to authorize third parties to switch accounts, pay bills and take other actions on their behalf.
A new set of open-banking rules would enable financial institutions to exchange information more efficiently and securely. This would provide consumers with more control over how they share their financial data with other institutions, making it easier for them to switch banks.
The regime has faced several delays since development began in 2018, and Canada has fallen far behind its peers. Britain introduced open banking in 2017 and Australia followed in 2019. Last year, the U.S. introduced its own proposed rules.
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Providing fintech companies with the ability to not only view a customer’s data but to take action on transactions is a significant update. Initially, it was believed that the rollout of open banking would launch with read-only access to data, allowing fintech companies to view customer information but not act on it. Instead, the government said it will roll out the regime by allowing new entrants to initiate transactions on behalf of customers.
“Data is just the first step, but to be able to actually do something with that data, that’s where it moves the dial,” said Abraham Tachjian, Brim Financial Inc.’s chief regulatory affairs officer and Canada’s former open banking lead.
“Whether it’s moving money from one account to another, or a variety of other applications that come with the ability to access a person’s account, analyze information, and then do something with that information and move money to their benefit.”
The budget also revealed that Ottawa has transferred responsibility for the open banking regime to the Bank of Canada.
In April, 2024, Ottawa tapped the Financial Consumer Agency of Canada (FCAC) to administer and enforce open banking legislation.
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Concerns mounted among many fintech companies that implementation would face further barriers because the FCAC has a mandate to focus on consumer protection rather than innovation.
In recent years, the Bank of Canada has gradually assumed more responsibility for regulation of new financial services systems, including a new regime for payments technology companies and real-time rail infrastructure.
“They have a deep bench of talent at the Bank of Canada and they have a good track record of implementation,” said Fintechs Canada executive director Adriana Vega. “For us, it’s a welcome change.”
In October, Bank of Canada senior deputy governor Carolyn Rogers referred to the banking sector as an oligopoly. Canada’s big six banks – Royal Bank of Canada RY-T, Toronto-Dominion Bank TD-T, Bank of Nova Scotia BNS-T, Bank of Montreal BMO-T, Canadian Imperial Bank of Commerce CM-T and National Bank of Canada NA-T – collectively hold more than 90 per cent of all banking assets.
Peter Routledge, who heads the Office of the Superintendent of Financial Institutions, has also endorsed the need to support innovation and loosen the barriers to entry.
“I’ve never seen this level of chattiness” on competition, Ms. Vega said. “They’re all singing from the same songbook on competition, and you see that in the budget. It’s a very clear signal.”
The budget also proposes lowering banking fees and reducing barriers for smaller banks and credit unions.
Ottawa committed to banning or increasing transparency on certain fees, including costs tied to transferring investment accounts from one institution to another. It said the FCAC will prepare a report on fees charged by banks.
To spur growth among small financial institutions and boost access to capital, Ottawa proposed raising the public holding requirement threshold to allow smaller banks to grow more before having to amend their ownership structure.
Ottawa is also introducing measures for the regulation and enforcement of stablecoin, a type of digital token pegged to a fiat currency used to send payments more quickly and with fewer fees.
The proposal follows moves by the U.S. Congress, which passed a bill dubbed the Genius Act in July to create a regulatory framework for stablecoins.
“The launch of the Genius Act means that the U.S. has very actively taken a position and is moving aggressively forward in terms of setting up that regulatory framework,” said Sonia Baxendale, chief executive officer of the Global Risk Institute.
The budget also proposes enabling the regulation of payment service providers that use stablecoin. Currently, they are regulated as securities, which require restrictive rules that make it difficult to use the cryptocurrency for daily transactions.
In June, Shopify Inc. launched a stablecoin payment option for merchants using USDC, which is backed by U.S.-dollar reserves.
“The concern is the convenience of stablecoins could outweigh the inconvenience of operating in U.S. dollars,” said Timothy Lane, Global Risk Institute executive in residence and former Bank of Canada deputy governor. “If that happens, then we could end up seeing a lot of transactions in Canada taking place using a form of money that is U.S.-dollar denominated.”