Lobbyists gear up for Ottawa’s widespread financial sector review

theglobeandmail.com
April 5, 2016

The Liberal government’s impending financial sector review will be the biggest in two decades as the Finance Department is for now leaving nothing off the table, from tax policy to fintech disruption.

The Liberal budget extended the government’s statutory deadline to review financial sector laws, including the Bank Act, by two years to buy time for a broad review of a sector that’s since been through the 2008 financial crisis and is now facing competitive pressures from technology. The review of the financial framework will be the biggest since the Jean Chretien government reviewed it in 1997.

Banks are expected to call for a level-playing field with growing fintech services like those of Amazon.com Inc., Apple Inc., branchless online banks and peer-to-peer lending groups such as Lending Club. The technology-driven companies are competing with more convenient services and cutting into banks’ earnings from payments and lending.

Citigroup said in a report last week that European and U.S. banks will cut an estimated 1.7 million jobs, or more than 30 per cent of their work force, in the next decade as fintech companies take a bigger share of the market for lending and payments. One person familiar with the Canadian review, speaking on background, said there is now additional industry concern about fintechs offering insurance.

“It’s 20 years almost since they had a full review. They need to have a really comprehensive review, almost a 360 review that really broadens the lens and includes things like taxation, regulatory burden,” said Martha Durdin, head of the Canadian Credit Union Association (CCUA), which is hoping for tax policy changes. “And of course there’s the whole fintech discussion.”

Toronto-Dominion Bank chief executive officer Bharat Masrani last week called on Ottawa to consider a level playing field between banks and fintechs, saying that “thousands of fintechs are vying for bank customers.” Bank of Nova Scotia CEO Brian Porter last week also weighed into fintech disruption, saying the bank has a $2-billion annual war chest for investment in technology.

Ottawa’s review is expected to be broad, looking at amendments to the Bank Act, the Insurance Companies Act, Trust and Loan Companies Act and Cooperative Credit Associations Act. It’s also expected to examine expanding some federal jurisdiction over financial regulation after the Supreme Court, in its 2014 Marcotte decision, left some financial sector powers to the provinces.

The budget’s reference to a new financial consumer protection framework through a set of “exclusive rules to ensure an efficient national banking system” has encouraged banks that some authority will be moved to Ottawa.

Lobby groups are now trying to get their issues into a coming government consultation paper that will outline the scope of the review and whether areas like tax policy, the impacts of fintech and insurance sales will be part of it.

“In the coming months, the Department of Finance will consult with stakeholders on key issues and priorities, which will inform the scope of the review,” Finance Department spokesman David Barnabe said by e-mail. He said the government extended the review to “provide Canadians sufficient time to share their views and provide time to make any legislative changes to the framework.”

The Canadian Bankers Association (CBA), the industry group representing Canadian banks, including the six largest, has been meeting with officials with the Finance Department, the Financial Consumer Agency of Canada and the Office of the Superintendent of Financial Institutions. The group has reported more than 25 discussions since the start of November, according to the federal lobbyist registry. Scotiabank, Canadian Imperial Bank of Commerce, Bank of Montreal and Royal Bank of Canada have also been active, reporting meetings with senior officials and some cabinet ministers.

“There is one area of fintech that we have weighed in on publicly and that’s payments,” said Maura Drew-Lytle, a spokeswoman for the CBA. The former Conservative government had started a review of payment systems last year, for which the CBA urged a national set of standards to mitigate the risks of unregulated players.

“We believe that the federal government has a significant role in, and authority over, the regulation of Canadian payment systems,” Ms. Drew-Lytle said by e-mail. “We hope the payment systems review continues whether it is part of the financial sector legislative review or on its own.”

Scotiabank also reported a meeting in November with Prime Minister Justin Trudeau, chief of staff Katie Telford and Trade Minister Chrystia Freeland. The subject of the discussion was reported as “financial institutions” and “international trade.”

Lobby firm Summa Strategies is registered to lobby for San Francisco-based fintech company Square Inc. while Environics Communications is registered to represent PayPal Holdings Inc. Another firm, Crestview Strategy, is registered for Amazon to work with lawmakers “to better harmonize consumer protection and cross-provincial regulations.”

The Insurance Brokers Association of Canada is also registered to lobby to maintain legal rules “that restrict banks from marketing insurance in their branch network.”

The group of credit unions outside Quebec, headed by the CCUA’s Ms. Durdin, has been lobbying the Finance Department for a capital growth tax credit for financial co-operatives, which “build capital differently than shareholder-owned chartered banks.”