Consultation Paper: Proposals to Strengthen Canada’s Financial Sector

Preface

This consultation paper launches the third phase of the review of Canada’s federal financial institutions statutes (the Bank Act, the Insurance Companies Act, and the Trust and Loan Companies Act, referred to as the financial institutions statutes), and related legislation and policies.

The first phase of the review process, the Consultation on Upholding the Integrity of Canada’s Financial Sector, was held from October 5, 2023, to December 4, 2023. That consultation sought views on:

• How emerging trends in the financial sector could impact consumers, national security, fair competition, and the safety and integrity of the financial system; and,
• Whether any changes to the financial sector policy and legislative framework are needed.

Key topics in the first phase of consultation included:

• Emerging risks and additional measures needed to protect the security and integrity of the financial sector and maintain Canadians’ confidence in their financial institutions;
• Risks and benefits of potential consolidation in the federal financial sector, the emergence of new financial services providers, and financial institutions’ global expansion while continuing to serve the best interests of Canadians;
• Additional protections to ensure Canadians receive high-quality, low-cost banking services and easy access to banking services, including addressing cost barriers;
• Adapting the framework to artificial intelligence and other innovations used in the financial sector in order to harness the benefits while managing the risks to ensure responsible innovation; and,
• Enhancing federal-provincial collaboration to address pressing financial sector policy issues, given shared responsibilities for the financial sector.

The second phase, the Consultation on Strengthening Competition in the Financial Sector, was held from December 21, 2023, to March 1, 2024. This second phase focused on potential measures that could strengthen competition in Canada’s financial sector, while upholding its stability and security.

Key topics in the second phase of consultation included:

• The barriers that Canadian consumers face in accessing banking services;
• Measures to enhance the current acquisition and amalgamation process for banks to support greater competition;
• Measures to support a stronger tier of smaller, innovative competitors; and,
• Measures to encourage competition that could also support jobs in the Canadian financial sector.

Contact Us

Submissions for this third phase of consultation will be open until September 11, 2024.

Email your comments and feedback to legreview-examenleg@fin.gc.ca with “Financial Institutions Statutes Review” in the subject line.

Comments and feedback may also be sent by mail to:

Director General
Financial Institutions Division
Financial Sector Policy Branch
Department of Finance Canada
90 Elgin St
Ottawa, ON  K1A 0G5

Please include the following information with your submission:

• Company/organization name, address, telephone number, and contact person;
• Views on the questions posed above, and any additional relevant information; and,
• Indication of whether any information provided is commercially sensitive.

Privacy

Those providing submissions are asked to clearly indicate the name of the individual or the organization that should be identified as having made the submission.

Information received through this consultation process is subject to the Access to Information Act and the Privacy Act. Should you indicate that your comments, or any portions thereof, are to be considered confidential, the Department of Finance Canada will make all reasonable efforts to protect this information.

In order to respect privacy and confidentiality, please advise when providing your comments whether you:

• Consent to the disclosure of your comments in whole or in part;
• Request that your identity and any personal identifiers be removed prior to publication; or,
• Wish that any portions of your comments be kept confidential (if so, clearly identify the confidential portions).

The information you provide may be shared with other relevant federal agencies, such as:

• The Office of the Superintendent of Financial Institutions (OSFI);
• The Canada Deposit Insurance Corporation (CDIC);
• The Financial Consumer Agency of Canada (FCAC); or,
• The Bank of Canada.

Overview

The financial sector framework has historically been a cornerstone of Canada’s economic strength, supporting innovation, diverse choices and stability for Canadian consumers and businesses alike.

A central tenet of the framework has been the regular legislative review of the financial institutions statutes. This review provides the government with an opportunity to ensure that the framework keeps pace with innovation, new technologies and other developments that could undermine the efficiency, utility, stability and integrity of Canada’s financial system. It also provides an opportunity for stakeholders to provide feedback, which helps ensure that the statutes remain effective and responsive to the evolving needs of Canadians.

In between reviews, the government continuously examines and updates the framework and takes action to strengthen it to ensure that it serves Canadians well. For example, since the conclusion of the last review in 2019, the government has proposed changes to enhance the security and integrity of the framework by:

• Expanding OSFI’s mandate, including further powers to act on national security risks;
• Lowering costs for consumers by capping non-sufficient funds fees charged by banks;
• Modernizing the framework by updating corporate governance rules to provide for electronic communications with shareholders; and,
• Improving the competitive landscape by taking steps to implement a consumer-driven banking framework.

Current Legislative Review

Building on feedback received in the first two phases of consultation, the Department of Finance Canada has identified a range of potential proposals that could be adopted in the Canadian financial sector framework to ensure that Canada’s financial system works for all Canadians.

The proposals set out in this consultation paper are organized under the following five themes:

• Supporting a competitive market structure and expanding consumer choice;
• Enhancing consumer protections;
• Modernizing the financial sector framework;
• Adapting to geopolitical risks; and,
• Upholding world-class regulation.

In addition, the Department is seeking views on some previous consultation topics to understand the implications of proposals, and any implementation challenges.

As with previous financial sector legislative reviews, this consultation process aims to help the federally regulated financial sector evolve to meet needs of all Canadians, address new challenges, and seize emerging opportunities.

The framework can continue to serve the best interests of Canadian consumers and businesses by:

• Fostering competition;
• Enhancing consumer protection;
• Ensuring integrity and security;
• Enhancing federal, provincial and territorial coordination;
• Maintaining a world-class regulatory environment;
• Strengthening governance; and,
• Embracing modernization.

Continuous evolution of the financial sector is essential for sustaining its role as a driver of economic growth and stability.

1. Supporting a Competitive Market Structure and Expanding Consumer Choice

Competition within the financial sector fosters innovation, reduces costs, and improves financial services for Canadians. Consumer choice must be supported by policies that prevent anti-competitive practices and ensure a level playing field, supporting competition among Canada’s largest financial institutions, and facilitating competition from strong challengers and new market entrants.

Preventing Consolidation Among Large Banks

The current industry structure enables Canada’s large banks (that is, banks with equity of $12 billion or more) to generate strong returns for shareholders on a consistent basis. Those banks are already large relative to Canada’s economy and hold more than 93 per cent of all domestic banking assets.

Mergers and acquisitions are a market tool that can help protect consumers and ensure financial sector stability. However, these transactions can also pose risks, including creating an unlevel playing field for smaller market players and reducing banks’ incentives to attract clients organically with more competitive products.

Consolidation among the large banks, for example through amalgamations, could intensify systemic risks and raise the cost and complexity of resolution in a crisis.

The government is exploring ways to increase the banking options available to Canadians and further the resiliency of Canada’s strong and stable financial sector.

The Department of Finance is considering legislative measures to prohibit the acquisition of control of a large bank by another large bank and their amalgamation, subject to prudential or financial stability exemptions.

The Department is seeking views on whether other exemptions should be considered.

Strengthening the Ministerial Application Process

The entry, amalgamation, and change in ownership of federally regulated financial institutions (FRFIs) are subject to Ministerial approval under the financial institutions statutes.

The Minister of Finance’s decision is informed by:

• A recommendation from the Superintendent of Financial Institutions on prudential and regulatory compliance grounds; and
• Her assessment of any matters that she considers relevant to the application, including the best interests of the financial system in Canada.

For some types of Ministerial approvals, such as for bank incorporations, before filing an application, an applicant must publish a notice in a newspaper of general circulation indicating intent to make an application. If in response to the notice the Superintendent of Financial Institutions receives an objection, he may hold or cause to be held a public inquiry into the objection and report the findings of the inquiry to the Minister of Finance.

The Department of Finance is considering legislative measures to modernize the application process and better reflect the expectations that Canadians have toward financial institutions and the financial sector, including by:

• Requiring applicants to hold public consultations in respect of applications that raise material public interest considerations (for example, to consider potential competition or regional issues) and report on the outcome of those consultations to the Minister of Finance. This process would be separate from the existing public inquiry process for certain types of applications.
• Clarifying that the Minister of Finance has the authority to take into consideration an applicant’s compliance with applicable domestic or foreign regulatory requirements when making a decision (for example, compliance with obligations related to taxation or anti-money laundering), and that her authority to impose terms and conditions or require undertakings as part of an approval extends to matters related to employment.

The Department is seeking views on whether additional considerations are warranted, and on the circumstances in which public consultations should be required, as well as how consultations should be conducted.

Fair Access to the Distribution Channel for Brokered Deposits

Small- and medium-sized banks (SMSBs) are an important source of competition and their capacity to innovate and compete is tied to their ability to raise deposits (specifically, high-interest savings accounts or guaranteed investment certificates). SMSBs typically source a significant share of their deposits through third-party deposit brokers.

Large banks control some of Canada’s largest deposit brokers. Ensuring SMSBs have access to the distribution channel for brokered deposits would support consumer choice and foster healthy competition between large banks and SMSBs, while also helping Canadians maximize the return on their deposits.

The Department of Finance is seeking views on amending the Bank Act to prevent banks from exercising control over their deposit broker subsidiaries in such a way as to unduly limit SMSB access to the distribution channel for brokered deposits.

Facilitating the Growth of Federal Credit Unions

In 2012, the government created a framework in which credit unions can do business under federal jurisdiction when expanding across provincial borders. Since then, three credit unions have become federally regulated, and other credit unions have expanded to compete nationally by establishing regulated bank subsidiaries.

Federal credit unions can grow beyond provincial borders by amalgamating with provincial credit unions; however, this process involves a number of steps and requirements at both the provincial and federal levels.

The Department of Finance is seeking views on how it could work with financial sector stakeholders, including federal and provincial regulators and policy-makers, as well as industry, to encourage growth and expansion of federal credit unions.

Leasing Automobiles to Retail Consumers

Federal legislation prohibits FRFIs from engaging in the leasing of motor vehicles in Canada. Specifically, the rules prohibit FRFIs from entering directly into lease agreements with consumers on motor vehicles that have a gross weight of less than 21 tonnes (the average car weighs two tonnes).

The Canadian auto leasing market has evolved significantly since the 2008-09 global financial crisis, warranting an examination of the prohibition. Permitting banks to engage in auto leasing could increase competition in the sector and offer consumers more choice. At the same time, it is important that the potential benefits are sustainable and that any changes do not negatively disrupt the existing market, including the impacts on auto dealers and manufacturers.

The Department of Finance is seeking views on permitting FRFIs to engage in the leasing of light motor vehicles to consumers, subject to measures that minimize the negative impact on the current market structure, such as requiring the agreement of the auto manufacturer.

2. Enhancing Consumer Protections

As financial products and services become increasingly complex, robust consumer protection is more critical than ever. Ensuring that Canadians have effective access to banking services and that consumer protections remain suited to the continuing shift toward digital-first financial products and services is vital for ensuring Canadians have access to the banking tools they need in an increasingly digital economy.

Preventing Financial Fraud

Fraudsters and scammers often target Canadians and business. Digitalization and other technological advances, such as artificial intelligence, have added to the sophistication of these criminal activities.

The federal government is committed to protecting Canadians and businesses from fraud, and everyone has a role to play in stopping fraud. Consumers can protect their personal information and online accounts and ensure awareness of common “spoofing” tactics used by fraudsters to mislead victims. Agencies and organizations, such as the Canadian Anti-Fraud Centre, help educate consumers and track reported instances of fraud and scams. Law enforcement, at federal and provincial levels, have a role to play in investigating fraud and laying charges when there are reasonable grounds to believe a criminal offence has been committed.

Banks are often used as the last line of defence. However, in many instances, banks are in a unique position to draw on their sophisticated understanding of the financial system, and the data tracked by their internal systems, to identify potentially fraudulent activities. However, banks do not always question, delay, or prevent these transactions from occurring.

In addition, banks often offer features such as the ability to easily complete a wire transfer directly from their mobile app or through online banking, which, although convenient when needed by the authorized account holder, can potentially facilitate catastrophic financial fraud outcomes if an account is compromised. Consumers who do not regularly use or benefit from these features are not currently offered the option of disabling such wire transfers.

The Department of Finance is seeking views on whether banks should be required to prevent or delay transactions they believe to be fraudulent and/or associated with a scam, and in what circumstances they should be required to exercise this function.

The Department is also seeking views on whether banks should be required to allow consumers to have the ability to turn off or adjust account capabilities to prevent fraud, such as the ability to complete wire transfers.

Increasing Transparency and Accountability for Financial Fraud

Canadians currently have some liability protections for unauthorized transactions, such as the Bank Act’s $50 maximum liability for unauthorized credit card transactions and the Canadian Code of Practice for Consumer Debit Card Services, which requires that consumers not be held liable for unauthorized use of their debit cards. While these protections have been successful in protecting Canadians from financial losses after certain forms of unauthorized activity, bad actors continue to find new ways to perpetrate fraud to gain both unauthorized and authorized access to Canadians’ money.

Banks already take steps to ensure that Canadians are not victimized by financial fraud and have operationalized protective systems, tools, and warnings to consumers to counter the threat posed by fraud. However, regulators do not have a clear line of sight into the adequacy of policies and procedures employed by banks to protect consumers, and data regarding the extent and magnitude of financial fraud is also lacking.

The Department of Finance is seeking views on requiring banks to have policies and procedures to detect fraud and scams and prevent consumers from being victimized that meet or exceed a regulated standard, and, if so, what policies and procedures would be most effective.

The Department is seeking views on the introduction of a maximum liability threshold for account holders who are victims of unauthorized transactions, regardless of the means by which their account funds were accessed (for example, card-based transaction, wire transfer, or electronic funds transfer), and under what circumstances consumers should be liable for funds lost due to unauthorized transactions.

The Department is seeking views on what constitutes an unauthorized transaction and how such transactions should be defined.

The Department is also seeking views on whether banks should be required to collect and report anonymized, aggregated data related to the nature of fraud and scams targeting their clients, and, if so, whether banks should be required to report this data to FCAC.

Supporting Consumers When Banks Close Branches

Banks are offering increasingly innovative digital banking services. Many banks are now offering their products and services in an exclusively digital manner. Concurrently, banks are reducing their physical branch networks. Although Canadians are visiting bank branches less often, many still value the ability to access in-person services. Branch closures could negatively impact some Canadians’ access to essential financial services, particularly in rural and remote locations.

When banks decide to close branches, or to cease opening retail deposit accounts or teller-based cash disbursals at a branch, they are required to provide written notice to impacted consumers and to FCAC within timelines set in legislation. Despite these disclosure requirements, impacted consumers and FCAC typically are not presented with a clear rationale for why banks choose to close individual branches.

The Department of Finance is seeking views on requiring banks that intend to close a branch or cease opening retail deposit accounts or teller-based cash disbursals to include in their notices to the public and to FCAC:

• A detailed rationale for the decision;
• An assessment of the likely impacts of the decision for the impacted community;
• Additional data about the impacted branch, for example, the volume and value of transactions at the branch and the number of annual in-person visits to the branch; and,
• How that data compares to a bank’s branch average volume and value of transactions and number of in-person visits.

The Department is also seeking views on requiring banks to publish notices to the public about upcoming branch closures on their websites.

Customers impacted by branch closures may choose to switch their banking services to a more conveniently located bank or financial institution. In certain circumstances, banks charge fees to transfer accounts to other financial institutions, which may unfairly disadvantage consumers who wish to seek a more geographically convenient alternative.

The Department of Finance is seeking views on requiring banks that are closing branches to facilitate customer account transfers and to waive associated transfer costs.

Enhancing Bank Reporting on Branch Networks and Closures

Large banks must publish an annual public accountability statement that includes the addresses of the branches opened and closed by the bank during the course of that year. More detailed publicly available data on branch closures would enable the public, as well as regulators, policy-makers, and researchers, to better understand how banks make determinations about what branches to maintain and how communities are impacted by branch closures.

The Department of Finance is seeking views on expanding data-reporting requirements for banks with respect to their branch networks, which may include reporting annual data with respect to:

• The number of branches maintained by the bank;
• How many branches are in urban and rural locations;
• Which branches have been closed or opened in the past year; and,
• The average volume and value of transactions processed at its branch locations.

Clarifying Rules for Opening Deposit Accounts Outside of Bank Branches

Some consumers may choose to switch banking services to an exclusively digital bank, or to a bank with no branch located nearby. Banks with branches and physical points of service must open retail deposit accounts for any Canadian presenting two identifying documents and may deny this access only under exceptional circumstances. However, these rules do not explicitly apply when banks offer to open deposit account services through digital channels.

The Department of Finance is seeking views on whether retail deposit account-opening requirements that currently apply to branches and physical points of service should also apply when banks offer access through digital channels, and under what circumstances.

Immediate Access to Funds Deposited by Cheque

While Canadians are using cheques less often than in previous decades, cheques are still an important form of payment for many, with over 400 million used in Canada in 2022. Many banks offer Canadians convenient options to deposit cheques from anywhere through their mobile applications.

Banks often place holds on funds deposited by cheque until the funds have cleared. Barring exceptional circumstances, the Bank Act requires that banks must release funds deposited in Canadian dollars, in person with a bank employee at a branch no later than four business days after the day of the deposit, if the cheque is valued at no more than $1,500, or seven business days for greater amounts. Cheque holds may last an additional business day if the funds are deposited in any other manner, such as an automatic teller machine (ATM) or through the bank’s mobile app.

Banks are also required to immediately provide access to the first $100 of funds deposited by cheque when deposited in person with an employee at a branch, or the following business day if deposited in any other manner, barring exceptional circumstances.

Bank systems have become more sophisticated over time, allowing cheque funds to clear faster. Moreover, more consumers deposit cheques through ATMs and mobile applications. As the cost of living has increased since these requirements were introduced in 2012, the existing threshold may no longer be a sufficient, reasonable cap.

The Department of Finance is seeking views on increasing the amount of funds immediately available when cashing a cheque in person, and setting out how much should be immediately available when cashing a cheque by other means (for example, ATM or through a mobile application).

The Department is also seeking views on lowering maximum cheque hold periods, and whether the maximum length of time for cheque holds should depend on the amount of funds deposited or the manner by which cheque funds are deposited.

3. Modernizing the Financial Sector Framework

A well-functioning federal financial sector framework keeps pace with new developments and best practices to remain up to date and effective for its various users. This includes updating the corporate governance rules to respond to public expectations and updating various statutory thresholds to respond to the changing economic environment.

Prohibiting or Restricting Interlocking Directorates in the Financial Sector

An interlocking directorate arises when a director of one firm is an employee, executive, partner, owner, or member of the board of directors of a second firm, or has another interest in the business of the second firm. In some situations, interlocking directorates can raise competition concerns and can undermine decision-making that is in the best interest of the firm.

Limiting interlocking directorates could encourage a broader range of individuals to serve as directors, bringing in diverse perspectives and expertise, and could support better governance of financial institutions.

The Department of Finance is seeking views on prohibiting or restricting interlocking directorates within the financial sector, given the unique role of FRFIs in the Canadian economy.

Updating Public Holding Requirement Thresholds

FRFIs above a certain size threshold must have 35 per cent of their voting shares publicly listed on a recognized stock exchange. This public holding requirement provides greater transparency and market oversight that helps ensure that financial institutions are operated responsibly and sustainably.

The equity threshold for the public holding requirement was last updated in 2007 and set at $2 billion.

The Department of Finance is considering updating the threshold at which the public holding requirement is triggered and is seeking views on what the threshold should be.

Updating Statutory Thresholds

The financial institutions statutes contain a number of numerical thresholds that authorize or prohibit FRFIs from engaging in certain actions. With the growth of the economy and the financial sector, and changes to accounting rules, these thresholds ought to be periodically revisited and adjusted if conditions warrant. In some cases, the limits themselves may be better suited to being in OSFI guidelines, which can be updated more quickly to respond to changes in market conditions.

The Department of Finance is considering measures to update several key statutory thresholds:

• Increasing limits on specialized financing activities;
• Limits on investment powers; and,
• Under the Insurance Companies Act, the ownership of farmland, timberland and similar assets.

The Department is seeking views on:

• What these thresholds should be;
• The supporting rationale for the change; and,
• Whether certain thresholds are better suited to regulatory guidelines than legislation.

A More Transparent Financial Transactions Application Process

Under the financial institutions statutes, certain types of transactions can be subject to the approval of the Minister of Finance or the Superintendent of Financial Institutions. In some cases, lack of clarity on the status of the application or the timing of the approvals can create uncertainty for applicants.

The Department of Finance is considering measures that would provide, upon request, a written update to an applicant if no decision has been made within 120 days of receiving a complete application, to match Canada’s international trade commitments.

4. Adapting to Geopolitical Risks

Canada and the world are affected by emerging geopolitical risks, particularly as hostile actors seek to undermine national security by exploiting vulnerabilities that can compromise the safety and privacy of individuals and businesses. As the threat landscape changes and new risks emerge, the federal government is considering action to ensure that its tools keep pace to protect Canadians and the Canadian financial sector.

Enhancing the Oversight of Financial Sector Risks Related to National Security

The Minister of Finance and OSFI’s oversight of financial sector risks related to integrity and security, including national security, is complemented by other federal departments and agencies, including the security and intelligence agencies that provide information and advice to support their mandates.

The Financial Institutions Supervisory Committee is established by statute to facilitate consultations and the exchange of information among its members on all matters relating directly to the supervision of FRFIs. The membership and purpose of the committee constrains its ability to perform holistic oversight of financial sector risks related to integrity and security, including national security.

The establishment in statute of a formal structure to oversee these risks would enhance the supervision performed by federal financial regulators and inform the activities of security and intelligence agencies to protect national security. This structure would also inform policy advice to the Minister of Finance.

The Department of Finance is considering measures to enhance the oversight of financial sector risks related to integrity and security, including national security, and the creation by statute of a committee to facilitate consultations among members on how to address these risks and provide authorities for the exchange of information with necessary safeguards.

Enhancing the Minister of Finance and the Superintendent of Financial Institutions’ Compliance Authorities

Where the Superintendent of Financial Institutions is of the view that an FRFI is committing or is about to commit an act that is unsafe or unsound in conducting its business, the Superintendent may direct the bank to cease or refrain from engaging in such activity, or to perform such acts as are necessary to remedy the situation.

This authority—a direction on compliance—relates to “conducting the business” of an FRFI but does not extend to its “affairs,” a defined term that encompasses governance matters such as relationships between an FRFI and shareholders, members, directors and officers. This definition could unduly limit the use of the Superintendent’s authority, including to direct an FRFI to correct a governance matter.

An FRFI is required by statute to establish and adhere to policies and procedures to protect itself against threats to its integrity or security, including foreign interference. The legislative authorities of the Superintendent (that is, production of information and documents, examination and prudential agreement) and Minister of Finance (that is, terms, conditions and undertaking relating to approvals) do not make reference to an FRFI adhering to these policies and procedures. The absence of this reference could limit the scope of application of these authorities.

The Department of Finance is considering expanding OSFI’s direction of compliance authority to include an act that may threaten the integrity or security of an FRFI and the affairs of an FRFI.

The Department is considering expanding the authorities of the Minister of Finance and the Superintendent of Financial Institutions that refer to an FRFI’s policies and procedures to protect itself against threats to its integrity or security to include a reference to the adherence by an FRFI to these policies and procedures.

5. Upholding World-Class Regulation

The financial sector is continuing to evolve rapidly, and upholding Canada’s world-class regulatory framework through ongoing refinements and improvements is crucial for ensuring that financial institutions operate efficiently in the best interests of Canadians.

Canada benefits from a regulatory system where federal, provincial, and territorial authorities play significant roles. This system allows for tailored regulatory approaches that consider local conditions while maintaining robust nationwide standards. The framework can evolve by fostering greater coordination and cooperation between federal, provincial, and territorial regulators, and creating a more harmonized regulatory environment that reduces redundancies and enhances regulatory efficiency.

Enhancing Federal, Provincial, and Territorial Collaboration

Recognizing the shared responsibilities between the federal, provincial, and territorial governments when it comes to financial services, strong collaboration between both orders of government is essential to navigating emerging issues and addressing risks as the financial sector evolves. Strengthened collaboration remains a priority for the federal government, and collaboration in policy development, administrative procedures, and rule-making between regimes, where appropriate, can help support a consistent and seamless approach across jurisdictions.

A Strong and Predictable Regulatory Framework

A predictable regulatory environment is important for the effectiveness of the framework by ensuring industry can plan for new or changed regulatory requirements. Predictability provides a competitive advantage for Canada because it improves ease of doing business and increases the attractiveness of the Canadian market by providing certainty for investors. Furthermore, building understanding of regulatory actions strengthens the framework as it improves the adherence to the regulations as well as the capacity of stakeholders to collaboratively engage with regulators to strengthen the framework.

In particular, stakeholders from industry and provincial governments expressed the need to obtain information from the federal government about financial sector integrity and security risks. Enhancing the sharing of information could enable financial entities or financial sector regulators to better identify and implement proactive measures to address integrity and security risks and better meet regulatory and supervisory expectations.

The Department of Finance is seeking views on providing regulatory predictability and on improving the understanding of regulatory actions and impacts. Such provisions could include:

• Coordinated periodic announcements on likely forthcoming regulatory actions;
• Conducting and publishing impact statements of regulatory actions;
• Developing a forum for coordinating and collaborating on international issues; and,
• Sharing of information about integrity and security risks.

Artificial Intelligence

The financial sector will be particularly impacted by breakthroughs in artificial intelligence (AI) because of its reliance on large volumes of data and the importance of processing such data with speed. Canadian banks and other financial institutions—recognized as leaders in AI research and implementation—are accelerating the adoption of these technologies to improve many core business activities, such as lending, insurance underwriting, customer service, and risk management.

Financial sector adoption of AI could enhance the consumer experience by offering faster, more personalized financial services, while also increasing efficiency, improving risk management, and advancing the ability of financial institutions to detect and prevent fraud in real time. However, AI could also introduce new or heightened risks to consumers and financial institutions, which must be mitigated to ensure the ongoing stability of the financial sector.

Stakeholders have emphasized the need for federal leadership to ensure safe, responsible and productivity-enhancing use of AI in the financial sector. There was a broad consensus that federal leadership should strive to provide regulatory clarity through a principles- and risk-based approach.

The Department of Finance is undertaking work to strengthen federal leadership on the safe and responsible use of AI in the financial sector, led by an AI expert. This effort would aim to:

• Engage a broad range of domestic and international stakeholders;
• Identify and assess potential risks of AI; and,
• Develop a federal strategy to harness the advantageous capabilities of AI in the financial sector, while mitigating potential risks.

The Department is also seeking views on which areas should be prioritized in this work regarding the use of AI in the financial sector.