Report of the committee
Thursday, June 3, 2021
The Standing Senate Committee on Banking, Trade and Commerce has the honour to table its
Your committee, which was authorized to examine the subject matter of those elements contained in Divisions 1, 2, 3, 4, 5, 7, 8 and 9 of Part 4 of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures, has, in obedience to the order of reference of Tuesday, May 4, 2021, examined the said subject-matter and now reports as follows:
On May 4, 2021, the Standing Senate Committee on Banking, Trade and Commerce (the committee) was authorized by the Senate to study Divisions 1, 2, 3, 4, 5, 7, 8 and 9 of Part 4 of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021. In studying these proposed measures, the committee heard from officials from federal departments and organizations, law enforcement agencies, as well as representatives from the financial services sector and non-governmental organizations. Mastercard Canada provided a written brief.
The committee wishes to comment that the divisions it has examined generally have positive implications and achieve policy objectives that are beneficial for investors, industry, consumers, innovators and Canadians in general.
However, the committee believes the policy goals associated with some of the provisions that were examined may be adversely impacted by the slow progress of policy implementation. Examples include elements related to the implementation of the Retail Payments Activities Act, a publicly accessible corporate beneficial ownership registry and the Capital Markets Stability Act.
Division 5 of Part 4 amends the Canadian Securities Regulation Regime Transition Office Act to increase the maximum amount of direct payments that the Minister of Finance may make to the Canadian Securities Regulation Regime Transition Office.
The Committee’s Observations on Division 5
The committee notes the proposed Capital Markets Stability Act (CMSA) would facilitate the identification and collection of commercial and regulatory data to assess and mitigate systemic risks and strengthen capital market stability and enforcement in Canada. The Canadian Securities Transition Office was established in 2009. A revised consultation draft of the CMSA was issued in January 2016, and now Parliament is being asked for additional funds to continue its activities for a further two years. The committee expressed concern that this work be completed. The committee acknowledges the importance of detecting, assessing, and mitigating systemic risks that may exist due to current and future market-wide vulnerabilities.
Division 7 of Part 4 makes several amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, including extending the application of the Act to businesses, such as armoured trucks, that transport currency or other financial instruments and allowing more information to be shared by FINTRAC with law enforcement and other governmental bodies with respect to virtual currencies and publicly traded trusts.
The Committee’s Observations on Division 7
The committee continues to be disappointed with the federal government’s efforts in combatting money laundering, terrorist financing, corruption, tax evasion, tax avoidance and other related criminal activities. The committee believes that the incremental changes proposed in Division 7 are insufficient and that additional measures must be considered by the government to improve the enforcement of Canada’s anti-money laundering and anti-terrorist financing regime.
The committee notes that the 2021 federal budget proposes to provide $2.1 million over two years to support the implementation of a publicly accessible corporate beneficial ownership registry. This registry is integral to a robust system to combat criminal offences such as those listed above. However, implementation will not occur until 2025. The proposed funding would expire in 2023 and no funding is proposed for the two years prior to the scheduled implementation date. As such, the committee feels that the proposed funding may not be adequate and questions whether the beneficial ownership system will be completed by 2025.
Furthermore, the members of the committee expressed concern at the delay in granting public access to such a registry, given its potential importance in the prevention of criminal offences such as money laundering. The committee believes that the scheduled implementation date of 2025 will place Canada further behind international peers.
The committee encourages the federal government to ensure that establishing the registry, in collaboration with the provinces and territories, remains a priority in its efforts to combat money laundering and other criminal activities.
Division 8 of Part 4 enacts the Retail Payment Activities Act (RPAA), which establishes an oversight framework for the retail payment activities of payment service providers. The Act will require payment service providers that are not regulated financial institutions to:
· register with the Bank of Canada;
· implement a risk management and incident response framework to address operational risks; and
· have systems in place to safeguard user funds.
The Committee’s Observations on Division 8
The committee expresses its support for the development of a regulatory framework that is guided by the principles of simplicity, transparency, proportionality and fairness, in order to ensure competition and accelerate innovation. However, the committee has a few comments on the potential regulatory burden and timelines of the RPAA.
The committee believes that the RPAA would increase the regulatory burden on startups, which could be a disincentive for new entrants into the retail payments sector. However, the Electronic Transactions Association indicated that, while it may initially seem like a burden for small fintechs, the RPAA will provide certainty and clarity for these companies and ensure their safety and soundness for consumers. As well, the Bank of Canada stated that the RPAA is largely in line with existing industry standards, such as the International Organization for Standardization (ISO) or payment card industry standards. The committee encourages the federal government to draft the regulations in such a way as to keep the complexity and costs of complying low and to ensure they are proportional to the risks that payment service providers present.
The committee is also concerned that Canada is far behind other countries, such as the United Kingdom, Australia and the European Union, in implementing legislation that would foster growth and competition in Canada’s fintech sector. The PayTechs of Canada Association suggested that some fintechs engaged in the payments sector are considering simply exiting the Canadian market to operate in those jurisdictions that offer a more competitive environment and regulatory certainty. The committee notes that while the RPAA would address the regulation of payments, opening access for fintechs to the payments systems, establishing an open banking framework and updating data privacy legislation are also urgently needed.
In the view of the committee, examining the RPAA’s broad legal framework is difficult in the absence of crucial details such as the fee structure and what will be set out in the regulations. The committee suggests that the Department of Finance provide Parliament with a more complete package about proposed legislation prior to tabling it in a bill.
Lastly, according to the Department of Finance Canada, the RPAA will not be brought into force for at least two more years, as regulations and guidance still have to be prepared. The Department also indicated that this time is needed for the implementation of Canada’s new real-time payments system, the Real-Time Rail, by Payments Canada and for additional consultations to occur. The committee notes that, given the fast-paced evolution of the industry during the pandemic, the finalized version of the RPAA may be outdated by the time regulations and guidance are completed by the Department. The committee encourages the federal government to continue consultations with relevant stakeholders but strongly urges the Department of Finance to bring the RPAA into force as soon as possible.
Division 9 of Part 4 proposes legislative amendments to the Pension Benefits Standards Act, 1985 that would establish a revised framework for multi-employer negotiated contribution pension plans and grant new regulation-making powers to the Governor-in-Council with respect to these plans.
The Committee’s Observations on Division 9
According to the Department of Finance, forthcoming regulations will remove solvency funding requirements, which will help these plans provide more sustainable benefits without having to move to benefit reductions while plans are ongoing. Given our country’s changing demographics and aging population, the committee welcomes changes that seek to strengthen governance, transparency and the sustainability of pension plan benefits. The committee encourages the government to ensure that the regulations allow for proper monitoring and long-term planning of negotiated contribution pension plans so that these plans are sustainable, protected and guaranteed.
The committee has no material observations regarding Divisions 1, 2, 3 and 4 of Part 4.