Understanding the Consumer-Driven Banking Framework: Key Insights from the Budget Implementation Act, 2024, No.1

Understanding the Consumer-Driven Banking Framework: Key Insights from the Budget Implementation Act, 2024, No.1

On April 30, 2024, the federal government tabled the Notice of Ways and Means Motion, introducing the Budget Implementation Act, 2024, No. 1 (the “Bill”) to formalize aspects of the 2024 budget (“Budget 2024”), marking a pivotal step towards reshaping Canada’s banking landscape with the introduction of consumer-driven banking. The comprehensive legislation extends over 660 pages, addressing numerous provisions impacting financial services, prominently including the framework for consumer-driven banking.

Central to these legislative efforts is the enactment of the Consumer-Driven Banking Act (the “CDBA”), establishing the foundation for the consumer-driven banking framework (the “Framework”). The legislation clarifies the application of the CDBA, providing clear guidelines for its scope and enforcement. It empowers the Minister of Finance to designate a technical standards body responsible for developing technical standards essential for consumer-driven banking. In addition, it defines specific offenses and penalties for violations of the CDBA, and formalizes the role of the Financial Consumer Agency of Canada (the “FCAC”) in overseeing and supporting the Framework, with the safeguarding of consumer interests top of mind.

Key Aspects of the CDBA

Regulatory Oversight

The Bill proposes amendments to the Financial Consumer Agency of Canada Act (the “FCAC Act”) to create an independent “parallel” consumer-driven banking regulator within the FCAC framework. The amendments extend the FCAC’s mandate to oversee participating entities, an external complaints body, and the technical standards body. The mandate also involves tracking and assessing trends and emerging issues that could affect consumers and consumer-driven banking, promoting participation in consumer-driven banking in cooperation with federal and provincial organizations, and enhancing consumer understanding of consumer-driven banking. The expanded FCAC responsibilities will operate on a cost-recovery basis to ensure financial efficiency.

Acknowledging potential jurisdictional conflicts with the provincial consumer protection authority, Budget 2024 specifies that the FCAC Commissioner will not have direct oversight of the Framework. Instead, a new Senior Deputy Commissioner role will be created and given the same oversight authority for consumer-driven banking activities that the FCAC Commissioner possesses for consumer protection obligations in federally regulated financial institutions.

Scope and Application

The approach outlined in the CDBA allows consumers and small businesses to instruct that their data be shared with their preferred participating entities in a safe and secure manner. In this context, the Framework covers a broad spectrum of financial products, including:

• deposit accounts;
• registered and non-registered investment accounts;
• payment products, including credit cards and pre-paid payment instruments;
• various lending products, such as lines of credit, mortgages, and other loans; and
• additional products or services to be provided for in the regulations.

Importantly, the CDBA explicitly excludes “derived data,” defined as data that has been enhanced by a participating entity to significantly increase its usefulness or commercial value. By excluding this category, the government seeks to ensure that participating entities can retain some competitive advantage while maintaining a fair and transparent Framework.

Data Sharing and Security

The CDBA enforces secure data sharing between participating entities, safeguarding data integrity and authenticity. Specifically, the CDBA sets out limitations on how data can be shared, including to ensure that the recipient of the data cannot edit the data on servers used by the provider of the data. Furthermore, the CDBA continues the existing prohibition on banks sharing customer data with insurance companies, agents, or brokers for the business of insurance, thereby adhering to the principles and restrictions outlined in the current Bank Act.

Technical Standards and Compliance

The CDBA authorizes the Minister of Finance to designate a technical standards body responsible for creating, maintaining, and overseeing the technical standards that facilitate secure data flow within the scope of the CDBA. This body will play a crucial role in setting consistent rules for data exchange between participating entities. Key obligations include submitting annual reports to the newly created Senior Deputy Commissioner of the FCAC and promptly notifying him/her of any significant changes impacting the technical standards body or the technical standards. This designation is to be reviewed every three years and may be revoked in certain circumstances.

Enforcement and Penalties

The draft CDBA provides the following penalties for misrepresentation or unauthorized activities by entities claiming to be “participating entities”:

• for individuals, a fine up to $1 million (on conviction on indictment) or $100,000 (on summary conviction); or
• for entities, a fine up to $5 million (on conviction on indictment) or $500,000 (on summary conviction).

Courts may impose higher penalties if individuals or entities derive monetary benefits from the violations.

Looking Forward

Despite the Bill’s comprehensive nature, several critical questions remain unanswered, such as the below:

• Small Business: What constitutes a “small business” remains unclear and requires further clarification.
• Derived Data: The draft CDBA does not provide insight into or examples of enhancements that would significantly boost the usefulness and commercial value of data (such that it would be considered “derived data” and explicitly excluded from the Framework). Detailed guidelines may be necessary to interpret the meaning of “derived data” effectively.

The Bill must still navigate the legislative process before becoming law. While amendments to budget implementation bills are uncommon, the CDBA provisions outlining the Framework may still be subject to change. Despite the unresolved questions about the consumer-driven banking framework, these initial draft provisions signal a comprehensive legislative framework. In addition, the second Budget Implementation Act, anticipated to be tabled this fall, is expected to provide further clarity and guidance.

by Darcy Ammerman and Fengge Sun  (Articling Student)

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2024