Based on their performance during and after the recession, Canada’s banks have been praised. But a new federal review will put the financial sector to the test.

On Friday, the Department of Finance announced the launch of a two-stage consultation process that will measure the health and effectiveness of Canada’s banks, financial institutions and legislation.

In a release, the department says confidence in a strong and well-functioning financial sector is a must-have when it comes to ensuring an economy is stable. It adds the launch of this consultation builds on Budget 2016’s commitment to extend the sunset date for federal financial sector legislation and regulations by two years.

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Canada has a highly regarded financial sector, says the Department of Finance in that release, but it’s an industry that’s continuously evolving to meet the needs of its clients.

As such, the department’s new consultations will review whether the financial sector is:

  • Stable. The financial sector must be resilient in the face of stress.
  • Efficient. The sector must provide competitively priced products and services, and pass efficiency gains to customers. It must also be innovative and contribute to economic growth.
  • Useful. The sector should meet the needs of an array of consumers, including businesses, individuals and families.

The good news is Canada’s financial institutions are entering this review from a position of strength. But looking forward, the department adds in its release, the financial sector will have to adapt to new trends, including emerging financial innovation and technologies that will challenge existing business models. Further, banks and other institutions will have to deal with evolving consumer preferences and changing demographics.

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As the feds point out in that release, this review is necessary because these institutions “are facing an array of new and emerging risks” that “could result in high potential losses.” For example, factors such as increased urbanization and climate and environmental change have increased the potential for losses from catastrophic events, even where these events have a low probability of occuring.

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Based on OECD data and Department of Finance calculations, Canada’s financial sector manages assets of about $10 trillion–that’s more than five times Canada’s gross domestic product. And, the sector is composed of many sub-sectors (there are large banks, trust and loan companies, both life and P&C insurers, and mortgage lenders and insurers, to name a few groups), which means there are various regulators in place.

The first phase of the federal review will examine the current landscape of the sector and key trends that will impact its performance. The feds will also identify potential actions that can be taken to strengthen financial institutions.

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Interested in offering feedback?

Individuals or organizations interested in submitting their views are invited to review the consultation document. Submissions will inform the development of a policy paper for the second stage of the consultation process, which will occur in 2017.

Written comments should be forwarded by November 15, 2016 to LegislativeReview-ExamenLegislatif@canada.ca or to:

Financial Institutions Division
Financial Sector Policy Branch
Department of Finance Canada
90 Elgin Street
Ottawa, Canada
K1A 0G5