A Roadmap for Canada’s Prosperity and a Thriving Economy

Summary Points

Pre-budget submission to the House of Commons Standing Committee on Finance

Article

Recommendation 1: The government should improve Canada’s productivity, job creation, new business growth, and economic resilience by:

Reforming the tax system and removing sector-specific taxes to enhance efficiency, neutrality, certainty, and investment attraction
Ensuring prudential regulation supports small- and medium-sized enterprise (SME) lending

Recommendation 2: The government should lead the development of financial consumer protection standards for un- or under-regulated financial service providers (such as e-commerce platforms and similar entities) rooted in the strong system that presently governs banks. The government should work with provinces and territories to ensure that uniform protections are adopted across Canada

Recommendation 3: To maintain focus on the government’s critical priorities, it would be prudent to pause any broad reforms to existing private sector privacy legislation or alternatively address any urgent gaps through targeted amendments. Furthermore, the government should prioritize intergovernmental coordination to promote regulatory harmonization and reduce duplication and/or overlap across privacy and artificial intelligence (AI)-related initiatives

Recommendation 4: The government should establish a comprehensive national strategy to combat financial crimes, including adequate resources to hold criminals accountable under the Criminal Code of Canada. Specifically, the CBA supports the following measures in this regard:

Assess and strengthen the capacity of the Canadian Anti-Fraud Centre (CAFC), which answers about 7.5% of the over 400,000 calls it receives annually. The government should expand CAFC’s resources (and authorities) to better support intelligence gathering, investigations, and coordination
Ensure sufficient training, funding, and dedicated resources for law enforcement and prosecutors to respond to the rising volume and sophistication of financial crime
Expand national public education initiatives to equip Canadians with the knowledge and tools they need to protect themselves against financial crime and scams
Take a multi-sector approach to combatting scams, including coordinating with telecommunications and online platforms
Replicate successful models such as Ontario's Serious Fraud Office at the federal level to improve coordination and enforcement

Recommendation 5: To keep pace with evolving threats, the government should review Canada’s AML/ATF regime (Regime), including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Regulations (PCMLTFA/R), appoint an AML Czar, reform suspicious transaction reporting (STR) processes, bolster investigatory and prosecutorial capacity (including through the Canadian Financial Crimes Agency [CFCA]), further consult on Bill C-2, strengthen public-private information sharing, and ensure penalties are fair, risk-based, and proportionate

Introduction

The CBA is grateful for the opportunity to contribute to the government’s upcoming budget. As the voice of more than 60 domestic and foreign banks, we advocate for public policies that contribute to a sound and safe banking system that helps drive Canada’s economic growth and prosperity.

Bank Contributions to Canada

Canada’s banks have a longstanding and continuing commitment to support the economy and invest in communities nationwide. In 2024, banks:

Contributed approximately $74 billion (or 3.7%) to Canada’s GDP
Paid nearly $16 billion in taxes to all levels of government and generated over $29 billion in dividend income for Canadian seniors, families, pensions, charities, and endowments
Employed nearly 300,000 people. An inclusive, equitable, and talent-driven workforce, with women representing 55% and self-identified visible minorities comprising 43%
Lent over $1.67 trillion in residential mortgages and authorized nearly $1.85 trillion in business credit, including $295 billion for SMEs
Approved, on average, 87% of small business debt financing requests annually since 2010

Competitive Landscape

Canada’s banks operate in a highly competitive marketplace, with 77 licensed banks including:

Six large national banks with full-service operations
27 small and mid-sized domestic banks focused on specific markets or products, and
44 foreign banks (subsidiaries and branches) offering specialized services

Banks across Canada are licensed federally, which enables them to compete across the country and with a wider range of financial institutions such as:

Three federal credit unions
Over 400 provincial credit unions and caisses populaires, which are highly competitive regionally
government-owned financial institutions
65 life and health insurance companies, over 196 general insurers
150 investment fund companies
167 securities dealers
Over 200 specialized finance companies, and
Approximately 3,000 payment services providers

Recommendation 1

Canadians’ standard of living, as measured by real GDP/person, was lower in 2023 than in 2014. Canada risks continued deterioration in living standards without improvement to its low labour productivity, which translates into wage stagnation, constraints to governments’ public services, increased production costs, and reduced competitiveness globally.

Canada’s productivity has declined significantly over time, falling from sixth place among Organisation for Economic Co-operation and Development (OECD) countries in 1970 to 18<^th in 2022, It now ranks second-last among G7 countries. Productivity in Canada is approximately 30% lower than in the U.S., comparable to levels seen in lower-income states rather than in innovation leaders like California or New York.

Canada has one of the highest (12^th of 27 countries) corporate tax rates and the third highest combined corporate and personal tax rates in the OECD, while the average effective tax rate remains stubbornly high (11^th in OECD) and well above those in U.S. and the U.K. In fact, the International Monetary Fund, the OECD, and others have urged Canada to implement growth-oriented tax policies.

Targeted taxes on the financial services industry have further undermined economic growth and productivity by limiting banks’ capital available for Canadian businesses, reducing Canadians’ ability to save and invest, and dampening foreign investment. Targeted taxes include:

Removal of the Dividend Received Deduction, impacting over 3 million Canadians holding market-linked GICs and Notes, often middle-class households close to retirement who seek stable returns and downside protection
The 2022 Financial Institutions Tax and the Canada Recovery Dividend curtailed credit capacity to businesses and consumers as every dollar reduction in retained
Capital taxes imposed by six provinces reduce banks’ retained earnings and penalizes prudential capital buffers. Québec’s Compensation Tax on Financial Institutions further discourages job creation and economic growth
Retroactive sales taxes on payment clearing services undermine the tax system’s principles of predictability, certainty, fairness and investor confidence

In addition to tax reform, Canada must ensure that regulations ensuring the safety and soundness of the financial system do not unnecessarily constrain access to credit for SMEs. Canada, like other countries, must take steps to reflect the growth imperative in prudential regulation and allow smaller lenders to expand SME financing.

Recommendation 2

Canadians continue to adopt new payment methods offered by non-traditional payment service providers (PSPs), including Big Tech. However, these PSPs are largely un- or under-regulated. Moreover, new payment forms such as stablecoins are emerging that do not fit neatly into the current regulatory environment.

Globally, G20 member countries and the OECD have recognized that financial consumer protection requires a more targeted set of principles than general consumer protection that seek to address key risks to consumers in financial transactions. Failure to address the risks can decrease consumer trust in the financial system. Financial services and products have the potential to disproportionately impact the well-being of consumers and must be addressed specifically rather than through overarching consumer rights across banks and PSPs.

The Retail Payment Activities Act establishes a federal framework for PSPs to address certain financial and security risks. However, the framework is silent on market conduct. Given the Bank of Canada’s recent mandated oversight of nearly 3,000 PSPs, consumer usage is likely to increase and the absence of market conduct regulation is a significant gap in ensuring fair outcomes and protection for Canadians.

Canadians should benefit from a secure, reliable and consistent financial system regardless of the providers in the marketplace. Therefore, it is important that un- or under regulated players do not introduce risk into the financial system. The financial services regulatory framework, including market conduct, should adopt the principle of "same activity, same risk, same regulation" and should continue to evolve to reflect changes in technology.

Recommendation 3

Technologies like AI, along with strong data and privacy protections, are foundational to building a digital future that is innovative, secure, and trusted by Canadians.

The CBA supports the responsible development and adoption of AI, particularly given its growing role in fraud detection, cybersecurity, operational efficiency, and customer service in the financial sector. Banks already manage risks related to AI and other technologies through long-standing and robust regulatory and internal frameworks, including model risk management, third-party oversight, and technology and cyber safeguards.

As the government promotes innovation and adoption of AI across sectors, any future rules or guidance must be carefully designed to avoid duplicating existing obligations or creating fragmented oversight. In the financial sector, where strong regulatory foundations exist, efforts should be coordinated and clearly scoped to align, not conflict, with current frameworks while supporting continued innovation.

To maintain focus on the government’s critical priorities, it would be prudent to pause any major reforms to private sector federal privacy legislation. Alternatively, targeted amendments could be made to existing legislation to address specific, high priority gaps to better support government priorities, including promoting AI and combatting financial crime. Any privacy reform efforts should maintain a principles-based, technology-neutral approach.

As some provinces explore their own privacy reform, we encourage collaboration between provincial and federal lawmakers to ensure harmonized privacy principles, consistent definitions and concepts, and aligned requirements where they make sense. This will prevent inconsistent requirements that could increase compliance costs and hinder innovation or productivity.

A consistent, coordinated approach to privacy protection will benefit Canadian businesses and consumers by ensuring clarity around privacy rights and responsibilities and by protecting Canadians while supporting innovation, productivity, and economic prosperity.

Recommendation 4

Financial crimes, such as scams, identity theft and account takeovers, continue to threaten Canadians, with some schemes being linked to organized criminal networks beyond Canada’s borders. Over the past decade, reported fraud incidents have doubled and have spilled into public and physical spaces.

In response, the CBA is collaborating with over 50 organizations across public and private sectors (government regulators, financial institutions, telecommunications companies, and digital platforms) in an anti-scam alliance to strengthen Canada’s fraud prevention ecosystem through targeted coordination, improved information sharing and the creation of a nationwide consumer education and awareness campaign. While prevention and education are essential, effective enforcement and prosecution are equally critical to ensure criminals are held accountable under the Criminal Code of Canada, preventing further victims.

Protecting Canadians against financial crimes requires a coordinated and proactive strategy that spans the fraud lifecycle, from prevention and detection to enforcement and prosecution. An effective financial crime prevention strategy will be applied nationwide, integrate public-private collaboration, reinforce enforcement and prosecution capacity, and empower Canadians through education.

Recommendation 5

Banks understand that fighting money laundering (ML) and terrorist financing (TF) is critical to the safety, security and productivity of the Canadian economy. They allocate substantial resources to their anti-money laundering (AML) programs and internal controls to detect and disrupt such activities, including from fentanyl trafficking. To ensure Canada’s AML regime remains responsive and focused on emerging and evolving ML TF threats, we recommend the following enhancements:

Undertaking a comprehensive review of the Regime (including PCMLTFA/R) to ensure it is fit-for-purpose, effective, efficient, and focused on the highest risks
Appointing an AML Czar to enhance coordination across the AML ecosystem to focus on Regime priorities
Prioritizing supervisory resources on high-risk industries and activities where AML controls are weaker
Reforming the STR framework towards reporting suspicious activity (as opposed to transactions) to better align with the objectives of the PCMLTFA
Strengthening investigatory and prosecutorial capacity, including establishing the CFCA as an agency that focuses on complex financial crimes and generates statistics on investigations, prosecutions and seized funds
If Bill C-2 receives Royal Assent, consulting on the development of enabling regulations for the Bill’s proposed changes (e.g., mandatory enrolment)
Building on the AML information sharing changes proposed in Bill C-2 to develop a comprehensive public-to-private information sharing regime
Ensuring penalties for PCMLTFA/R non-compliance are proportionate, reflect Canada’s market and compliance context, and are applied fairly within a risk-based framework