Recommendation 1: Undertake productivity-enhancing tax reform, including the removal of banking sector-specific taxes, to promote savings, investment, jobs, and growth.

Recommendation 2: Promote a harmonized, pro-innovation regulatory approach, based on the key principle of “same activity, same risk, same regulation.”

Recommendation 3: Develop a resilient consumer-driven banking framework that adopts a principles-based, made-in-Canada approach and leverages industry expertise, promotes innovation, and encourages competition that benefits Canadians.

Recommendation 4: Implement a coordinated, cross-sector Anti-Scam Action Plan to protect Canadians.

Recommendation 5: Ensure adequate resources to hold individuals accountable for financial crimes under the Criminal Code of Canada.

Recommendation 6: Continue to improve Canada’s anti-money laundering (AML) Regime to focus on priority risks, high-value reporting, prosecutions, and statistics that enable evidence-based policies.

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.

Banking Sector’s Economic Contributions

Banks have a long history of contributing to Canada’s economy. In 2023, banks: 

• Contributed over $70 billion (or 3.5%) to Canada’s GDP. 
• Paid approximately $15 billion in taxes.
• Employed close to 300,000 people, a workforce represented by women (54.5%) and self-identified visible minorities (42.6%).
• Generated over $28 billion in dividend income that went to Canadian seniors, families, pensions, charities, and endowments.
• Operated over 5,600 branches and 18,600 ABMs. Banks are key in providing access to capital for Canadians.

In 2023, they:

• Lent over $1.61 trillion in residential mortgages.
• Authorized $1.78 trillion in business credit, of which $286 billion went to support small- and medium-businesses.
• Since 2010, on average, 87% of small business debt financing requests have been approved annually in Canada.

While the five largest banks account for 85% of commercial bank assets in Canada (average for OECD economies in terms of concentration), concentration is far from a determinative indicator of market power as it says little about changes in competitive intensity nor accounts for substitutable products and services offered by non-banks. Indeed, banks not only compete against each other, but do so with other established players including provincial credit unions and caisses populaires, government-owned deposit-taking and finance institutions, life and health insurance companies, general insurance companies, trust companies, mutual funds, securities dealers, investment advisers and specialized finance companies. Furthermore, the financial sector is ever-expanding, as new non-financial firms enter the competitive landscape (e.g., large technology platforms with growing access to consumer data and fintech payment services providers, buy-now-pay-later companies, digital currency exchanges, robo-advisors, etc.). Canadian banks customers have demonstrated the highest levels of positive customer experience and satisfaction among 14,000 retail banking customers across 35 countries.¹  These levels are underpinned by banks’ investment of approximately $120 billion in technology over the past decade.

Recommendation 1

Canada’s labour productivity growth has diminished considerably, making production more expensive and Canada less competitive. This diminished growth impacts Canada’s living standards, ability to pay for government programs, and economic resiliency.

Canada ranks 18th in productivity among countries in the OECD and last among the G7.²  The IMF, OECD, and others have urged Canada to implement growth-oriented tax policies to reverse this trend. Yet, governments have elected instead to impose specific taxes on the banking sector, limiting the amount of capital that banks can deploy to businesses for productivity enhancing measures, reducing Canadians’ ability to save and invest, increasing investment uncertainty, and reducing banks’ ability to attract necessary capital. Indeed, Australia’s Government Productivity Commission concluded that industry levies must be avoided to establish or maintain sound foundations for productivity growth.³

These taxes include:

• Recent removal of the Dividend Received Deduction, which will negatively impact middle-class Canadians who hold over 3 million retail market-linked GICs and Notes. These investments allow middle-class households, mostly approaching or in retirement, to access higher returns and manage downside risk.
• The Financial Institutions Tax and the Canada Recovery Dividend, announced in the 2022 Budget, which reduced the amount of capital that can be deployed to businesses and consumers as every dollar reduction in retained earnings translates into over $7.50 of foregone new credit capacity. These taxes have also deterred foreign investment into Canadian banks. In the year before the 2022 Budget, international investors purchased $3.6 billion worth of Canadian bank equity. In the year afterwards, international investors divested $11.6 billion in Canadian bank equity.
• Capital taxes imposed by six provinces⁴, which ultimately reduces retained earnings and penalizes banks for holding buffers to back lending. Furthermore, Québec’s Compensation Tax for Financial Institutions deters job creation and economic growth in the province.
• The federal government has implemented retroactive sales taxes on payment clearing services. Retroactive taxes undermine the principles of predictability, certainty, fairness and confidence in the tax system needed by businesses to make investment decisions.

Comprehensive tax reform, including removal of sector-specific taxes, is needed to improve Canada’s productivity, living standard, competitiveness, and economic growth.

Recommendation 2

It is imperative that Canada’s financial sector regulatory landscape evolves with increased adoption of technological innovations like AI, new players entering the market, and initiatives such as payments modernization and consumer-driven banking. The regulatory regime also needs to foster innovation and competition by allowing participants to more quickly and cost effectively respond to customer demands.

The federal government must work with and promote a harmonized regulatory approach across provinces and regulatory authorities. This will ensure Canadians continue to benefit from safe, secure and reliable financial services while also having consistent protections across jurisdictions and avoid duplicative, conflicting, or residual obligations.

To promote regulatory harmonization across jurisdictions domestically and ensure Canadians receive a consistent set of protections, we recommend:

• Greater cooperation and coordination across federal and provincial regulatory authorities to address potential gaps in regulations that could be exploited by actors in the financial marketplace. This includes ensuring consistent market conduct regulation of un- and under-regulated financial providers.
• Adopting a regulatory framework that adheres to the principle of "same activity, same risk, same regulation" to ensure actors that engage in equivalent activities as banks are subject to the same rules and oversight.
• Continued engagement between policymakers, regulators and international partners involved in ongoing digital and data initiatives such as regulatory oversight of AI and consumer-driven banking to ensure a degree of harmonization between legislative and regulatory frameworks.

Recommendation 3

As responsible innovators and trusted custodians of Canadian data, the banking sector strongly supports a consumer-driven banking framework (Framework) that helps Canadians realize the benefits of robust, safe and secure data sharing. The sector is working towards providing Canadians with the ability to securely access and benefit from the use of their financial data. This will promote the consumer confidence, trust, and adoption required to make consumer-driven banking a success in Canada.

A successful Framework will place Canadians at the centre of innovation and allow flexibility that fosters new partnerships in an already innovative and competitive environment. Moreover, in a data-driven economy, consumer-driven banking will play a critical role in empowering Canadians by providing them with greater control over their financial data.

Banks remain deeply committed and are collaborating closely with government authorities, regulators and cross‑sectoral partners to provide Canadians with safe access to data sharing practices that will help foster innovative products and services through the successful implementation of the Framework.

Recommendation 4

Implementing an Anti-Scam Action Plan is critical as the Canadian Anti-Fraud Centre has reported that Canadians lost a staggering $569 million in 2023 to scams. With scams being significantly underreported, the true losses could be as high as $11 billion annually.⁵

With the Real-Time Rail and consumer-driven banking on the horizon, we have limited time to get ahead of the expected rise in payments fraud. Australia’s experience, for example, saw significant increases in scams following the launch of real time payments and consumer-driven banking, highlighting the need for proactive measures to mitigate these risks. Along with the increasing use of artificial intelligence, the number of opportunities for scams to occur will only increase. We must learn from other jurisdictions’ experiences and take steps to proactively protect Canadians. By developing a coordinated, multi-sector strategy, Canada can effectively combat the evolving sophistication of scammers and protect against rising financial losses. A robust Anti-Scam Action Plan should:

• Educate Canadians on what they can do to reduce their exposure to scams and how to report them. Financial literacy is a core component of scam prevention and the broader well-being of Canadians. 
• Prevent scams by creating the conditions to minimize opportunities for scammers to target Canadians.
• Respond effectively and with empathy to scam victims.

This is a shared responsibility. Canadians, government, financial institutions, telecommunication companies, online platforms, technology companies, law enforcement, and the courts all have a significant role to play in this fight.

Recommendation 5

While prevention through collaborative efforts is the primary focus, financial crimes extend beyond scams to an array of activities including identity theft. As reported fraud incidents have doubled over the past decade across Canada, stakeholders across government, the financial and telecommunications sectors, online platforms and telecommunications companies will need to continue working closely with law enforcement and the justice system to combat financial crimes under the Criminal Code of Canada. Policy opportunities related to policing and law enforcement include:

• Ensuring there is sufficient training, funding, and dedicated resources for law enforcement and prosecutors to respond to authorized fraud;
• Ensuring there are adequate resources to mitigate repeat offenses from fraudsters;
• Ensuring Canada works with international governments and law enforcement to mitigate authorized fraud and deter international criminal activities;
• Improving fraud reporting processes;
• Leveraging Ontario's Serious Fraud Office as a model to be replicated at provincial and federal levels for appropriate resourcing and coordination, and;
• Quickly operationalizing the 2024 Budget commitment to have CRA work with industry to develop a tool for income verification.

Recommendation 6

Banks are active stakeholders in Canada’s AML Regime (Regime) and invest significant resources to comply and combat Money Laundering (ML) risks. While banks strongly supported recent changes to the regime, it is imperative to shift focus from extensive reporting and regulatory measures, to prosecutions of financial crimes to narrow the gap between regulatory compliance and actual law enforcement effectiveness.

With a decline of ML convictions thorughout 2010-2020, further evolution is required to enhance the regime’s efficiency and effectiveness, by shifting away from its reliance on “high-volume, low value reporting.” For instance, reporting entities under the Proceeds of Crime (Money Laundering)and Terrorist Finance Act (PCMLTFA) in Canada submit 12.5 times more reports than similar entities in the U.S., and 96 times more reports than those in the U.K. Additionally, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) provides a disproportionately low number of intelligence reports to law enforcement. For example, in 2022–23, FINTRAC received over 36 million individual reports and disclosed only 2,085 intelligence reports, of which 27% were from public-private partnerships.

We recommend the following changes to ensure the regime is properly focused on a risk-based approach, limits low-value reporting, increases prosecutions, and generates statistics to enable evidence-based policy making:

• Allow federal government agencies, like FINTRAC, to share strategic and tactical information related to ML and terrorist financing offences with private sector entities and expand protections under the PCMLTFA for reporting entities to ensure bad actors cannot abuse the access to information request process;
• Adjust the suspicious transaction reporting framework to a suspicious activity reporting framework;
• Require universal registration of FINTRAC’s reporting entities; and
• Develop and strengthen the Canadian Financial Crime Agency to undertake both investigative and prosecutorial roles of complex financial crimes and provide statistics to public and private stakeholders on investigations, prosecutions, convictions and asset forfeitures in Canada.

¹ CapGemini World Retail Banking Reports. Canadian retail banking customers ranked their banks 2nd in 2011 and 1st between 2012-2016 for customer satisfaction.

² OECD Compendium of Productivity Indicators 2023

³ The Productivity Commission, Towards Levyathan; Industry Levies in Australia, December 2023

⁴ Saskatchewan, Manitoba, New Brunswick, Nova Scotia, PEI, Newfoundland and Labrador

⁵ RCMP, News Release, February 2024