Good evening. I would like to thank the Committee for the opportunity to provide the banking industry’s perspective on OSFI’s Advisory issued on June 30, which set out how it will interpret and administer the Bank Act restrictions on the use words “bank”, “banker”, and “banking”.
The CBA is the voice of more than 60 domestic and foreign banks that help drive Canada’s economic growth and prosperity. The CBA advocates for public policies that contribute to a sound, thriving banking system to ensure Canadians can succeed in their financial goals.
While, I recognize that the specific topic that the Committee has invited us to speak to today is, "credit unions and the use of the word ‘bank’”, it is our understanding that a significant impetus behind OSFI’s recent advisory is the changing nature of financial services, including the emergence of unregulated financial services providers, many of which are financial technology companies, or “fintechs”.
Financial services in Canada is highly competitive. Banks, provincially regulated financial institutions, and new business models, including fintechs, compete vigorously to provide financial products and services to Canadian consumers. Of course, increased competition has a positive impact in the marketplace, accelerating innovation and increasing choice for Canadians.
Financial services is undergoing dynamic and transformative change in how all providers deliver products and services to consumers. As the Committee is aware, Finance Canada is in the midst of its Review of the Financial Services Framework. A key focus of that Review is updating and modernizing the Bank Act and related statutes to reflect this changing landscape for financial services.
Increased innovation and competition must be balanced with appropriate consumer protection and prudential oversight to protect the strength and integrity of Canada’s financial services sector. Over many years, banks have been able to provide continuously innovative products and services while working within a comprehensive consumer and prudential regulatory framework that has benefited Canadians and the national economy. Canadians have trust and confidence that their interactions with banks will be efficient, accurate, and secure.
While banks are federally regulated, credit unions and other financial institutions fall under the responsibility of provincial governments. Provincially-regulated financial institutions are not subject to the same policy, supervisory and regulatory framework as federally-regulated deposit-taking financial institutions. Similarly, many of the new entrants to the financial services marketplace are not subject to similar regulatory requirements.
As competition and choice in financial services continue to evolve and grow, it must be clear to Canadians what type of financial institution they are interacting with. Canadians’ confidence in their financial institution is ultimately rooted in clarity with respect to their rights and protections that are derived from the corresponding regulatory oversight.
We believe it is necessary to have clear parameters around the use of certain terminology, particularly around which institutions are permitted to call themselves a “bank”. A starting point is that only a federally-licensed bank should be able to call itself a “bank”. As far as I am aware that point is not in dispute, but it does bear emphasis because it is foundational to consumer protection. In this instance, the issue seems to be around the use of related terms that describe product and service offerings.
Our view is that acceptable use should be centered on the principles of reasonableness and clarity – use of a derivative of the word bank would be acceptable where there is no other term available in common parlance to describe the product or service offering, and where the service provider is making it clear that it is not a bank. Appropriate parameters around the use of terminology should be focused on ensuring that it is clear to Canadians when they are interacting with a bank, and when they are interacting with a financial institution that is subject to a different set of consumer and prudential rules. In addition, the parameters should be guided by necessity rather than simply by marketing considerations.
Thank you very much for your time and I look forward to your questions.