Federal budget tasks FCAC with open banking, encouraging pension funds to boost domestic investments
Finance Minister Chrystia Freeland’s latest federal budget focuses on competitive "open" banking and incentivizing domestic investment by pensions.
It offers both relief and new directions for Canada’s financial sector, particularly large banks, and pension funds, as reported by The Financial Post.
In a pivotal move, the Financial Consumer Agency of Canada (FCAC) has been tasked with overseeing the open banking initiative. This decision brings comfort to banks, allowing them to work within a familiar regulatory framework rather than adjusting to a new regulatory body.
The FCAC, known for promoting financial literacy and enforcing consumer protection rules, will now guide banks and financial technology (fintech) companies as they compete for customers.
This competition is expected to increase consumer choice and improve service quality across financial products and services. To facilitate this transition, the government has allocated $1m for the FCAC to develop new capabilities and a consumer awareness campaign.
Geoff Rush from KPMG notes that having an established regulator like the FCAC should accelerate the rollout of open banking, enhancing Canadians' ability to transfer financial data between institutions, thus fostering competition.
However, some industry observers are disappointed with the level of detail provided in the budget, as it lacks comprehensive plans for the legislation and governance needed by 2025.
Rush pointed out that more specifics are anticipated in future updates, which could define the scope and criteria crucial for the open banking framework.
On the pension fund front, the budget has eased some previous pressures by introducing a structured approach to increase domestic investments.
After the surprise inclusion of a domestic investment push in last fall’s economic update, this budget appoints former Bank of Canada governor Stephen Poloz to lead a new working group.
This group's mandate is to find “more opportunities for Canada’s largest pension funds to drive economic growth at home,” with the support of Freeland.
The focus will likely be on strategic sectors like infrastructure, digital economy, and artificial intelligence—areas that align with the long-term investment perspectives necessary for pension funds.
Michel Leduc of the Canada Pension Plan Investment Board supports this initiative, highlighting that the quality of the implementation process appears sound.
He emphasizes that successful domestic investment opportunities must be large-scale and offer comparative risk-adjusted returns, acknowledging that pension funds will carefully evaluate how these domestic opportunities stack up against global options in terms of risk and return.
The budget balances the need for regulatory familiarity and innovation, offering a roadmap for banks and pension funds to align more closely with national economic objectives.
For pension fund managers and stakeholders, the key will be monitoring how these initiatives develop into actionable, valuable investment opportunities that meet the stringent criteria of risk-adjusted performance.
