Regulatory Insight | Aug 7, 2023

In an op-ed by Vass Bednar, a glaring gap in banking protections for Canadians was highlighted, with potential adverse implications for consumers and the fintech industry.

Inconsistent Consumer Protections

• The financial sector currently has inconsistent consumer protection across the provinces, creating a complex and vulnerable framework that is not equipped to handle the evolving financial landscape.
• Changing landscape vs traditional Bank Act:  The financial sector has traditionally been regulated under the Bank Act, which was sufficient when only licensed banks provided all financial or bank-like activity. However, the emergence of numerous complementary players in the financial sector, including fintech companies, has complicated this regulatory landscape.

See:  FCAC Survey Results: Understanding the Canadian Consumer’s Perspective on Open Banking

• One of the key issues is the liability associated with Interac Corp.’s e-transfer system. Over the past five years, the gap in consumer protection has become more problematic due to the rise in cybercrime and the sophistication of digital scams. Consumers are often left to independently recover funds that they may have sent through Interac, creating a significant burden.
• The current consumer protection legislation, which is handled by the provinces and territories, extends to many non-bank players in payments. However, the federal government's Retail Payment Activities Act does not include explicit consumer protection clauses, possibly to avoid infringing on the provinces' jurisdiction. This has resulted in a fragmented governance framework that relies on a mishmash of commercial contracts and laws.

House of Cards to Fraud and Scams

• This gap in consumer protection has serious implications. It weakens the foundation of our financial system and exposes consumers to potential financial losses due to fraud and scams.

Read: FinTech Executives Disappointed with Budget 2023’s Lack of Open Banking Update, Raising Doubts on Delivery Timeline

• Furthermore, it hampers the ability to capture transparent information about instances of fraud and scams, which is crucial for improving cybersecurity, public education, and other protective measures.

Critical Issue to be Addressed

• The link between digital payments and platform governance also underscores the need for a comprehensive approach to financial reform. As Canada moves towards modernizing its banking system, including the launch of an open banking framework, improvement of the payment system, and realization of a digital currency, it is crucial to address the consumer protection gap.
• In conclusion, the banking protections gap in Canada poses significant challenges for consumers and the fintech industry. It is imperative for policymakers to address this issue and establish a robust and consistent framework for consumer protection in the financial sector. This will not only safeguard consumers but also contribute to the stability and integrity of Canada's financial systems.