Breaking down the barriers to interprovincial provision of financial services

Torys’ Canadian and New York offices will be providing regular briefs on the legal ramifications of the tariffs and other cross-border policy developments on the horizon.

President Donald Trump’s tariffs have renewed interest in addressing domestic barriers to trade and have motivated government officials to consider making Canada’s domestic economy more integrated and accessible. In a recent op-ed, Canada’s then Minister of Transport and Internal Trade, Anita Anand, noted that the provincial/territorial jurisdiction over property and civil rights in section 92(13) of the Constitution has led to inconsistent regulations in each jurisdiction over time, which should be revised and further aligned to offset the effect of U.S. tariffs and strengthen domestic trade¹. The most recent bi-jurisdictional Committee on Internal Trade meeting similarly focused on eliminating regulatory barriers to internal trade, encouraging free movement of labour, and committing to further standardizing regulations across Canada. In addition, in a recent statement, former Prime Minister Trudeau and Canadian Premiers agreed that certified professionals with credentials in one province should be able to work anywhere in Canada, and directed the Committee on Internal Trade to work with the Forum of Labour Market ministers to provide a plan for Canada-wide credential recognition and to reconcile and reduce regulatory differences between jurisdictions (considering jurisdictional specificities), by June 1, 2025. As we noted in a previous brief, an International Monetary Fund paper estimates that complete liberalization of internal trade in goods may increase Canada’s GDP by 4%².

In this bulletin, our financial services regulatory group identifies legislative impediments to the domestic provision of financial services which should be revisited and, in some cases, harmonized, and suggests alternative processes to increase efficiency and decrease trade barriers, reducing the cost of compliance on financial institutions and, ultimately, consumers.

Trust and loan companies

The Office of the Superintendent of Financial Institutions (OSFI) regulates federally incorporated trust and loan companies under the Trust and Loan Companies Act (Canada) (the TLCA). However, subject to some limited exceptions, these companies must also obtain extra-provincial licenses in each province where they conduct business. Provinces often have duplicative and administratively burdensome licensing/registration requirements, including detailed applications and annual renewals.

Ontario’s Loan and Trust Corporations Act offers a simplified, alternative model whereby a company must, instead of filing a detailed application, only file a copy of its Letters Patent under the TLCA and its Order to Commence and Carry on Business issued by OSFI, as well as a short summary of its proposed business plan, in order to apply to the Financial Services Regulatory Authority of Ontario for registration in Ontario as a loan or trust corporation³. In effect, Ontario issues a one-time approval for any federal trust or loan company to carry on business in Ontario (there are no periodic renewals or annual fees once approved) and relies on OSFI for the ongoing regulation and supervision of such institution. We believe that other provinces should consider adopting the Ontario model given that these institutions are already subject to OSFI’s robust and comprehensive supervision.

This simplified model for extra-provincial/territorial registration would also be beneficial for federal insurance companies under the Insurance Companies Act (Canada) (the ICA) (which are subject to both OSFI and provincial/territorial regulation and supervision), although as noted below, we believe that provincial/territorial insurance regulators should continue to be solely responsible for market conduct related matters respecting these institutions (and not the Financial Consumer Agency of Canada (FCAC)).

Credit unions

Provincial credit unions are not generally permitted to carry on business outside of their home jurisdiction or to merge with (or purchase assets from) credit unions in other provinces. The only way for a provincial credit union to operate across Canada is to continue as a federal credit union under the Bank Act (Canada) (the BA) or amalgamate with an existing federal credit union (a provincial credit union must first continue under the BA before it can amalgamate with a federal credit union, but the process can be completed at the same time). The process to continue or continue for purposes of immediately amalgamating is extremely cumbersome and time consuming. In addition, member approval from each credit union would be required for an amalgamation, which could limit the opportunities for smaller provincial credit unions to amalgamate with an existing federal credit union that may be reticent to call multiple special meetings of its members. There are also currently roadblocks in provincial legislation preventing provincial credit unions from selling all of their assets to a federal credit union.

Accordingly, we would advocate for amendments to provincial legislation to permit provincial credit unions to sell all of their assets to a federal credit union, in consideration for the federal credit union issuing membership shares to the provincial credit union’s members, which would be less burdensome for a number of reasons (e.g., no Minister of Finance approval would be required—only OSFI approval would be required for the federal credit union to issue membership shares for property and possibly required if the value of the assets exceed 10% of the value of the federal credit union’s assets; no federal credit union membership approval would be required).

Alternatively, another potential idea to facilitate provincial credit unions to conduct business extra-provincially (without having to become a federal credit union under the BA) would be to amend provincial credit union legislation to permit provincial credit unions to acquire all of the assets of a credit union in another province in exchange for the issuance of membership shares to the selling credit union members, and to permit the acquiring credit union to continue to carry on the business of the selling credit union in the other province, as a division of the acquiring credit union. This would, of course, require coordination among the provincial regulators but could be an efficient way to expand business incrementally without the added regulatory burden of becoming a federal credit union.

Consumer protection

As of June 2022, Canadian banks, authorized foreign banks and federal credit unions are subject to a comprehensive federal consumer protection regime through the Financial Consumer Protection Framework under the BA (the Framework). The Framework covers, among other things, notices and alerts, sales practices, resolution of customer issues, and whistleblowing matters. However, by virtue of the decision of the Supreme Court of Canada in Bank of Montreal v. Marcotte, these institutions are still required to comply with a broad set of provincial consumer protection requirements in addition to the federal requirements. This creates two sets of often overlapping regulatory compliance regimes. In our view, exemptions for banks, authorized foreign banks and federal credit unions should be built into provincial consumer protection legislation given this overlap, similar to how certain provincial mortgage broker legislation, such as Ontario’s Mortgage Brokerages, Lenders and Administrators Act (and similar legislation in other provinces), exempt banks from the licensing requirements, and the application, of the Act.

The ICA, which governs federally incorporated insurance companies in Canada as well as foreign insurers that have been granted an order to insure in Canada risks (foreign branches), also sets out various consumer protection requirements which are administered by the FCAC. Federally regulated insurance companies and foreign branches in Canada are also subject to oversight by provincial and territorial insurance regulators, which enforce applicable market conduct laws. Given this overlap, we would argue that the consumer protection requirements in the ICA are superfluous and should be repealed, and that the FCAC should no longer have any oversight of insurance companies and foreign branches.

Insurance adjusters, agents and advisors

Provincial and territorial insurance regulators also oversee the licensing and conduct of property and casualty insurance adjusters in their province or territory. However, each province currently has its own lengthy licensing requirements, and no system of reciprocity exists (i.e., a license issued by one province would not automatically be recognized across the country). Similar licensing inefficiencies apply to life insurance agents and advisors. We believe that a harmonized regime across the country should be a priority for the government, as this lack of regulatory uniformity/reciprocity is highly inefficient and cumbersome. For example, the lack of a streamlined process may impede and delay the ability of property and casualty insurance adjusters to respond to large-scale multi-province catastrophic events, as was the case with last year’s wildfires in Western Canada.

What’s next

The provinces are in the best position to address domestic barriers to trade, as most barriers to interprovincial trade result from provincial regulations stemming from their constitutional powers. Nonetheless, the reduction of barriers on the interprovincial provision and regulation of financial services will require coordinated efforts from stakeholders across the private and public sectors, including the federal and provincial governments and financial sector regulators.

 
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