A new review of financial sector legislation will examine the emergence of cryptocurrencies and other digital assets, and the implications for the financial system.
In Thursday’s federal budget, the government announced plans for a review, led by the Department of Finance, which will examine the so-called “digitalization” of money and its possible impact on the traditional financial sector.
The budget pledged $17.7 million in funding over five years to finance a review that will consider the need for a central bank digital currency (CBDC) in Canada.
A number of countries are exploring the potential of CBDCs, with the idea that their development could enhance payment systems, foster financial innovation and improve inclusion, while potentially reducing credit and liquidity risk.
However, there also concerns that the introduction of CBDCs could undermine bank deposits, which are a traditional source of bank funding, while also cutting into banks’ revenues from payments processing.
Additionally, it’s not clear how the presence of digital dollars could affect the financial system in the face of a credit or liquidity crisis. They may also give rise to other novel risks, such as increased cyber risk.
In addition to its examination of CBDCs, the government said that the review will consider how to adapt the financial sector’s regulatory framework to deal with the risks posed by the digitalization of money, and how to maintain the security and stability of the financial sector amid the development of these emerging technologies.
“The first phase of the review will be directed at digital currencies, including cryptocurrencies and stablecoins,” the government said in today’s budget.
The budget also reiterated the federal government’s pledge to amend financial sector legislation to overhaul the banking sector’s dispute resolution regime.
Specifically, the government indicated that it will introduce amendments to “provide for a single, non-profit external complaints handling body (ECB) in banking and to strengthen the ECB system.”
The measure aims to address concerns with the existing system, which allows for competition in complaint handling, enabling the banks to choose whether customer complaints that can’t be resolved internally should be referred to the Ombudsman for Banking Services and Investments (OBSI) or ADR Chambers Banking Ombuds Office (ADRBO). Currently, four of the big six banks use ADRBO, while only two (along with an array of smaller institutions) remain members of OBSI.
Last year, Finance carried out a review of the existing ECB system, which led the government to conclude that reform was needed to establish a single, independent ECB to deal with consumer complaints. That commitment has now been carried into this year’s budget.
“Canadians deserve a fair and impartial process to address unresolved complaints with their banks,” the government said in today’s budget. “Banks should not be able to choose the complaints handling body they participate in, and the system should not be run on a for-profit basis.”