Canada’s government has announced a financial sector legislative review focused on the digitalisation of money and maintaining financial stability and security.
The plan was contained in the country’s federal Budget 2022, which set out that the review’s first phase will be directed at the hot topic of digital currencies, including crypto-currencies and so-called stablecoins.
The Budget proposes allocating CAN$17.7 million (about £10.8m) over five years, starting in 2022-23, to the Department of Finance to lead the review.
‘A safe and secure financial system is a cornerstone of our economy. However, the digitalisation of money, assets, and financial services – which is transforming financial systems and challenging democratic institutions around the world – creates a number of challenges that need to be addressed,’ the Budget document states in a section entitled ‘Addressing the Digitalisation of Money’, noting the growing number of examples of digital assets and cryptocurrencies being used to avoid global sanctions and fund illegal activities.
The review will examine, among other factors: how to adapt the financial sector’s regulatory framework and toolbox to manage new digitalisation risks; how to maintain the security and stability of the financial system in light of these evolving business models and technological capabilities; and the potential need for a central bank digital currency (CBDC) in Canada.
The government is also ‘investing in’ the country’s financial intelligence unit, FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada) and will develop legislative proposals to strengthen the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and other legislation. FINTRAC has just issued a special bulletin on Russia-linked money laundering related to sanctions evasion.
‘Strategic policy review’ to cut spending
More broadly, Canada’s finance minister Chrystia Freeland announced a ‘strategic policy review’ in the Budget to ensure that spending matches government’s priorities, while also setting out plans to rein in public spending.
As reported by our sister title Global Government Forum, Freeland said the overall Budget was focused “on growing our economy and on making life more affordable for Canadians”, but said spending plans needed to be reviewed following “extraordinary Covid support” for the economy. “Our ability to spend is not infinite,” she said in a speech on 7 April in parliament. “And we will review and reduce government spending, because that is the responsible thing to do.”
She confirmed that the government would both reduce the public spending deficit and cut the national debt as a proportion of GDP every year of the fiscal forecast period to 2026-27.
The Strategic Policy Review, which will be led by Treasury Board president Mona Fortier, will contribute by “ensur[ing] that government programmes are delivering the intended results”.
The government also stated a commitment to ‘accelerating and expanding’ the offering of digital services to Canadians and to improving the ease-of-use, accessibility, security, consistency and reliability of government services.
The Budget confirmed the government’s intent to introduce legislative amendments to the Financial Administration Act to enable the Canadian Digital Service to provide its digital platform services more broadly, including to other jurisdictions in Canada, and to clarify its responsibilities under the Privacy Act and Access to Information Act with respect to the services it provides.
Other public service elements of the Budget include a pledge to develop new tools, guidelines and targets to support the adoption of green procurement across the federal government, and to ensure that the more than CAN$20bn government spends on goods and services every year is used to help achieve ‘net zero’ objectives.
Central bank working with MIT
In a terms of a potential Canadian CBDC, the country is in the same boat as most major nations in that authorities have been stepping up their research but have yet to commit to introducing one.
Canada’s central bank described itself as ‘ramping up contingency planning’ more than a year ago, at the time publishing three CBDC design proposals from the University of Calgary, McGill University and the University of Toronto/York University (Toronto).
It was also announced last month that Bank of Canada and Massachusetts Institute of Technology (MIT) were collaborating on a 12-month research project on CBDC. The central bank is working with MIT Media Lab’s Digital Currency Initiative (DCI) team to explore how advanced technologies could affect the potential design of a CBDC.
The Bank of Canada set out in 2020 how – ‘as a contingency plan only’ – it was ‘building the capacity to issue a retail, cash-like CBDC should the need to implement one ever arise’. But it said that ‘significant work’ was required to achieve such a state of readiness. ‘In the years ahead, the Bank will conduct its work on a CBDC in a transparent manner, with regular consultations with stakeholders at home and abroad and public presentation of conclusions and issues, as they emerge,’ the central bank noted at the time.
Toronto, Canada’s most populous city, is shortly to become home to a new centre of the Bank for International Settlements (BIS) Innovation Hub, for which CBDCs are a priority topic area. The Innovation Hub Toronto centre will be headed by Miguel Díaz, who joins from a role as general director of payment systems and market infrastructures at the Bank of Mexico.
‘Canada names PwC digital banking director as open banking lead’ – our news story (22 March 2022) on the government announcing the appointment of Abraham Tachjian, a director at professional services giant PwC, to lead the implementation of the country’s system for open banking (often referred to in Canada using the term ‘consumer-directed finance’)
‘Bank of Canada and MIT ink digital currency link-up’ – our news story (18 March 2022) on the central bank and MIT’s 12-month research partnership
‘Canada and EU look to end “Wild West” atmosphere of digital credentials’ – our news story (1 Dec 2021) on Canada’s government and the European Commission announcing a partnership to examine the use of digital credentials (an important element in the development of many fintech products and services) following a series of technical workshops