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Businesses and wealthy Canadians will be paying higher taxes but Canada’s largest banks and pension managers were most likely breathing a sigh of relief when they read Finance Minister Chrystia Freeland’s latest federal budget, which lays out next steps for competitive “open” banking and persuading pensions to invest more of their billions at home.

Open banking

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The biggest comfort for the banks is perhaps the appointment of the Financial Consumer Agency of Canada to oversee open banking, which will see them compete with financial technology (fintech) companies for customers on a range of products and services. The big banks are familiar with the FCAC through its role of promoting financial literacy and ensuring federally regulated institutions follow consumer-protection rules.

There had been discussions about creating an entirely new government agency to oversee competitive open banking, as happened in the United Kingdom, but the Canadian Bankers’ Association had been urging the federal government to use existing regulators to avoid duplicative or conflicting obligations.

The bankers appear to have been successful in this regard. Along with selecting the FCAC in Tuesday’s budget to “oversee, administer, and enforce” Canada’s open banking framework, Ottawa earmarked $1 million for the consumer agency to prepare for its new responsibilities and develop a consumer awareness campaign.

“The Canadian banks have a pretty decent working relationship with a lot of their regulators,” said Geoff Rush, national industry leader for financial services at KPMG. “This is just putting some additional responsibilities with an existing regulator, so I don’t think you’re going to see any pushback or arguments.”

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Rush said the selection of the FCAC should speed up the process of rolling out open banking, which will make it easier for Canadians to shift their financial data between banks and fintechs to spur competition. 

“FCAC is already up and running, so I think it will help bring open banking to Canadians faster,” he said.

Still, if the banks are hoping to slow-walk the road to more competition, there’s some hope in that the document provided fewer details than some had hoped for with the government’s stated goal of adopting legislation and fully implementing a governance framework for open banking by 2025.

“They’ve kicked the can down the road a little bit in my view,” said Rush, adding that technical standards won’t be spelled out until later this spring and other details aren’t even expected until the fall economic update.

“The details that I was hoping for today around scope and timing, the accreditation process and the criteria and the common rules, I believe, is going to come in their update later this year in the autumn,” he said.

Pension fund investments

Canada’s largest pension funds were also given a bit of breathing room in the budget after being blindsided by the inclusion in last fall’s economic update of a plan to find ways for them to keep more of their funds, invested globally, in the home market.

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The campaign picked up steam when dozens of CEOs across sectors from telecom to energy signed an open letter to federal and provincial finance ministers backing the push to keep more pension money in Canada.

But despite fears the federal government might be on a path to create a dual-mandate with national policy goals competing with the search for the highest risk-adjusted returns, the only addition in Tuesday’s budget was to appoint former Bank of Canada governor Stephen Poloz to chair a new working group charged with finding “more opportunities for Canada’s largest pension funds to drive economic growth at home.” The working group is to be supported by Freeland.

The budget also mentioned the potential for investing in airport facilities, something Canadian pensions have long expressed interested in acquiring in their home market as they have done abroad.

Michel Leduc, senior managing director and global head of public affairs for the Canada Pension Plan Investment Board, said he agrees with the approach laid out in the budget and with the selection of Poloz.

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“The quality of the process matters. It appears to us that they have it right,” he said. “We look forward to making whatever contribution … helps the work.”

A key measure of success will be whether the process creates new and better opportunities for the large pensions “at scale,” Leduc said, something pension executives have lamented was missing in previous government attempts to attract more funds from institutional investors.

The government’s decision to focus on infrastructure, the digital economy and artificial intelligence are all good, he said, adding that CPPIB would be in favour of infrastructure projects that are both at-scale and partially de-risked. The digital sphere and AI, meanwhile, are “both smart nods to the future, especially when you think of (the funds’) exceptionally long horizon in deploying capital for future value.”

Leduc said a key element the pension funds will look at is whether investing in Canada lowers various forms of risk, relative to other markets.

“It is all about risk-adjusted returns,” he said.

• Email: bshecter@postmedia.com

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