Competition Bureau proposes key reforms to boost financial sector competition

The bureau responded to the public consultation to strengthen competition in the financial sector
Competition Bureau proposes key reforms to boost financial sector competition

The Competition Bureau of Canada has published its submission in response to the Department of Finance Canada’s public consultation on strengthening competition in the financial sector.

On December 21, 2023, the Department of Finance launched a consultation on strengthening competition in Canada’s stable and secure financial sector. To protect Canadian consumers, this consultation focused on ensuring consumers’ access to a broad range of affordable, innovative, and consumer-focused services that meet their banking needs.

The consultation is part of broader efforts, highlighted in the 2023 Fall Economic Statement, where the federal government pledged to introduce a legislative framework through Budget 2024. This framework will facilitate consumer-driven banking, offering Canadians greater control over their financial data and enabling them to access a broader range of financial services.

The Competition Bureau recently published its response, noting that concerns around affordability and Canada’s productivity performance have brought a renewed focus on the critical role of competition in the Canadian economy. The bureau emphasized that the need to strengthen competition is particularly crucial in the financial sector, which has seen a dramatic surge in borrowing costs, reaching levels not seen in decades.

The bureau's recommendations directly responded to the Department of Finance's queries regarding bank mergers, the concentration of market power, and the necessity for public reporting on these matters within Canada's banking sector.

One of the features of the submission is the bureau's call for measures to diminish switching costs for consumers, thereby fostering a more competitive environment. Key recommendations include:

  • Prompt adoption of a consumer-driven banking model to stimulate competition and innovation. This model challenges existing financial service providers and paves the way for new entrants.
  • Re-evaluation of the mortgage stress test for uninsured borrowers at the time of mortgage renewal, facilitating their ability to switch lenders and benefit from competitive rates.

“This consultation provided an ideal opportunity to recognize the importance of competition in the financial sector. We urge policymakers to prioritize and foster pro-competitive measures to help tackle ongoing concerns around affordability and productivity in the Canadian economy,” said Matthew Boswell, Commissioner of Competition.

According to the Competition Bureau, its suggestions aim to reduce barriers for consumers, enhancing their ability to navigate and benefit from various financial services options.