Post-Bank Act, banks ask regulators to “hit the pause button,” reflect on effects of regulation on banking innovation

Less than a week after the federal government signed into law regulations in Canada’s Bank Act that prohibit banks from selling insurance on their websites, the Canadian Bankers Association (CBA) is asking federal regulators to “hit the pause button” and reflect on whether new regulations are stifling banking innovation.

“If not now, then at least in the not too distant future, I think it would be useful for the federal government to hit the ‘pause’ button and to take stock of the new regulatory paradigm that has been put in place since the beginning of the financial crisis,” CBA president Terry Campbell said in notes to a speech at The Economic Club of Canada in Ottawa on Apr. 3. “A forward-looking stock-taking that would allow all the players to ask themselves and each other: What have we created here? What are the implications for competition and innovation? Do all the different parts of the new regulatory system work together well? Are there conflicts and inconsistencies? Are there unintended consequences?”

Campbell’s speech broadly discusses the impact of global and Canadian regulation on banks following the 2008-09 financial crisis. It makes no reference whatsoever to the amended regulations to the Bank Act, signed into law on Mar. 29.

The Insurance Brokers Association of Canada (IBAC) recently “applauded” the Government of Canada and all legislators for passing the Bank Act, thus maintaining “the rules prohibiting chartered banks from further powers into the insurance field.”

Nevertheless, Campbell’s speech indicates Canadian banks remain steadfast about finding new ways to expand their services to consumers. “In the effort [by regulators] to take risk out of the system, will the ultimate result be less diversification in the sector, with banks instead being directed into the same mold?” Campbell asks in his speech.

“Products or services that a bank might have viewed as unique offerings that provided a competitive advantage in the market, may in the future be considered by the regulator as being ‘outliers’ from the rest of the pack and therefore frowned upon. Are we therefore running the risk of pushing banks out of certain legitimate products and services for which there are ready and willing customers?”