Canada's Consumer-Driven Banking Act (CDBA) has become law. It was enacted on June 20, 2024, when Bill C-69, the Budget Implementation Act, 2024 received royal assent.
The second quarter of 2024 also saw:
- the Bank of Canada lay out new retail payments supervision that will affect retail payments fintechs; and
- the U.S. Securities and Exchange Commission close its investigation into Ethereum 2.0.
Open Banking: What New Consumer-Driven Banking Legislation Means for Fintechs in Canada
If your company is a fintech operating or hoping to operate in Canada with a business model that offers financial products, you should be aware that the CDBA could apply to your organization.
The CDBA sets the foundation for a legal framework that enables consumers and small businesses to securely transfer their financial data through an API to approved service providers of their choice. This framework for consumer-driven banking—a.k.a. "open banking"—includes six core elements, all of which will play into whether your organization is subject to the framework, and what obligations could apply.
Despite the enactment of the CDBA, the development of Canada's consumer-driven banking framework will be an iterative process and will evolve over time, with operational aspects of the Act coming into force as and when promulgated by order of the Governor in Council.
For a high-level snapshot of the core elements of Canada's Consumer-Driven Banking Framework—including a table that highlights which elements will drive the operational development of the CDBA—please visit our prior blog on consumer-driven banking.
Bank of Canada Lays Out Enforcement Regime For Retail Payments Fintechs
As we highlighted in our last quarterly Fintech update in 2024, a new regulatory framework under the Retail Payments Activities Act (RPAA) will soon affect all retail payment service providers (PSPs) doing business in Canada.
To add to the registration criteria that we detailed in our Q1 2024 Fintech update, in June 2024 the Bank of Canada released guidance dealing with enforcement, including:
- Administrative monetary penalties which can range from $0 up to a maximum of $1 million for each serious designated violation, and up to $10 million for a very serious violation.
- An enforcement process describing what individuals, entities and payment service providers should expect if the Bank takes enforcement action against them.
- Enforcement tools, including warning letters, compliance agreements, court enforcement, revocation of registration and issuing public notices.
SEC Closes Ethereum 2.0 Investigation
On June 18, 2024, the U.S. Securities and Exchange Commission (SEC) closed its investigation into Ethereum 2.0. The SEC expressed its decision through a notice to blockchain technology firm Consensys, which followed a series of legal matters surrounding regulation of the firm's Ethereum products. Consensys summarized the events in a press release and described the decision as a significant positive stride for the crypto industry.
The crux of the investigation revolved around the firm's Ethereum wallet and whether it represents an unlicensed brokerage of unregistered crypto asset securities. Shortly after the investigation was launched, the SEC responded to proposals from several large U.S.-based exchanges and unexpectedly approved the listing of exchange-traded funds (ETFs) that will hold spot Ethereum as "commodity-based trusts." Consensys contended that the approval confirmed the regulator's classification of Ethereum as a commodity. While the SEC did not explicitly state its position, it notified Consensys that it had closed its investigation into Ethereum 2.0.
Following the closure of its investigation, on July 2, 2024, the SEC charged Consensys with acting as an unregistered broker and engaging in the sale of securities. The charges allege that derivative liquid staking tokens offered by the firm on behalf of liquid staking program providers constitute transactions that violate U.S. securities laws. While these charges are not premised on the direct sale of Ethereum, they represent an attempt by the SEC to categorize a derivative class of crypto assets as securities.
The closed investigation along with the approval of Ethereum-based ETFs may suggest an approach in the U.S. that favours a commodity classification, but in light of the subsequent charges brought against Consensys, further regulatory decisions will need to be monitored in the absence of a determinative statement.
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