The guiding perspective of Canada Fact Check is that while Canada needs private sector innovation, it also requires an economy rooted in fairness and equal opportunity.
Closely associated with this guiding perspective is the thesis that markets are simply sets of rules (legislation, policies, regulations, jurisprudence, etc.). It therefore follows that the goal of regulating markets is to get these rules right and then co-ordinate these rules in such a way that it fairly balances the interests of shareholders, workers, consumers and citizens.
Put a bit differently, Canada needs to begin to rewrite the rules of regulation so as to properly balance the interests of workers, consumers, and citizens with those of shareholders.
After over forty years in which regulation (often de-regulation) mainly furthered shareholder interests, the COVID era has seen the federal government and its agencies begin to use regulation more in the way it was used in the 35 yr. postwar period – as a force for asserting the interests of workers, consumers and citizens against the interests of shareholders.
This post will look at modest, but still positive, recent developments in Canada’s telecommunications, financial services and digital markets. While it goes without saying that these sectors (to name just a few) have a long ways to go before they adequately rebalance the interests of workers, consumers and citizens with those of shareholders, much can be learned from the small steps in this direction detailed below.
Let’s start with a look at recent developments in competition policy.
Competition Policy Reform
Canada has one of the highest levels of corporate concentration in the G-8. This is one of the biggest factors contributing to Canada’s lack of innovation and low productivity – it lacks competitive markets.
At the beginning of the year, the federal government committed to a long overdue review of the Competition Act. On November 17, Innovation Minister François-Philippe Champagne announced the full scope of the promised review with the release of a detailed discussion paper outlining the items (almost everything in the competition envelope) which will be under consideration.
That said, even before Minister Champagne officially kicked off the formal Competition Act review, the Liberal government had taken three important steps indicating it was serious about competition reform.
Firstly, in an important speech to the Canadian Bar Association on October 19, Mathew Boswell, Canada’s Competition Commissioner, clearly weighed in against the “efficiencies defense“.
Why was rejection of the Competition Act’s efficiencies defense by the Competition Commissioner so important?
The efficiencies defense in Canada’s anti-trust legislation is utterly unique to Canada. It requires a trade-off analysis whereby an anticompetitive merger is allowed to proceed if it produces gains in efficiency that are greater than and offset its anti-competitive effects. In other words, it creates a path for anti-competitive mergers to be cleared if the efficiencies are large enough.
Even for mergers that result in monopolies.
Even for mergers that raise prices for consumers.
More than anything else, it is the efficiencies defense that has allowed corporate Canada to consolidate and reduce competition more than in any other G-8 country.
Secondly, there were a number of important amendments to the Competition Act in the Budget Implementation Act that was passed in June such as the addition of consumer privacy as a factor when evaluating anti-competitive behaviour.
Case Study: The Rogers/Shaw merger
Thirdly, and most importantly, the Competition Bureau has made it clear that it opposes the Rogers/Shaw merger and will not make the merger easy. What this indicates is that while it may not have the tools under the present Act to completely block the merger, it will push hard to amend the Act so it can block similar mergers in the future.
As things now stand, Rogers, Shaw and Quebecor have failed to mediate their differences with the Competition Bureau over Rogers’ C$20 billion ($14.75 billion) bid for Shaw.
Rogers, which launched its bid for Shaw in March 2021, had offered to sell Shaw-owned Freedom Mobile to telecom and media firm Quebecor to allay the antitrust authority’s concerns over reduced competition in the Canadian wireless market.
On November 1, the Competition Bureau once again made it clear that it wanted a full block of the Rogers-Shaw merger and would argue that position at the Tribunal.
All three telecommunication companies involved in the deal say the litigation being spearheaded by the Competition Bureau is “unnecessary and harmful” to competition. In other words, there is a complete and fundamental disagreement between the telecom giants and the Bureau over the meaning of competition. The dispute is currently being argued at the Competition Tribunal in a four week hearing which began on Nov. 7.
Regulating Canada’s digital realm
A central thesis of this post is that all markets are simply sets of rules (legislation, policies, regulations, jurisprudence, etc.). It therefore follows that the goal of regulation is to get these rules right and then co-ordinate these rules in such a way that it fairly balances the interests of shareholders, workers and consumers.
For over forty years, the concept of “regulating in support of growth” fell into disrepute, thought of as clumsy government getting in the way of efficiency and free markets.
Effective regulation doesn’t interfere with the “free market”. Again, there are no “free” markets to interfere with. There are just lots of rules that taken together define different markets. Therefore, effective regulation is about defining markets (including labour markets) in that fairly balance the interests of workers, consumers and shareholders.
As an example of this approach, let’s take a look at some recent federal developments in regulating Canada’s digital markets.
Legislation has cleared the House of Commons (and is now being reviewed by the Senate) to include all streamers in the Broadcast Act (and it’s Canadian content rules) in the form of Bill C-11. Canadian content obligations have long been central to Canadian broadcasting and under the new legislation, all streamers operating in Canada (foreign and domestic) are obliged to contribute, in one way or another, to Canadian production. Currently, streamers, most of whom are foreign owned, have no obligations to contribute to Canadian content.
Canadian journalism has historically been financed, in large part, through advertising. However, with the dramatic shift towards digital advertising, Canadian journalists employed by newspapers, magazines, radio, television, etc. have been taking a huge hit. In 2020, Google dominated the digital advertising market in Canada with a share of 50 percent, while Facebook’s market share was 33 percent. All others engaging in digital advertising in Canada had but 17 percent.
As such, the government has tabled legislation to force Google and Facebook to help fund original Canadian journalism (from which they derive considerable profit but contribute next to nothing) in the form of Bill C-18. That legislation is now in committee following second reading in the House of Commons and if passed, Canada would only be the second nation (after Australia) to implement this model of financing national journalism.
Legislation has also been tabled (for the second time) to update personal privacy legislation and (for the first time) to regulate artificial intelligence in the form of Bill C-27. That legislation is currently in Second Reading debate in the House. In many ways, Bill C-27 may have the largest economic implications and will be dealt with in more detail later in the post.
Finally, the federal government is looking at introducing online hate legislation early in the new year.
Two weeks before Prime Minister Justin Trudeau called the 2021 federal election, the government presented a “technical discussion paper” and rolled out a summer-long consultation process on a proposed online harms legislative framework, promising that responses would inform the new laws and regulations.
That proposal included implementing a 24-hour takedown requirement for content deemed harmful, as well as creating federal “last resort” powers to block online platforms that repeatedly refuse to take down harmful content.
During the 2021 summer feedback period, the government got an earful from stakeholders expressing concerns with then-Canadian heritage minister Steven Guilbeault’s proposals, as well as what was described as a “massively inadequate” consultation process.
From concerns the proposal didn’t strike an appropriate balance between addressing online harms and safeguarding freedom of expression, to questioning why the range of harms are being treated as equivalent, experts called for some significant changes.
Facing concerted pressure from stakeholders that the government would ideally want onside as it pushes ahead with this conversation, after Rodriguez was re-appointed as heritage minister, he announced plans to go back to the drawing board.
The decision to rework the plan was announced in February, alongside the release of a “What We Heard” report based on its assessment of the feedback from the consultation process.
It concluded that, while the majority of respondents felt there is a need for the government to take action to crack down on harmful content online, given the complexity of the issue, the coming legislation needed to be thoughtful in its approach to guard against “unintended consequences.”
This online harms framework is separate from a piece of government legislation tabled at the eleventh hour of the 43rd Parliament.
Called Bill C-36, it focused on amendments to the Code and the Canadian Human Rights Act to address hate propaganda, hate crimes and hate speech, but after dying when the 2021 election was called, the legislation has not been revisited by the Liberals.
Finally, in late April, 2022, the advisory committee released (another) technical paper in the form of drafting instructions for new online hate legislation.
At the provincial level, Quebec has a new Privacy law in the form of Bill 64, the first part of which has just come into effect. And Ontario will likely table sweeping changes to its provincial privacy legislation in the coming months.
Case Study: Bill C-27 and the debate over personal data privacy and commerce
It is worth taking a brief look at the reform of federal privacy legislation in the form of Bill C-27 to see the huge economic implications of the choices made in regulating the digital realm.
Bill C-27, while a modest improvement over the 2020 privacy legislation which died with the call of the 2021 election, still relies on the consent model (i.e. under the legislation, a data processor like Facebook will need to receive consent from the individual before using his or her personal data to help Facebook target ads) and stops short of making personal data privacy a basic human right.
This matters in economic terms because the business model that has come to dominate tech over the last twenty years or so is the ad supported, services-for-free business model (Facebook, Google, Tik Tok, Instagram, Twitter, etc.) which relies on the ability of these companies to extract personal data from anywhere on the internet and monetize it through highly targeted ads.
If Canada (somehow) figured out a way to implement a complete ban on the extraction and monetization of personal data by these global platforms, that business model would collapse in Canada. In order to operate profitably in Canada, these companies would have to shift towards some variation on the subscription model (or some other business model). Of course, if Canada were the only country to completely ban the extraction of personal data for monetization, the global platforms would more likely leave Canada than develop a completely new business model for use in a country of less than 40 million.
In any case, the specifics of Bill C-27 make clear that a complete ban on the extraction and monetization of personal data in Canada is not going to happen. This is no surprise. The 2020 predecessor to Bill C-27 — Bill C-11 — was actually condemned by former Privacy Commissioner Daniel Therrien as a “step backward” for personal data privacy. Bill C-27 does contain improvements over C-11 — the government has listened to some of the concerns of the privacy critics. However, it predictably has listened more to the concerns of the global platforms and other tech bemouths than the privacy advocates. In this latest iteration of Canadian privacy reform, the right to keep your personal data private still takes a back seat to commercial interests.
But while this is the preferred Silicon Valley approach, many critics argue that data protection law is meant to set basic ground rules for data processors such as Facebook, Google, Tik Tok and Amazon. In the EU’s General Data Protection Regulation (GDPR), and in Quebec’s new privacy law, the right to privacy are more central to the statutes than in C-27. In many critics eyes (including this one), if done right, the EU approach with its GDPR, creates a hard stop for certain illegitimate uses of personal data, and forms the basis of a strong regulatory framework for more legitimate uses.
But most of Big Tech passionately argues that strong regulatory frameworks such the EU’s slow down commerce and innovation, and most of the global corporate data users operating in Canada have aggressively lobbied the federal government for a soft, flexible approach to personal data protection. It is an approach premised on the idea that, by-and-large, the tech industry is composed of good actors who have our interests at heart.
This author disagrees with that proposition. The EU approach provides more than enough leeway for the global data platforms to collect personal data and monetize it. On these sort of digital issues, Canada often ends up midway between the EU and Silicon Valley. That is pretty much where Bill C-27 is right now and that may be where we end up. However, it is also possible that we will decide that mid-point between the EU and Silicon Valley is not be where we want to end up. In other words, it is essential that we understand that we have a choice and that other choices (in particular, a position closer to the EU with fewer exemptions from seeking consent) could be made even with most of Big Tech opposing such an option.
It is also essential to remember that C-27 is currently in the early stages of second reading debate and will be going to committee in the coming weeks. In the Canadian system, it is in committee following second reading where the most significant amendments to legislation are generally made. Moreover, Canada has a minority Liberal government meaning that the Liberals have a minority in Parliament (and in its committees) and needs either the support of the NDP or the Bloc (or both) to get legislation through. At the very least, it is likely that both opposition parties will push hard for fewer and more tightly defined exemptions from seeking consent in order to gain their support for C-27. Maybe they can even be convinced to push for other elements of the EU approach.
Financial services regulation
Canada’s financial consumer protection system is among the weakest in the G8.
It has three rungs:
- The Financial Consumer Agency of Canada (FCAC);
- The internal complaint system of the banks; and
- The external complaint system of OBSI and the private complaint body retained by TD, Royal, Scotiabank and National Bank.
Five years ago, through the Domestic Bank Retail Sales Practices Review, the federal government began the process of progressively ramping up consumer protections with the passing of Bill C-86 in 2018, which modernized Canada’s financial consumer protection framework (FCPF) legislation.
Over the past five years through the FCPF, the government has progressively increased regulatory standards by codifying expectations in retail banking sales practices, the last of which came into effect in June 2022. These new regulations ushered in a significant change for retail banks operating under the FCAC’s jurisdiction.
Some of the notable changes included:
- Increased powers for the FCAC, including the mandatory naming of banks found in violation of financial consumer requirements, the ability to levy greater administrative monetary penalties and the power to direct an independent third-party review, which are already in effect.
- New obligations, including delivery of automated alerts for low balances and zero liability due to credit or debit card fraud.
- Enhanced expectations for complaint handling and greater management and board accountability in oversight requirements of financial consumer obligations.
- Banks are now also similarly required to send out notices about impending product renewals or when promotional offers – such as a low, introductory interest rate on a new credit card – are about to expire.
- There is also a broad requirement that banks ensure the financial products they pitch are suitable to consumers’ circumstances. That includes ensuring that pay incentives don’t encourage bank employees to prioritize sales over catering to clients.
- Other new requirements include setting up whistleblowing programs for bank employees and broader protections against the use of high-pressure sales tactics.
- The new rules also mandate that banks deal with customer complaints within 56 days. Previously, there was no regulatory requirement on financial institutions to handle grievances within a specified time frame,
Case study: Enhancing the power of the FCAC and OBSI
While the FCPF offered a significant change in terms of regulatory requirements for federally regulated banks, the last changes emanating from the 2018 Bill C-86 were implemented this past June.
That said, it is clear from Trudeau’s December, 2021 mandate letter to Finance Minister Freeland that the government is not done strengthening the FCAC’s oversight of banks nor are they done with granting OBSI significantly increased authority.
For example, Trudeau’s mandate letter to Freeland calls for the establishment of “a single, independent ombudsperson, with the power to impose binding arbitration, to address consumer complaints involving banks”.
An independent review of OBSI’s banking mandate released in September, 2022 also recommended that OBSI be given the power to impose binding arbitration. The author of the report, Professor Poonam Puri, one of Canada’s leading experts in corporate governance, corporate law, and securities law sided with consumer advocates and against the banks in making the recommendation.
This is a significant change from the current regulatory regime which allows banks to select their own external complaint body to handle their retail banking complaints.
The implication for the four banks that retained their own “ombudsperson” when the Stephen Harper government gave them the chance (Royal, TD, Scotia and National) is that they will have to switch back to OBSI and will also likely to have to make changes to their internal complaint processes in order to synch up with OBSI.
Moreover, OBSI is not currently allowed to impose binding arbitration which means that OBSI decisions can essentially be ignored by the banks. Allowing OBSI to impose a binding arbitration in response to a customer complaint will greatly improve the credibility of OBSI from a consumer vantage point.
The government has also indicated an interest in reforming OBSI’s governance structure. There is currently a consultation underway to look at various governance options.
Also included in the December, 2021 mandate letter from Trudeau was a signal that the government will continue to strengthen FCAC powers by giving the agency the authority, through legislation, to monitor bank fees and charges and “require” changes from the bank in question if the bank fees are deemed “excessive.”
Considering the evolution of regulatory changes over the past five years, this mandate letter shows the government’s continued appetite to enhance the FCAC and OBSI’s authority and oversight of banks’ day-to-day operations.
It’s unclear when the government will introduce this legislation but it is clear that these regulatory developments are part of a paradigm shift that requires retail banking to rethink the role of compliance in day-to-day activities.
In summary, the next wave of consumer financial protection will likely include:
- Through legislation, TD, Royal, Scotiabank and National Bank will be forced to stop using their own complaint judge (ADR Chambers) and return to the Ombudsman for Banking Services and Investments (OBSI). This was the regime before the Harper government gave the banks the option of choosing their own external complaints body.
- OBSI will be given the power to impose binding arbitration as opposed to simply making recommendations for redress that the banks can ignore;
- FCAC will be given the power through legislation to monitor bank fees and charges and “require” changes from the banks if the fees are deemed “excessive.” The FCAC will likely be given additional powers.
As legislation will be required to implement the changes detailed above, there will be pressure from the NDP and Bloc to deal with such related issues as predatory interest rates and perhaps even credit card fees. Ottawa has just completed a consultation on the federal criminal interest rate (which is currently capped at an astoundingly high 60 percent) and may very well be ready to move on this file. It is even possible that the government will incorporate some of the powers of the US Consumer Financial Protection Bureau and the UK’s Financial Conduct Authority into the Canadian financial consumer framework.
The central argument of this post is that by effectively regulating and structuring its markets (including labour markets), Canada can increase its competitiveness, enhance productivity and growth, increase innovation, protect consumers, and improve wages and working conditions.
A related thesis of this post is that all markets are simply sets of rules (legislation, policies, regulations, jurisprudence, etc.). Effective regulation doesn’t interfere with the “free market”. Effective regulation defines a myriad of linked markets in such a way as to encourage private sector innovation while at the same time ensuring fairness for workers and consumers.
The private sector needs to engage in market competition to innovate but if it is to innovate and create high quality jobs and protect consumers, it needs effectively regulated markets to compete in.
The three case studies presented above point to practical initiatives currently being taken by the federal government to regulate markets so that they create good quality jobs and are better aligned with consumer interests.
Ordinary Canadians value wireless communications that allows them to communicate easily and inexpensively with their family, friends and colleagues. The Competition Bureau is trying to facilitate this by opposing the Rogers/Shaw merger so that there is more competition in Canada’s telecommunications market leading to lower prices. They are also engaged in a Competition Act reform process that will likely lead to the elimination of the “efficiencies defense” which will make it easier to block mergers that reduce competition that would lead to higher prices for consumers.
Ordinary Canadians want to be able to easily connect with people and organizations around the world but they do not want their personal information to be collected and bartered for all over the internet nor do they want the global platforms tracking their every move. Bill C-27,while far from perfect, at least begins to put into place a framework for protecting personal data while still allowing for commerce based on the ad supported, services-for-free business model.
Ordinary Canadians want their savings to be safe and their payments for goods and services to be reliable and convenient. But what they don’t want is to pay a 20% interest rate on their credit cards, be hit with a bewildering array of charges and fees on their checking and savings accounts, and be pushed to buy their bank’s mutual funds. As a result, the federal government is increasing the powers of the FCAC and OBSI to better respond to customer concerns in these areas.
Canada’s telecommunications, financial services and digital markets, to name just a few, have a very long way to go before they properly balance the interests of workers and consumers with those of shareholders. That said, we can learn quite a lot from the small steps in this direction detailed above.
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