Strengthening competition in the financial sector
A CBA submission offers recommendations on the M&A review process in the banking sector.
In a nutshell: The Canadian banking services market is generally competitive, with no significant access barriers for consumers, according to the CBA’s Business Law and Competition Law and Foreign Investment Review Sections, which responded to the Department of Finance’s consultation on strengthening competition in the financial sector. They also oppose formalizing a ban on larger bank mergers.
The context
The Competition Act was recently amended to remove the efficiencies defence. It previously allowed otherwise anti-competitive mergers to survive scrutiny if they created enough efficiencies to counterbalance the anti-competitive impacts. This means the Competition Bureau and Competition Tribunal can consider factors such as network effects in assessing M&A transactions.
Efficiency challenges
Noting that most Canadians have access to a broad range of financial services, the Sections emphasize that the Competition Bureau has the tools it needs to review and intervene in banking M&As to prevent adverse effects on competition. However, the Sections highlight that the review process is overly burdensome as it is “document and data heavy,” the submission reads. “It imposes considerable compliance costs on merging parties. It is also increasingly imposing costs on third parties that are active in the relevant markets but not involved in the M&A transaction.”
A ban on large bank mergers?
Asked whether the government should formalize such a ban, the Sections advise against it. “Competition law enforcement should be principles-based and sector neutral,” they write. “A blanket ban could have the unintended effect of banning transactions that are beneficial to Canadians.” They also oppose measures limiting how large banks can grow through acquisitions. Moreover, any decision to limit acquisitions by major domestic banks or their international equivalents should be guided by non-competition factors, like the risks to financial stability.
In this context, the enforcement of competition law should not be used to determine specific market outcomes or to support key players but to foster a competitive environment for those players to compete in. It is neither competition legislation’s role to create or retain jobs in Canada’s financial sector.
Consumer-driven banking
The CBA Sections view open banking as an opportunity for increased competition, innovation and service improvement across the financial sector. However, they stress that competition law should not be used to ensure specific market outcomes but to maintain competitive markets. Although it’s not available in Canada yet, consumer-driven banking is used in countries like Australia and the UK. It brings an opportunity for greater competition by empowering consumers to access innovative financial services in a safer way.
The Sections conclude in the submission that consumer-driven banking would help established and new financial institutions become more competitive domestically and internationally, but only if competition law is enforced with a principles-based approach.
Competition law and jobs
Asked what measures to encourage competition could also support and create new jobs in the Canadian financial sector, the Sections take the view that competition law enforcement is not designed to create or protect jobs: “It is not the role of competition law to require banks to maintain certain employment levels.”
Read the full submission.
