Expanding beyond financial services: Draft Regulations for federally regulated financial institutions

On October 17, 2026, the Department of Finance published four sets of proposed regulations (the "Draft Regulations") that would set the stage to bring into force long-awaited amendments to the federal financial institutions statutes, first enacted in the Budget Implementation Act, 2018, No. 1 (the "NFA Amendments").

Together, they would expand the non-financial activities ("NFA") that federally regulated financial institutions ("FRFIs") may carry on and invest in, giving FRFIs more flexibility to develop technology, provide related services and invest in fintech businesses (subject to revenue and capital limits and reporting requirements).

The Draft Regulations remain in proposed form and could change. Comments can be submitted before November 16, 2026.

Separate, largely parallel Draft Regulations apply to banks and bank holding companies, foreign banks, insurance companies, societies and insurance holding companies, and trust and loan companies.

Key takeaways

The takeaways below are based on the Draft Regulations as published, which may change in response to comments received during the consultation period.

• More room for fintech and technology investments:

  Removing ministerial approval, together with the new MFSE investment category described below, should make it faster, cheaper and more certain to invest in fintechs and build technology capabilities in-house.

• A methodology is required before acting:

  FRFIs must have a methodology for attributing NFA revenue and capital exposure before engaging in NFA business and large institutions would have to describe it in their annual reports. This is likely the main compliance burden, especially where business lines overlap.

• One breach affects the whole portfolio:

  Breaching either the revenue or capital limit turns all investments in MFSEs and NFA entities into temporary investments, and the capital limit must be met at all times, so headroom should be checked before each transaction.

• MFSE status must be monitored:

  An investee that drifts below the 60% financial-services activities threshold becomes a temporary investment, so investment and shareholder agreements should include supporting covenants and information rights.

• Large institutions should plan for reporting:

  Institutions with equity of $12 billion or more should build 30-day post-closing transaction reporting into deal timetables.

• Inventory existing technology activities now:

  Existing technology activities that did not need approval are expected to count toward the limits once the two-year transition period proposed by the Department of Finance ends.

Each of these takeaways is explained in more detail in the overview of the framework below.

Background

FRFIs are generally restricted from engaging in, or investing in entities that engage in, anything other than the business of providing financial services. Since 2001, they have been permitted to carry on certain information processing and technology activities, but most of these require prior ministerial approval if they are conducted in Canada, and FRFIs may invest only in entities that exclusively conduct activities the FRFI itself may conduct, so even a minority non-financial business line can block an investment.

According to the Regulatory Impact Analysis Statement (“RIAS”) that accompanied the Draft Regulations, these restrictions have become harder to justify as FRFIs increasingly compete with fintech and big tech firms that operate outside the federal regulatory perimeter and have greater flexibility to offer products that blur the line between financial and commercial services. The new framework is intended to help FRFIs innovate and compete while remaining primarily oriented towards financial services.

The NFA Amendments received Royal Assent in 2018 but have not yet been brought into force pending regulations setting out the terms and conditions for their use.

How the framework works

The proposed framework creates two important opportunities:

1. Carrying on qualifying NFAs directly or through eligible subsidiaries.
2. Acquiring control of or a substantial investment in a “majority financial services entity” (“MFSE”), meaning an entity whose business consists mostly of financial services, but which may also carry on non-permitted non-financial activities.

An MFSE must derive at least 60% of its business from the financial-services activities specified for the relevant institution, measured by the highest of revenue, operating expenses or assets.

Once in force, the NFA Amendments would remove the requirement for prior ministerial approval for permitted non-financial activities and investments and expand the referral power from referring "any person to a financial service provider" to referring "any person to any person”, with the Draft Regulations setting out the conditions that apply.

However, it is important to note that the new framework does not provide a general licence to enter unrelated commercial businesses. In particular, restrictions on consumer leasing of personal property, including motor vehicles (other than financing an acquisition), would remain.

The chart below summarizes the key elements at a glance:

1. Revenue and regulatory capital limits

A FRFI’s combined NFA revenue (including the non-financial revenue of its MFSE and NFA subsidiaries) may not exceed, at each financial year-end, 15% of its annual revenue if its equity is less than $12 billion, or 10% if its equity is $12 billion or more. Separately, its total exposure to MFSEs and NFA entities that it controls or holds a substantial investment in (shares, ownership interests, loans and guarantees) may not exceed 10% of its regulatory capital at any time.

2. Consequences of breach

If either limit is breached, every MFSE and NFA investment the institution holds (not only the one that caused the breach) is deemed to be a temporary investment. According to the Department of Finance, the institution would then have two years to return to compliance, failing which divestiture may be required. The same treatment applies to an individual investee that falls below the 60% MFSE threshold.

3. Reporting obligations (large institutions only)

Institutions with equity of $12 billion or more (measured on a group basis for foreign banks) must file confidential transaction reports with the Department of Finance within 30 days of acquiring control of, or a substantial investment in, an MFSE or NFA entity, as well as annual reports on their NFA activities, MFSE holdings and compliance methodology. Smaller institutions are exempt from reporting but must still comply with the limits and maintain a methodology for tracking NFA revenue and capital exposure.

What it means for your institution

• Banks and bank holding companies:

  Banks would benefit from the broadest version of the exemption for certain integral information-processing activities, which would apply to activities carried on by a bank or any subsidiary that is a bank. Banks with equity under $12 billion would benefit from the higher 15% revenue limit and the reporting exemption.

• Foreign banks:

  Equity, revenue and capital would be measured on an aggregate group basis, and both limits would also be subject to a $1.5 billion ceiling, with only exposures to Canadian entities counting toward the capital limit. Groups with aggregate equity under $12 billion would benefit from the higher 15% revenue limit and the reporting exemption, although an authorized foreign bank's own NFA revenue would remain capped at 10%.
  
  For large global groups, the dollar cap rather than the percentage may be the binding limit on Canadian NFA business. A parallel exemption would apply to integral information-processing activities carried on by a member of the foreign bank's group that is a bank or an authorized foreign bank.

• Insurance companies, societies and insurance holding companies:

  Annual revenue would be reduced by reinsurance premiums paid or payable, with no offset for ceding commissions, so insurers that cede heavily would have less headroom and should model the single-year and three-year averaging options. The integral information-processing exemption would apply only to activities carried on by a subsidiary that is a bank, so in-house data processing and technology services may count toward the limits.
  
  The MFSE category may open up insurtech, distribution, claims and underwriting investments. Canadian-incorporated subsidiaries of foreign insurers would measure the limits on a stand-alone basis, and foreign insurers operating through Canadian branches should confirm how the framework would apply to them.

• Trust and loan companies:

  Similar limits would apply, but as with insurers, the integral information-processing exemption would apply only to activities carried on by a subsidiary that is a bank, so in-house technology and data services should be inventoried.

Next steps

FRFIs should consider how the Draft Regulations would apply to their current and planned activities and investments, and whether to participate in the consultation. Comments on the Draft Regulations must be submitted on or before November 16, 2026. For assistance, please contact the authors or a member of our Financial Services Regulation group.