Finance Canada Publishes Draft Regulations to Finally Bring 2018 Non-Financial Activities Powers Into Force for Banks

The Department of Finance has published draft regulations that would operationalize 2018 legislative amendments permitting federally regulated banks to carry on or invest in non-financial activities, including fintech, within defined revenue and regulatory capital caps.

A. Executive Summary

On October 17, 2026, the Department of Finance Canada published the proposed Non-Financial Activities (Banks and Bank Holding Companies) Regulations in the Canada Gazette, Part I, alongside three related regulations: a separate regulation for foreign banks, and parallel regulations for insurance companies and trust and loan companies. These draft regulations are not a new policy initiative from scratch. They are the final step needed to bring into force legislative amendments Parliament enacted back in 2018 in the Budget Implementation Act, 2018, No. 1, amendments that have sat dormant for eight years because the regulations required to operationalize them had not yet been finalized. Once in force, the framework would allow federally regulated banks to engage in or invest in non-financial commercial activities, particularly in the fintech and software sectors, within aggregate annual revenue caps of 10% to 15% and a 10% regulatory capital limit on non-financial investments, loans, and guarantees.

For corporate development, strategy, and M&A teams, this proposal would eventually provide explicit legal authority to pursue technology-driven integrations, but two layers of contingency remain before that happens: the regulations themselves are still subject to a 30-day comment period, and even once finalized, they only take effect on whatever day the underlying 2018 legislative amendments are separately brought into force by Order in Council, a timing decision the government has said it will make only after reviewing comments on this proposal. Teams should treat this as a framework to prepare for, not one that’s usable today.

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B. What Happened

The Department of Finance published proposed regulations on October 17, 2026, to implement expanded business and investment powers for banks and bank holding companies under the Bank Act. The draft framework would permit these institutions to carry on or invest in non-financial activities subject to the following quantitative limits:

• Revenue Caps: Aggregate annual revenue from non-financial activities would not be permitted to exceed 15% of total revenue for banks or bank holding companies with equity under $12 billion, or 10% for those with equity of $12 billion or more.
  
  
• Capital Caps: The value of non-financial investments, loans, and guarantees would be capped at 10% of total regulatory capital, across all banks regardless of size. In practice: a smaller bank gets more breathing room on the revenue side specifically because regulators recognized that a flat 10% cap would leave less dollar-value room for smaller institutions to meaningfully participate, while the capital cap stays uniform at 10% for everyone.

Separately, and importantly, foreign banks are governed by their own distinct regulation, the Non-Financial Activities (Foreign Banks) Regulations, published the same day. That regulation is substantially similar to the bank and bank holding company framework, with one key difference: foreign bank groups would face an additional absolute cap of C$1.5 billion on their non-financial business exposures in Canada, layered on top of the percentage-based limits, with the lower of the two applying. This distinct cap exists because the government determined that very large foreign banks with only a limited Canadian presence could otherwise end up with non-financial business room in Canada that greatly exceeds their actual Canadian financial footprint.

In practice: a foreign bank group doing the math on its Canadian non-financial activity needs to check both the percentage caps and the flat $1.5 billion ceiling, and whichever number is smaller is the one that actually governs.

Additionally, banks with $12 billion or more in equity would need to report qualifying non-financial acquisitions within 30 days of the transaction closing. This isn’t the only reporting obligation: large banks would also need to file a recurring annual report, due no later than six months after each financial year-end, describing all non-financial activity undertaken that year and the methodology used to calculate compliance with the revenue and capital caps.

In practice: this is not a one-time filing tied only to a deal closing. A large bank that’s active in this space would be filing something related to its non-financial activity every year, not just when it does a new transaction.

If a bank breaches the revenue or capital limits, the non-financial investments are automatically deemed temporary, and the institution would have two years to correct the breach or move the investment into a permitted category.

While the Department of Finance published parallel proposed regulations for foreign banks, insurance companies, and trust and loan companies on the same day, each a separate regulatory instrument, this article focuses on the framework specific to banks and bank holding companies. Public comments on the proposal are due by November 16, 2026.

Even after the comment period closes, there is no fixed effective date. The regulations are drafted to come into force on whatever day the underlying 2018 legislative amendments are brought into force by a separate Order in Council, and the government has stated that the timing decision for that step will be made only after reviewing responses to this consultation.

(Source: Canada Gazette, Part I, Non-Financial Activities (Banks and Bank Holding Companies) Regulations, October 17, 2026)

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C. Why It Matters for Legal & Compliance

This regulatory modernization would modestly expand the commercial boundaries available to banking institutions in Canada, within deliberately constrained limits. The Department of Finance has described the approach as measured and incremental, with the caps specifically designed to ensure banks remain primarily oriented toward financial services, so this is not a broad deregulation. Three points stand out:

1. M&A and fintech integration would eventually have clear, quantifiable guardrails, not yet a usable safe harbor.
Corporate development teams would eventually have defined, quantifiable limits for acquiring software developers, digital identity platforms, and data analytics firms that are currently restricted as non-financial commercial entities. That said, this authority doesn’t exist yet. Any planning right now is necessarily contingent on both the regulations being finalized and the 2018 amendments being separately brought into force, with no announced timeline for either.

In practice: it’s reasonable to start scoping which acquisitions might fit within these caps, but it would be premature to treat any specific deal as cleared to proceed under this framework before both the regulations and the underlying legislative amendments are actually in force.

2. Continuous cap monitoring introduces an ongoing compliance burden, not a one-time check.
The dual revenue and capital caps are measured against fluctuating metrics, total revenue and regulatory capital, so a decline in core banking revenue or capital could narrow the available room under the non-financial thresholds even without any new non-financial activity being added.

In practice: a bank’s non-financial activity could go from comfortably within the cap to in breach of it simply because its core banking revenue or capital shrank, with no change at all on the non-financial side. This needs to be built into ongoing monitoring, not just checked once at the time of an acquisition.

3. The two-year correction window requires structuring deals with exit optionality from day one.
The draft regulations provide a two-year cure period if a cap is breached, but legal and compliance teams would need to design future M&A agreements with exit or divestiture optionality to address the risk of forced liquidations if the bank exceeds its permissible non-financial footprint and cannot bring itself back into compliance within that window.

In practice: a non-financial acquisition agreement signed under this framework should probably include a contractual path to unwind or divest the investment, since the regulation itself contemplates that outcome if the caps are breached and can’t be cured in time.

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D. Action Items for Organizations

Federally regulated banks and bank holding companies should consider the following steps:

• Audit Pending Pipeline: Evaluate planned fintech integrations, commercial software ventures, and minority equity investments against the proposed 10% to 15% revenue and 10% regulatory capital limits, while recognizing this framework is not yet in force.
  
  
• Design Monitoring Controls: Establish internal reporting workflows connecting corporate development, treasury, and regulatory reporting teams to continuously track non-financial revenue and exposures against the statutory caps on an ongoing basis, not just at the time of a transaction.
  
  
• Prepare for Recurring Annual Reporting: Large banks (equity of $12 billion or more) should plan for both the 30-day transaction report following a qualifying acquisition and the separate annual report due six months after each financial year-end.
  
  
• Assess Foreign Bank Exposure: For foreign bank branches and holding companies operating in Canada, calculate existing non-financial investments against both the percentage-based caps and the proposed C$1.5 billion absolute cap under the separate Non-Financial Activities (Foreign Banks) Regulations, applying whichever limit is lower.
  
  
• Prepare Public Feedback: Consolidate structural or technical feedback on the proposed caps and reporting requirements, and submit formal comments to the Department of Finance before the November 16, 2026 deadline.
  
  
• Track the Coming-Into-Force Timeline: Monitor for the separate Order in Council decision that will bring the underlying 2018 legislative amendments into force, since that decision, not the close of this comment period, will determine when this framework actually becomes usable.

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Disclaimer: This article does not constitute legal advice. Readers should seek legal or tax advice from their professional advisers regarding their specific regulatory and legal obligations.