The release of the C.D. Howe Institute’s recent report, “Walking the Tightrope: Canada’s Financial Regulatory Scorecard, Year Three,” should be a wake-up call for Canada’s policymakers.
The report finds that “regulators continue to place overwhelming emphasis on stability, resilience, and consumer protection, while giving comparatively little attention to efficiency, competition, and innovation. The analysis also finds that formal, transparent cost-benefit analysis remains largely absent from regulatory decision-making.” It goes on to outline the negative economic repercussions of this approach.
Does this mean Canada’s financial regulators are failing?
No.
Quite the opposite, in fact.
Canadian regulators are delivering on the mandates they have been given. The problem is that those mandates were designed for a different era. By prioritizing stability over growth, safety over innovation, they are doing precisely what they were built to do.
But that is not what Canada needs right now.
At a time of economic challenge and global upheaval, Canada needs stronger productivity, investment, innovation and economic growth. Our financial sector is very strong; there has not been a significant financial institution failure in more than 25 years, according to the report. As such, Canada’s financial sector is well positioned to help realize the current federal government’s goal to “build Canada’s economy to be the strongest in the G7.”
But we need a regulatory framework that enables this.
To be clear, Insurance Bureau of Canada (IBC) is not calling for a Wild West. Canada needs a strong regulatory framework to maintain consumer confidence. But as the C.D. Howe Institute report shows, the current framework overemphasizes stability to a degree that it may be undermining that very goal through the growing costs of compliance.
Again, this is an issue of regulatory design, not performance.
The solution is for Canada’s policymakers in Ottawa to modernize our country’s regulatory framework, starting by updating regulatory mandates to include growth and innovation.
What the C.D. Howe scorecard finds
The latest release is the third such scorecard from the C.D. Howe Institute, and each report builds on the others. The 2024 report found that Canadian financial regulators overwhelmingly prioritize stability, transparency and consumer protection, with 89% of regulatory initiatives focused on those objectives compared to 16% aimed at efficiency, growth and innovation (they don’t add up to 100 because there is some overlap).
The 2025 report, which updated the analysis, compared Canada’s regulatory framework with international peers and found that this imbalance reflects the mandates under which Canadian regulators operate. It also documented the growing cost of compliance.
This year's report confirms that the imbalance of stability vs. growth initiatives continues (92% to 17%) and asks whether Canada’s current approach to regulation is achieving its intended outcomes. It found that tighter regulation can be associated with weaker economic growth and that the resulting gains in stability are much harder to detect.
In reaching its findings, the C.D. Howe Institute reviewed recent regulatory documents from Canada’s major financial regulators and analyzed economic data on regulatory tightening.
It concludes that “periods characterized by sustained regulatory tightening tend to be followed by weaker economic performance.” It goes on to note that “the data point to a situation in which the costs of regulation are clearly visible, while the benefits are much harder to detect.”
The report also concludes that the relevant policy question is “how to design regulation that achieves stability without unnecessarily absorbing resources” and that cost considerations need to be integrated into the regulatory framework.
These findings align with IBC’s views on regulation in the property and casualty (P&C) insurance sector.
A System Built for Stability – But at What Cost?
Canada’s current regulatory framework is the product of evolution, shaped by decades of experience with financial crises, market failures and consumer protection concerns. Along the way, solvency, market integrity and consumer protection became the dominant objectives. Few would dispute that these goals are important. Indeed, Canada’s financial system has long been recognized for its resilience.
But the focus on stability is starting to take its toll on the system through increased costs that impact not just financial institutions but their customers and the wider economy.
Previous C.D. Howe Institute research estimated that the share of labour costs devoted to compliance-related activities across Canada’s financial sector rose from approximately 16% in 2019 to 22% in 2024.
P&C insurers specifically, have seen a similar trend.
According to the results of IBC’s survey about regulatory compliance costs, total regulatory compliance costs for P&C insurers reached $753 million in 2024, an increase of 81% in just two years. Labour costs accounted for nearly three-quarters of those expenditures, reflecting both expanding compliance teams and increasingly complex reporting and supervisory requirements.
An external observer might say: “So what? Insurers can absorb those costs.” But the problem is that regulatory costs do not exist in isolation.
Every dollar devoted to compliance is a dollar that cannot be invested in product innovation, customer service improvements, technology modernization, resilience initiatives, workforce development or business expansion.
The challenge becomes even clearer when viewed internationally. Industry data shows Canadian P&C insurers devoted approximately 17% of operating costs to compliance activities in 2024. By comparison, European insurers spent approximately 6.5% of operating costs on compliance, based on the most recently available benchmark.
Fragmentation Adds Cost
Canada’s regulatory architecture compounds the problem.
The country’s financial services sector operates within a fragmented network of federal and provincial regulators, many of which have overlapping responsibilities and sometimes inconsistent requirements. There are 44 financial sector regulators across Canada. For nationally operating firms, this can create duplicative reporting obligations, inconsistent expectations, and overlapping compliance requirements.
Viewed individually, many regulatory initiatives may appear reasonable. Viewed collectively, they can create a growing stock of obligations that impose meaningful economic costs.
Another Missing Discipline: Cost-Benefit Analysis
Another finding from the C.D. Howe Institute research is the absence of consistent, transparent, and rigorous cost-benefit analyses of Canada’s financial regulatory system.
In other areas of public policy, governments are expected to explain why a policy is necessary, what problem it solves, what alternatives were considered, what costs will be incurred and how success will be measured. Financial regulation should be subject to the same discipline.
In the absence such assessments, it is more difficult for a regulator to know whether a proposed measure’s benefits outweigh its costs, and whether those costs affect productivity, investment, competition, affordability for consumers and innovation.
Publishing these types of assessments would also reinforce transparency and accountability, helping insurers understand the rationale behind a proposed reform and encouraging more constructive engagement between insurers and regulators.
A Global Trend: Stability and Growth Are Not Opposing Objectives
Other jurisdictions increasingly recognize that stability and growth are not competing objectives.
The United Kingdom has moved to strengthen the requirement that regulators support growth and competitiveness alongside traditional prudential objectives. Australia and South Korea similarly place greater emphasis on balancing consumer protection and stability with innovation, efficiency and market dynamism.
Canada has been slower to evolve.
The result is a regulatory framework that often overlooks the broader economic consequences of regulatory decisions. And that’s a problem.
A Better Regulatory Model for Canada
Canada should continue to maintain strong prudential safeguards, robust consumer protections and effective regulatory oversight. These strengths have served the country well.
But Canada also needs a regulatory system designed for the economic realities that have emerged in recent years.
IBC’s recommendations for change include:
Embed market dynamism in regulators' mandates
It all starts here. An organization’s day-to-day activities are driven by what their mandates tell them to do. Canada’s financial regulators should continue to prioritize stability, of course, but layered onto that should be a mandate to support competition, innovation and economic growth.
Explore the structural alignment of financial services regulators
In the United Kingdom, the regulator responsible for the health of financial institutions is embedded within the Bank of England. Why? It helps ensure that regulatory decision-making is aligned with broader economic and macroeconomic priorities. Canada need not replicate another nation’s structure. However, policymakers should examine whether a more integrated approach could improve efficiency and information sharing while maintaining strong prudential safeguards.
Ensure new regulations are necessary and cost-effective
When a regulator identifies a risk to address, the problem should be clearly defined and there should be an effort to determine if there are existing regulatory tools that already address the issue. Requiring a standardized problem definition and cost-benefit assessment for new regulations would help reduce duplication and avoid unnecessary compliance burden. Regulators in other nations, such as the United Kingdom’s Prudential Regulation Authority, have formalized their approach to cost-benefit analysis.
Modernize the Insurance Companies Act to support harmonization
Canada’s regulatory structure is fragmented and this has led to unnecessary differences in requirements across jurisdictions. Ideally, legislators across jurisdictions would revisit existing legislation and regulations to harmonize wordings. Or, at the very least, there should be greater coordination among jurisdictions when writing new insurance legislation or regulations. The result would be a more efficient operating environment for insurers, which would attract more competition and innovation, which would ultimately benefit consumers.
The Time for Redesign
Canada’s financial regulatory system is not broken.
The system is working largely as intended, with a focus on stability and compliance.
But Canada’s needs have changed.
Our federal government is focused on competitiveness, investment attraction and innovation. Yet the regulatory framework governing one of the country’s most important sectors remains designed primarily around a narrower set of objectives.
The evidence assembled by C.D. Howe Institute, combined with IBC's research and analysis, confirms that the challenge is not how much stability to pursue at the expense of efficiency. It is how to achieve both. That is the task now facing Canada’s policymakers.
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