Financial Sector Conduct and Market Dominance – Canada

Introduction

Financial sector conduct and market dominance concern the way banks, payment companies, credit providers, insurers, fintech firms, investment platforms, and other financial institutions use economic power in the marketplace. Canadian competition law does not prohibit a firm merely because it is large or dominant. The main concern is whether market power is used in a manner that excludes competitors, weakens competitive pressure, restricts innovation, or otherwise harms competition.

The principal legislation is the Competition Act, particularly the abuse-of-dominance provisions in sections 78 and 79. Competition law operates alongside specialized financial regulation, including federal and provincial banking, securities, consumer-protection, privacy, and payment-system rules.

Recent amendments have significantly broadened the Canadian abuse-of-dominance regime. A prohibition order can now be available where a dominant firm engages in a practice of anti-competitive acts or conduct that substantially harms competition. Stronger remedies become available where dominance, anti-competitive conduct, and substantial competitive harm are established together.

Meaning of Market Dominance

A financial institution is dominant when it possesses a substantial degree of market power in a relevant market. Market power generally means the ability to influence prices, service quality, product variety, innovation, contractual conditions, or other dimensions of competition without being effectively constrained by competitors.

Dominance therefore does not depend solely on market share. Authorities may consider:

market shares and concentration;

barriers to entry and expansion;

regulatory licensing requirements;

access to payment networks or essential infrastructure;

customer switching costs;

network effects;

control over customer or transaction data;

bargaining power;

access to distribution channels;

economies of scale;

ability to exclude competitors; and

strength of existing and potential competition.

These considerations can be especially important in financial services because regulation, consumer trust, technology, capital requirements, payment infrastructure and large customer networks can make entry difficult.

Abuse of Dominance under the Competition Act

Sections 78 and 79 of the Competition Act form the central legal framework.

Dominance itself is lawful. A bank or fintech firm may become dominant because it has better technology, lower costs, better services, greater efficiency or stronger consumer confidence. Competition law becomes relevant where dominance is combined with problematic conduct.

Following the legislative amendments, the Tribunal can intervene where a dominant firm engages in a practice of anti-competitive acts or where its conduct substantially prevents or lessens competition. More extensive remedies are available where dominance, anti-competitive intent and substantial anti-competitive effects are all established.

An anti-competitive act can include conduct intended to have a predatory, exclusionary or disciplinary effect on a competitor, or conduct intended to adversely affect competition.

Financial-Sector Conduct That May Raise Competition Concerns

1. Exclusive Arrangements

A dominant financial institution might enter long-term exclusive agreements with merchants, brokers, payment processors or other intermediaries.

For example, competition concerns could arise where a dominant payment provider prevents merchants from using rival payment systems.

Exclusivity is not automatically unlawful. Its duration, market coverage, business justification and competitive consequences must be examined.

2. Tying and Bundling

Financial institutions frequently offer packages containing accounts, loans, cards, insurance or payment services.

Bundling can reduce costs and benefit customers. However, concerns may arise where a dominant provider effectively requires customers to acquire another service as a condition of obtaining a necessary financial product.

The legal question is whether the practice restricts rivals or materially reduces competition.

3. Refusal to Provide Access

Access to financial infrastructure may determine whether competitors can operate effectively.

Competition issues could potentially arise from refusal to provide access to:

payment-processing systems;

settlement infrastructure;

transaction data;

distribution channels;

essential technological interfaces; or

other important inputs.

Canadian competition law does not impose a general obligation on businesses to assist competitors. Intervention requires the statutory requirements to be satisfied.

4. Predatory Conduct

Predatory conduct normally involves deliberately accepting short-term losses or adopting economically irrational strategies in order to eliminate competitors and later exploit increased market power.

In financial markets this might theoretically involve pricing selected services below sustainable levels specifically to eliminate a smaller competitor.

Low prices themselves normally benefit consumers and are not automatically anti-competitive.

5. Discriminatory Treatment

Selective responses by dominant firms can attract scrutiny where they make it more difficult for competitors to enter or expand.

The Competition Act expressly recognizes certain selective or discriminatory responses directed against market entry, expansion or elimination of competitors as potentially relevant anti-competitive conduct.

6. Control over Data and Digital Platforms

Digital finance has made access to data increasingly important.

Fintech companies may require transaction information, authentication systems or digital infrastructure controlled by established institutions. A dominant institution's strategic restrictions on interoperability or data access can therefore potentially create competition issues.

However, financial security, cybersecurity, fraud prevention and privacy requirements may constitute legitimate explanations for restrictions.

Market Definition in Financial Services

Market definition assists authorities in determining whether market power exists.

Financial markets may be divided according to individual services, for example:

retail banking;

commercial lending;

mortgages;

credit cards;

payment processing;

securities services;

insurance;

wealth management;

digital wallets; and

fintech payment services.

Geographic markets may be national, provincial, regional or sometimes broader.

The Competition Tribunal has nevertheless recognized that an exact market definition is not always necessary where dominance is apparent under all reasonable market definitions.

Important Case Laws

1. Canada (Director of Investigation and Research) v. NutraSweet Co. (1990)

NutraSweet is one of Canada's foundational abuse-of-dominance decisions.

The company held very substantial market power in the artificial sweetener market and used contractual arrangements containing exclusivity and other restrictions.

The Competition Tribunal examined whether these arrangements prevented competing suppliers from obtaining effective access to customers.

The Tribunal found that several contractual practices were exclusionary and ordered changes.

Principle: Exclusive contractual arrangements imposed by a dominant firm may constitute abuse where they significantly restrict rivals' ability to compete.

For financial services, the principle can apply to exclusive distribution, payment-processing, merchant or intermediary agreements.

2. Canada (Director of Investigation and Research) v. Laidlaw Waste Systems Ltd. (1992)

Laidlaw possessed significant market power in commercial waste collection and used long-term contracts containing restrictive renewal and termination provisions.

The Competition Tribunal concluded that contractual arrangements could reinforce market power by making customer switching difficult.

Principle: Dominance may be maintained through contractual restrictions that increase switching costs and restrict customer mobility.

This principle is highly relevant to financial markets where account portability, contractual lock-ins, termination charges or technological restrictions may inhibit switching.

3. Canada (Commissioner of Competition) v. Canada Pipe Company Ltd. (2006 FCA 233)

This is one of Canada's leading appellate decisions concerning abuse of dominance.

Canada Pipe operated a loyalty program under which distributors received substantial rebates for purchasing exclusively from the company.

The Federal Court of Appeal clarified the analysis of an anti-competitive act.

The Court emphasized examining the purpose of the conduct and whether its intended negative effect was predatory, exclusionary or disciplinary.

It also explained that legitimate business justifications can be relevant.

Principle: Courts examine the actual economic purpose and competitive effect of dominant-firm conduct rather than merely its formal structure.

This is important for loyalty rebates, preferred-customer programs and financial-service incentives.

4. Canada (Commissioner of Competition) v. Canada Pipe Company Ltd. (2006 FCA 236)

A related Federal Court of Appeal judgment addressed the substantial prevention or lessening of competition requirement.

The analysis focuses on the competitive state that would probably have existed but for the challenged conduct.

The court therefore requires comparison between actual competition and the likely competitive environment without the conduct.

Principle: Competitive harm must be evaluated using a counterfactual analysis rather than merely showing that individual competitors suffered harm.

This distinction is critical in banking. Damage to a particular fintech competitor does not necessarily establish harm to competition generally.

5. Commissioner of Competition v. Toronto Real Estate Board

The Toronto Real Estate Board, or TREB, litigation became another major Canadian authority on dominance.

TREB controlled important real-estate listing information and imposed restrictions concerning how member brokers could provide certain information through online platforms.

The proceedings demonstrated that market power may arise from control over strategically important information even where the organization itself does not operate exactly like a conventional seller.

The Tribunal and appellate proceedings recognized the importance of the power to exclude when assessing market power.

Principle: Control over essential information, platforms or infrastructure may confer market power capable of being abused.

The principle has obvious relevance to digital banking, open-banking systems, payment networks and financial data platforms.

6. Commissioner of Competition v. Direct Energy Marketing Limited (2015)

The Commissioner challenged conduct involving water-heater businesses, including practices connected with preventing or delaying customer switching.

The proceeding illustrates how competition law can examine conduct that creates barriers for customers attempting to move from an incumbent supplier to competitors.

Principle: Artificial switching barriers imposed by a firm with substantial market power may attract abuse-of-dominance scrutiny.

A similar analysis could apply to financial accounts, payment services or digital platforms if dominant firms make customer switching unnecessarily difficult.

7. Commissioner of Competition v. Air Canada (2003)

The Air Canada proceeding involved alleged predatory conduct following the entry of lower-cost competitors.

The Tribunal considered the difficult distinction between vigorous competition and pricing behaviour designed to exclude competitors.

Principle: Aggressive pricing by a dominant company is not automatically unlawful. Economic evidence concerning costs, purpose, market structure and competitive consequences is necessary.

This principle could apply where a dominant financial institution offers unusually low transaction charges, lending rates or payment-processing fees following fintech entry.

Financial Regulation and Competition Law

Financial institutions operate under extensive prudential regulation. Competition analysis must therefore distinguish genuine regulatory requirements from unnecessary competitive restrictions.

Examples include requirements concerning:

capital adequacy;

liquidity;

anti-fraud controls;

consumer protection;

data protection;

cybersecurity;

payment security;

financial stability; and

licensing.

A restriction that appears exclusionary may sometimes have a legitimate regulatory justification.

For example, refusing access to payment infrastructure because a participant fails mandatory cybersecurity requirements is fundamentally different from refusing access merely to prevent competitive entry.

Joint Dominance

Section 79 can potentially apply to "one or more persons."

Consequently, abuse-of-dominance analysis is not confined to a single monopoly. Competition authorities may examine circumstances in which several firms collectively possess substantial market power.

This is relevant to concentrated banking or payment markets where a small group of institutions may account for a large proportion of activity.

However, high concentration alone does not automatically establish unlawful joint dominance. Evidence concerning competitive interaction, market power and the challenged conduct remains necessary.

Excessive and Unfair Selling Prices

Canadian reforms have expanded section 78 to expressly identify certain excessive and unfair selling prices among conduct that may be considered under the abuse-of-dominance framework.

This does not mean that every expensive banking fee or financial service charge violates competition law. Dominance and the statutory requirements concerning anti-competitive conduct and effects must still be considered.

Remedies

Where abuse of dominance is established, the Competition Tribunal can order the business to stop the offending conduct.

Depending on the statutory requirements established, remedies may include:

prohibition orders;

behavioural obligations;

measures designed to restore competition;

administrative monetary penalties; and

in appropriate circumstances, structural remedies.

The current administrative monetary penalty can reach the greater of specified statutory amounts or revenue/benefit-based calculations. The Bureau currently describes the maximum as up to $25 million for a first violation and $35 million for subsequent violations, or potentially an amount calculated by reference to the benefit obtained or worldwide gross revenues.

Private parties can also seek leave to bring certain proceedings before the Competition Tribunal, including proceedings concerning abuse of dominance.

Compliance Requirements for Financial Institutions

Financial institutions with significant market positions should carefully review:

exclusive dealing arrangements;

loyalty and rebate programs;

customer-switching restrictions;

access to payment infrastructure;

fintech interoperability arrangements;

data-access conditions;

discriminatory pricing;

bundled financial products;

refusals to supply competitors;

restrictions imposed on merchants or intermediaries.

Internal documents are also important because evidence of commercial purpose can become highly relevant when determining whether conduct was intended to exclude or discipline competitors.

Conclusion

Financial sector conduct and market dominance under Canadian competition law are primarily concerned with the misuse of substantial market power rather than market size itself. Banks, insurers, payment platforms and fintech companies are legally permitted to compete vigorously and achieve dominant positions through superior efficiency, products and innovation.

Problems arise when market power is used to exclude rivals, raise artificial entry barriers, restrict customer switching, control essential infrastructure or data, impose exclusionary contractual arrangements, or otherwise materially weaken the competitive process.

The leading decisions in NutraSweet, Laidlaw, Canada Pipe, Toronto Real Estate Board, Direct Energy and Air Canada establish several fundamental principles: dominance is essentially substantial market power; exclusionary contractual arrangements can constitute abuse; business justification matters; the competitive process rather than individual competitors is protected; control of critical data or infrastructure can create market power; and actual competitive effects must be examined carefully.