Bill S-5 (Historical)

Financial System Review Act

An Act to amend the law governing financial institutions and to provide for related and consequential matters

This enactment amends a number of Acts governing financial institutions. It also amends legislation related to the regulation of financial institutions. Notable among the amendments are the following:
(a) amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act and the Trust and Loan Companies Act aimed at reinforcing stability and fine-tuning the consumer-protection framework; and
(b) technical amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, the Trust and Loan Companies Act, the Bank of Canada Act, the Canada Deposit Insurance Corporation Act, the Canadian Payments Act, the Winding-up and Restructuring Act, the Office of the Superintendent of Financial Institutions Act, the Payment Clearing and Settlement Act and the Financial Consumer Agency of Canada Act.

Financial System Review Act

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Mr. Speaker, that is the question we have been raising with the government. It raised it from $5 billion to $12 billion in the space of a few years without due regard for the consequences, without any examination of what exactly all of this entails and what it means for our financial institutions. I would put the ball right back in the government's court. At this point, it has not adequately explained why it is raising it from $8 billion to $12 billion. It says that the banks have grown.

The reality is we all recall that the government wanted to cut our bank regulations a few years ago, in 2008, at a time when everything was rosy and the government did not believe we were going into a recession. We remember that. We were in this House raising these concerns and the government was pushing ahead and speculating about bank deregulation. We thought it was irresponsible at the time and held the government to it. Time has proven the NDP right on that account.

Now we are asking the Conservatives to prove themselves and explain why they are raising the threshold. Let us have a debate on that issue. That is all we are asking for.

[Jean Rousseau, NDP, Compton—Stanstead, QC]

Mr. Speaker, I would like to congratulate my colleague from Burnaby—New Westminster. He knows a great deal about finance, unlike many of us. That is why I would like to ask his opinion.

How should we interpret the fact that the government wants to change extremely complex rules, laws and legal provisions? The government is changing five or six laws governing financial institutions and banks, laws that are 300 to 400 pages long. And the government says that we cannot even debate these changes. I would also like to know why the minister will now have the power to authorize things that were previously within the purview of objective organizations. Now it will be subjective. These things will be subjectively interpreted however the Minister of Finance wants to interpret them.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Mr. Speaker, I thank my hon. colleague for his question, because it is particularly relevant. We have already witnessed this government's decisions many times and in many different areas: we have seen fake lakes and we have seen departments being mismanaged. Now things are changing: the decision-making power that once belonged largely to independent agencies is going directly to the minister's office.

Even in the best-case scenario, is it a good idea to ask the government to decide certain questions that should go to an independent agency? Considering the government's actions in recent months, since the Conservatives won a majority on May 2, it has become clear that we cannot trust this government to make decisions in the interest of Canadians.

In these 105 pages, the minister is given veto powers several times, and that worries us. I am very pleased that the hon. member for Compton—Stanstead asked me this question. This is a very important point that demonstrates why we need more debate in this House.

[James Lunney, Conservative, Nanaimo—Alberni, BC]

Mr. Speaker, I would first like to advise you that I will be sharing my time with the hon. member for Palliser. I am pleased to enter the debate today and speak to Bill S-5, the financial system review act.

Today's act is important to Canadians because it would ensure the continued strength and stability of our financial system. That is a system that we all depend on every day, whether we are making a deposit at our bank, making at a purchase a store with a credit card or using a mortgage to buy a family home. Specifically today's act, while largely technical in nature, would reinforce stability in the financial sector. It would fine-tune the consumer protection framework and adjust the regulatory framework to adapt to new developments.

Bill S-5 would provide for a well-regulated framework that would allow Canadians to rest assured that our country's financial system will remain the safest and most secure in the world. Indeed, as many Canadians may know, for the fourth year in a row, Canada was recently ranked as having the soundest banks in the world, by the World Economic Forum.

Most Canadians are aware of this, and are justifiably proud. They are pleased that Canada did not go through the kinds of crises that many other developed democracies in the western G7 countries did, many of which had to nationalize banks and make huge taxpayer investments. Many consumers in other nations went through financial chaos because of a collapse in the financial system.

We are very fortunate to have the sound regulatory regime we have here in Canada. Before continuing, I would like to provide a bit of background on today's act and how it came before us today in the House.

In Canada our financial sector legislation is subject to a full review on a five year cycle. It covers all federally regulated financial institutions, including domestic and foreign banks, trust and loan companies, insurance companies and cooperative credit associations. This five year review practice sets Canada apart from almost every other nation in the world. It ensures that the laws and regulations by which our financial systems are governed remain at the forefront of the global financial system.

We are especially fortunate in Canada to have a well-regulated financial system, something that has been widely observed in recent years. The world itself has recognized Canada as a leader, as our banking system has been ranked the soundest in the world.

As the American magazine Newsweek wrote recently:

Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada.

Similarly, the Brookings Institution, a well-known American think tank, recently declared:

....the Canadian banking system has long been regarded by the IMF as a paragon of international best practices. The World Economic Forum recently ranked it the soundest in the world. And it looks better with every passing day....the overall system has remained solvent and solid amid the current global crisis.

I think this is something most Canadians are justifiably proud of, or at least pleased with. Even though we have gone through our challenges in Canada, we have not faced the crises that other nations have.

Even the president of the World Bank has noted that our strength is a model for the world, saying:

Canada's experience offers lessons to others, especially its strong financial and regulatory environment that is helping it manage the shocks of the downturn, particularly in the banking sector.

As the past few years have shown, international praise for our system is well founded. While Canada's financial system was not immune to the impacts of the global financial crisis, Canada's banks stood firm, bolstered by sound risk management and supported by an effective regulatory and supervisory framework.

In fact, Canada was the only country in the G7 that did not step in to bail out its major banks in the aftermath of the 2008 financial crisis. This Canadian resilience matters.

A strong financial sector plays a fundamental role in supporting a strong economy, and not just in times of crisis. As members know, and I think Canadians understand, the focus of our government is jobs and the economy. It is protecting Canada's prosperity and future employment environment that will maintain the tax base that we depend on and provide the services that Canadians look to us for.

Workers, retirees and pensioners count on a strong financial sector for the security and the growth of their deposits and investments and to maintain the standard of living that they worked so hard to build. Financial consumers rely upon it for competitive financial products to keep their mortgages or other household financing affordable. Business, large and small, also depend upon it for access to competitive financing to help them to invest and to grow.

The financial crisis highlighted the importance of evaluating the overall size of financial institutions, the intricacy of global linkages, and the impact those factors have on stability and the best interests of our financial system. The crisis also led to extensive changes in the regulatory framework, ensuring that Canada's financial sector remains the soundest in the world.

The financial system review act will build on these reforms and fine-tune the efficiency and effectiveness of the framework. It will improve the ability of regulators to share information efficiently with their international counterparts. This will help fulfill our G20 commitments at a time when financial institutions increasingly operate on a global scale. It would ensure effective supervision and regulation across borders.

Today's act also proposes to better protect consumers, chiefly by enhancing the supervisory powers of the Financial Consumer Agency of Canada, FCAC. The agency is mandated to ensure that federally regulated financial institutions adhere to the consumer provisions of the legislation governing financial institutions and their public commitments. It is also the government's lead agency on financial education and literacy. It has advanced an array of excellent initiatives in recent years.

I think, in terms of financial literacy, Canadians are starting to pay attention to something they more or less took for granted for many years. I think we have all had a wake-up call as to how important it is that our institutions are on a solid basis and that they are managed in a very secure way.

It has developed innovative tools to help Canadians, such as a mortgage calculator that quickly determines mortgage payments and the potential savings resulting from early payments.

I know that our government is concerned about the consumer debt in Canada, as well as in the U.S. We are advising Canadians to get a handle on debt and live within their means. Sound financial management is as important for our families as it is for our institutions. The innovative tools developed by the Financial Consumer Agency of Canada, such as a mortgage calculator, help Canadians accomplish those objectives.

The FCAC has also created innovative online information to help consumers shop for the most suitable credit card and banking package for their needs. There is a competitive marketplace out there. We hear a lot of talk from our colleagues opposite about the government telling the banks what fees to charge for services. However, there is competition between the institutions. This is a tool developed to help Canadians determine where they would get the services that fit their own needs best.

The financial system review act proposes to improve consumer protection by increasing the maximum fine that could be levied by the FCAC for violations of a consumer provision of the act. It would increase the maximum penalty to $500,000, from $200,000.

Finally, the financial system review act would build on the government's ongoing actions to cut red tape by reducing the administrative burden on financial institutions and adding regulatory flexibility. This would include scrapping duplicative disclosure requirements.

These measures will support a well-functioning financial system, meeting the needs of Canadians and supporting our future economic prosperity.

Today's legislation is extremely important because it concerns one of the key foundations of the global economy. Canadian's financial sector plays a pivotal role in fostering financial stability, safeguarding the savings of Canadians and fuelling the economic growth that is essential to our standard of living.

Mr. Speaker, I appreciate the opportunity to speak to this important piece of legislation. I hope all members will support it.

[Sylvain Chicoine, NDP, Châteauguay—Saint-Constant, QC]

Mr. Speaker, I listened very carefully to the speech given by the hon. member across the floor, and I congratulate him on at least having recognized the importance of providing a good legislative and regulatory framework for banks. It is precisely because our banks are so well regulated that, here in Canada, we fared better than most countries when the global banking crisis occurred.

So, yes, it is important to properly legislate and regulate our banks, but a lot more products have become available in recent years, some of them somewhat toxic, poorly defined and poorly regulated, such as commercial paper.

Is the member not worried about the lack of regulation regarding commercial paper and that kind of products, which have increased in number recently?

[James Lunney, Conservative, Nanaimo—Alberni, BC]

Mr. Speaker, I must have missed something in that member's question. I am not sure how it relates to the banking bill that we are discussing today, Bill S-5. We know that this particular piece of legislation covers a whole range of issues that are important to our financial regulation. It would respond to changes to the financial sector and a rapidly changing global market, it would ensure access to banking, it would level the playing field and promote co-operation, it would enhance the supervisory powers of the Financial Consumer Agency of Canada and it would improve efficiency.

So I am not sure where the member opposite was coming from with that particular question.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Speaker, as a former banker, I can certainly agree with the hon. member that our banks are in good shape, although I may take a bit of exception to his somewhat triumphalist tone.

However, my main point is to suggest that to the extent our banks are in good shape it has everything to do with previous Liberal governments and nothing at all to do with the Conservative Party. For one thing, it was the Liberal government that resisted the trend to bank deregulation which was evident in the U.S. and the U.K. It was the Liberal government that said no to bank merges which the Conservatives favoured. And it was the Conservatives who introduced zero down payment, 40 year mortgages in 2006.

Would the member agree that while our banks are in good shape, it really has nothing to do with his party, which has been more a cause of the problem than a solution?

[James Lunney, Conservative, Nanaimo—Alberni, BC]

Mr. Speaker, the member for Markham—Unionville also has a selective memory. We do appreciate things that were done properly in banking regulation. What Canadians have not forgotten is the whole range of things that the government did not do well that got us into a lot of problems.

For example, when we went through a financial crisis under the previous administration, it managed to balance the books and was credited for doing so. However, it did so by cutting transfers to the provinces for health care and education. The Liberals promised to get rid of the GST, an unpopular tax, and somehow they forgot about that. Those are things that Canadians have not forgotten about.

[Pierre Poilievre, Conservative, Parliamentary Secretary to the Minister of Transport]

Mr. Speaker, despite the opposition commentary today, the U.S. financial and mortgage crisis was caused by massive government intervention in the mortgage and banking business. According to a 2010 World Bank report on the U.S. financial crisis, Freddie Mac and Fannie Mae, both government-sponsored enterprises, bought an estimated 47% of the toxic mortgages that ultimately led to the collapse between 1980 and 2007, and backed debt that went from $200 million to $4 trillion. If I could quote that World Bank report, it states:

In the mid-1990s, the government changed the way the Community Reinvestment Act was enforced and effectively compelled banks to initiate risky mortgages.

So it is important for us to remember when we are debating banking regulation that it was massive government intervention that led to the problems that occurred in the U.S. system.

[James Lunney, Conservative, Nanaimo—Alberni, BC]

Mr. Speaker, I thank the parliamentary secretary for that important reminder. Of course, he has been a point man in addressing many of these concerns. He rightly points out the excesses that happened in the United States, of government intervention, that contributed to the failure of institutions that people relied on and made unstable commitments to mortgages that were not sustainable and were not backed by real assets.

The changes that are being introduced in Bill S-5 are ones that would improve our system. They would make a very good system better.

[Ray Boughen, Conservative, Palliser, SK]

Mr. Speaker, I am pleased to have the chance to address the House in support of Bill S-5, the financial system review act. For the information of Canadians and members of the House, the financial system review act is a mandatory and routine piece of legislation.

To ensure the stability of the financial sector in Canada, the statutes that govern federally regulated financial institutions must be reviewed every five years, a long-standing practice that has carried over from previous governments. As I mentioned previously, it deals with federally regulated financial institutions and, for clarity, those include domestic and foreign banks, trust and loan companies, insurance companies and co-operative credit associations.

The last similar legislative review was completed through Bill C-37 in the 39th Parliament. Prior to that, a similar review was completed in 2001 through Bill C-8 in the 37th Parliament. As with the previous five year reviews, there is a timeline for the process to be completed, as the sunset date for the financial institutions statutes is April 20, 2012. The present five year review, which has led to today's bill, commenced in September 2010 when the finance minister launched an open and public consultation process that asked all Canadians to submit their thoughts and ideas on how we could best improve Canada's financial system to make it even more stable and secure.

During the consultation process, I understand that many Canadians provided their feedback and much of that is seen in today's bill. Moreover, the public consultation process itself has been praised. For example, the Canadian Life and Health Insurance Association told the Senate banking, trade and commerce committee during its study of the bill, “The consultation process was very positive and reflected the technical nature of this review”.

The financial system review act, while largely technical, would take important steps to help guarantee that Canada's fiscal system is securely regulated and remains strong and stable for the sake of our economy. Among the bill's highlights are measures to: First, bring up to date financial institutions' legislation to support financial stability and ensure that Canada's financial institutions continue to operate in a competitive, well-regulated and secure environment; second, better protected consumers with an improved protection framework, including reinforcing the powers of the Financial Consumer Agency of Canada; and third, improve effectiveness by reducing unnecessary administrative red tape on financial institutions and adding prudently regulated flexibility.

Again, today's bill is tremendously important in supporting the continued strength of our economy, the main priority of our Conservative government and an area where we are getting results. Indeed, while there are challenges ahead, Canada's performance during the recent global downturn has been strong when compared to other industrialized countries. First and foremost, since our government introduced the economic action plan to respond to the global recession, Canada has recovered more than all of the output and all of the jobs lost during the recession. Some 610,000 more Canadians are working today than when the recession ended, resulting in the strongest rate of employment growth by far among all G7 countries.

Furthermore, about 9 out of 10 positions that have been created since July 2009 have been full time and more than three-quarters of the jobs created over this period have been in the private sector. Fortunately, Canada has fared far better than the U.S. in this regard. Indeed, Canada's unemployment rate has been lower than that of the U.S. since October 2008, a phenomenon not seen in nearly three decades.

On top of Canada's solid performance on jobs, the real gross domestic product is now significantly above pre-recession levels, the best performance among the G7 nations. It is clear that Canada has weathered the economic storm relatively well. It is also clear that this resilient performance in a climate of global uncertainty has not gone unnoticed.

Both the International Monetary Fund and the Organisation for Economic Co-operation and Development forecast that we will be among the strongest economic growth in the G7 over this year and next. Forbes magazine has ranked Canada number one in its annual review of the best countries in which to do business. Three credit agencies, Moody's, Fitch, and Standard & Poor's, have reaffirmed their top ranking for Canada. Most significant, for the fourth year in a row, the World Economic Forum rated Canada's banking system as the soundest in the world. That is something we would reinforce with today's bill.

Clearly, this is a solid performance in volatile times and it will serve this country well. Indeed, in the recent words of Scotia Bank's chief economist, Warren Jestin, “When you look at what exists in Canada, this is still the best country in the world to be in.

To truly understand the strength behind this performance, we need to consider the hard work that took place through the actions that our Conservative government took to pay down debt, lower taxes, reduce red tape, promote free trade and innovation and ensure a stable financial system.

To start with, our government paid down significant amounts of debt when times were good and kept our debt to GDP ratio well below our G7 counterparts. As a result, when trouble hit, we had the ability to respond.

The International Monetary Fund projects that Canada's net debt to GDP ratio for the last year will come in at just under 35%. A net debt to GDP ratio of under 35% is excellent considering that these rates for other G7 nations are much higher. In contrast, Germany is projected to be over 57%, the United States and the United Kingdom at over 72%, France at 81%, Italy at 100% and Japan just over 130%.

Along with this strong fiscal performance, we introduced the tax relief required to create jobs and growth in all economic conditions. In 2007, prior to the impact of the financial crisis, Canada passed a bold low tax plan that helped to brand Canada as a low tax destination for business investment. This low tax plan, along with our sound and safe financial system, plays and will continue to play a crucial role in supporting economic growth and jobs.

Our Conservative government is under no illusions that our work is finished. Major challenges remain both here and around the world. As we know, the global economic outlook remains highly uncertain and the situation in Europe is still very fragile. The changes facing our global economy are far from over and Canada will not be immune.

Despite solid job creation since July 2009, too many Canadians remain unemployed. That is why our Conservative government's main focus will be the continued implementation of the next phase of Canada's economic action plan to support jobs and growth as we prepare for budget 2012. That includes today's bill, which would help to ensure the continued strength and security of our financial systems.

Once more, we will continue to focus on improving the well-being of Canadians by sustaining the economic recovery, eliminating the deficit and making investments that will fuel long-time growth. I strongly urge all members to support and vote in favour of this important legislation and help it progress in a timely manner to passage.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Mr. Speaker, with all due respect for my distinguished Conservative colleagues who just spoke, if I were to compare their economic reasoning I would say they are like a herd of cows watching a train go by. They are about as intelligent as that. I would not go so far as to say that they are ready to be put out to pasture, but pretty close.

How can they compare themselves to the most mediocre of the G9, the G7, to countries that have gone completely bankrupt through ultraliberalism? They should not be comparing themselves to the lesser countries, but to the best countries. Let them compare themselves to Norway, Sweden or even Germany, but not to the most mediocre countries that followed exactly the same policy they are following.

I will wrap up quickly. How can they say that their hero, George W. Bush, was anything short of a moron?

[Ray Boughen, Conservative, Palliser, SK]

Mr. Speaker, I am not sure I heard what the hon. member had to say. He was kind of going in two directions from the middle and then ended up sinking.

We are not comparing ourselves to the lowest. We are comparing ourselves to the whole spectrum. We are saying that we are number one on that spectrum, ahead of all other countries. Unless we have data and numbers to validate that, as we had in the speech, then we cannot say that.

We are saying it like it is. You may not like it but it is what it is.

[The Acting Speaker, Conservative, Bruce Stanton]

I would just remind hon. members to direct their comments and questions through the Chair.

Questions and comments, the hon. member for Brossard--La Prairie.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Mr. Speaker, my colleague spoke about the fact that there was some issue with what happened in the U.S. with the banking sector. Some argue that some Canadian banks were bailed out in Canada. Obviously, it was not done directly. It was not a failure. However, the federal government, through the Canada Mortgage and Housing Corporation, offered to trade the banks up to $125 billion in mortgage debt for safety in T-bills during the height of the financial crisis.

What is my colleague's position regarding that?