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.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you.

It's just because that with Bill S-5, as we're making these determinations, it's so valuable for us to get your feedback about some of the things that are being changed. I'm going to ask you if there's anything within Bill S-5 that is particularly bothersome, but after I address what Mr. Melville just said.

As you know, our government is planning to shortly release what was promised in budget 2010, which is that any and all dispute resolution bodies will have to be approved by government and that they will comply with uniform regulatory standards and be monitored by FCAC. My question to you would be, does OBSI doubt that other dispute resolution bodies are capable of meeting those same standards as your organization?

[Scott Brison, Liberal, Kings—Hants, NS]

Bill S-5 deals with bank regulation and the regulatory framework under which Canadian banks operate. As such—

[Shelly Glover, Conservative, Saint Boniface, MB]

The reason I'm asking this question is that you've obviously come here for this specific reason, which you've admitted is really not about Bill S-5.

We're here to talk about Bill S-5, and it seems that Mr. Sommers, Mr. Phillips, Mr. Melville, and Monsieur Vinet all want to talk about something else, which is unfortunate, because it's a very important bill, which has some significant—

[Shelly Glover, Conservative, Saint Boniface, MB]

I didn't hear anything that was really relevant to Bill S-5 in what you had to say, so it begged the question, unfortunately—you know, why are you here?

[Shelly Glover, Conservative, Saint Boniface, MB]

Have you read Bill S-5?

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

Thank you, Mr. Chairman.

I will share my time with Mr. Thibeault. I have the following question for all four witnesses.

Did you know that a review of the Financial Services Act had been planned? Were you able to make recommendations last fall, when the review was announced, at least on a website?

Mr. Phillips clearly explained what, in his view, should be added or changed with regard to Bill S-5, but I would like to ask the three other panellists to tell us what they see as being the shortcomings of the bill.

[David Phillips, President and Chief Executive Officer, Credit Union Central of Canada]

Mr. Chair, members of Parliament, thank you for inviting us to share with you some comments on Bill S-5, the Financial System Review Act.

My name is David Phillips, and I'm president and CEO of Credit Union Central of Canada, also known as Canadian Central. Canadian Central is the national trade association for its member organizations, and through them, 368 Canadian credit unions. Credit unions are full-service cooperative financial institutions that are owned by their member customers.

Canada's credit unions operate a branch network with more than 1,700 locations. These branches serve more than five million members and employ almost 26,000 people across Canada. Almost one-quarter of credit union locations serve small communities where they are the only financial services supplier in terms of bricks-and-mortar presence in that community.

Credit unions in Canada are provincially regulated financial institutions. However, Canadian Central is incorporated as an association under the Cooperative Credit Associations Act. As such, Canadian Central is itself a federal financial institution with a corporate charter that is extended by this legislation. Further, all of our provincial central members have opted to be regulated under the Cooperative Credit Associations Act.

In 2010 the credit union system welcomed provisions in the Jobs and Economic Growth Act that made amendments to the Bank Act to allow for the establishment of federal credit unions. We are currently providing input to the Department of Finance in connection with regulations that would allow credit unions the opportunity to operate a federal charter under the Bank Act.

From the perspective of credit union centrals and potential federal credit unions, we have an interest in Bill S-5. There are three matters we wish to address in connection with the bill.

First, we want to indicate our support for the proposed amendments to the Canadian Payments Act that will allow a federal credit union to participate in the governance of the Canadian Payments Association as part of a cooperatives class of CPA member financial institutions.

The amendments will allow federal credit unions to vote for CPA directors who represent cooperative financial institutions. Without this amendment, federal credit unions would not have a real voice in the governance of the Canadian Payments Association, because they would be nominally represented by directors who are elected from the commercial banks.

Placing the federal credit union in the cooperatives class will preserve and strengthen the credit union system's representation at the Canadian Payments Association. It ensures that a federal credit union will be represented by a director who can bring the perspective of cooperative financial institutions to CPA matters.

Secondly, we wish to indicate our support for the proposed amendment to paragraph 376(1)(g) of the Cooperative Credit Associations Act. This amendment increases the powers of associations incorporated under the act to market and to sell their technology services. It will allow a credit union central to provide payment technology services to any member of the Canadian Payments Association, thereby introducing more competition into this market.

Finally, we are not so pleased about the proposed amendments to sections 425 and 428 of the Bank Act in Bill S-5. These proposed Bank Act amendments have the effect of reversing two recent Supreme Court of Canada decisions in which the court determined that an unperfected personal property security interest held by a credit union had priority over a subsequent Bank Act security interest held by the bank.

While we understand the federal government's wish to clarify the situation resulting from the court's decision, we seriously question why a special security mechanism that is only available to the banks should continue to be retained in the Bank Act.

[The Chair, Conservative, James Rajotte]

I call this meeting to order. This is the 48th meeting of the Standing Committee on Finance. I want to apologize to all our witnesses, both here in Ottawa and in Montreal. We were detained in the House of Commons by a vote. I very much appreciate your patience in staying here with us.

We have the orders of the day, today, pursuant to the order of reference of Tuesday, February 14, Bill S-5, An Act to amend the law governing financial institutions and to provide for related and consequential matters.

We have four witnesses here to present on the bill. First, we have the Canadian Community Reinvestment Coalition. Second, we have the Credit Union Central of Canada. Third, we have the Ombudsman for Banking Services and Investments.

Lastly, from Montreal, we welcome Option consommateurs.

You will each have up to five minutes for an opening statement, and then we will have questions from members.

We'll begin with Mr. Sommers, please, with your opening presentation.

[Shelly Glover, Conservative, Saint Boniface, MB]

I would like to ask you a brief question about the OSFI.

I see that Bill S-5 contains a change. Your organization is often invited to testify in civil trials. How will Bill S-5 help you, since you will be compelled to testify in such cases? Why would that be important for your organization?

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

Thank you.

My next question pertains to demutualization, which is threatening some cooperatives, in that the accumulated assets of past investors and participants may be shared amongst the current members. As far as this matter is concerned, the amendments proposed by Bill S-5 do not necessarily afford all the protection that was desired.

Would you please provide me with your comments, please?

[Randy Hoback, Conservative, Prince Albert, SK]

Well, Chair, I'll take that ten seconds if he wants to give it up.

Ladies and gentlemen, it's great to have you here this afternoon, and it's great to listen to you. As we look at Bill S-5, it's a technical bill by nature, so it's something that I don't think the government could move forward on or see progress on without your cooperation and involvement.

I know that Mr. Julian's first question to the minister was on the process, so perhaps I'll cross all the bases and ask you, first, were you consulted? What was that system like? What was the process like?

Mr. Campbell, I'll start with you and then go across the group. How did you find the process we used to consult with you to get the changes you're asking for?

[Ursula Menke, Commissioner, Financial Consumer Agency of Canada]

Good afternoon. Thank you very much for inviting me here.

My opening remarks will be short and will focus on the impact of Bill S-5 on FCAC.

FCAC welcomes the changes the government is proposing to make to the Financial Consumer Agency of Canada Act. The changes are largely technical amendments or clarifications to existing provisions.

Among the changes which would have an impact on our activities are the cashing of cheques. The proposed change would allow us to streamline the service we offer consumers with respect to cashing government cheques, whether or not they are clients of a bank. This would confirm that Canadians, including a banks' clients, could cash government cheques of under $1,500 without paying fees, in any bank in Canada.

Among the changes that will be impacting our agency's activities, there is also increasing the maximum penalty for a violation of a consumer provision. The amendment will increase to $500,000 the FCAC's maximum administrative monetary penalty, bringing it in line with other federal regulators such as the Office of the Superintendent of Financial Institutions and the Financial Transactions Reports Analysis Centre of Canada. The bill also provides that the commissioner, officers, and employees acting under their direction are not compellable witnesses in any civil proceedings on matters relating to their duties or functions.

The other amendments included in the bill are minor technical elements. They will have no significant impact on the work we do.

This ends my brief comments, and I look forward to any questions you may have for me.

[Frank Swedlove, President, Canadian Life and Health Insurance Association Inc.]

Thank you, Mr. Chairman.

I'm Frank Swedlove, the president of the Canadian Life and Health Insurance Association. I have with me today Frank Zinatelli, who is the CLHIA's general counsel.

The Canadian Life and Health Insurance Association accounts for 99% of the life and health insurance in force in Canada.

The Canadian life and health insurance industry provides products such as individual and group life insurance, disability insurance, supplementary health insurance, and individual and group annuities including RRSPs, RRIFs, TFSAs, and pension plans.

Overall, the industry protects more than 26 million Canadians and over 45 million people internationally.

Mr. Chairman, we welcome the opportunity to appear before the committee today as you review this important bill. The industry is very supportive of the bill and urges that it be passed in a timely manner.

Following up on the Minister of Finance's September 2010 request for input on the scheduled review of legislation governing federally regulated financial institutions, for us—and I've already been quoted on this by the minister today—Bill S-5 represents a welcome fine-tuning of the various financial institutions' statutes. The bill contains provisions to promote financial stability, to fine-tune a consumer protection framework, to reduce administrative burden, and add regulatory flexibility.

With respect to the first of these objectives, we are pleased to see the amendment to the Winding-up and Restructuring Act, which changes the priority status of segregated fund policies in insolvency situations and will facilitate timely transfers of policies.

As for consumer protection, the bill improves the Financial Consumer Agency of Canada Act and gives the government increased regulatory powers in this area.

As for the third objective, which is improving the efficiency of the legislative and regulatory framework, the life and health insurance industry particularly supports certain technical but useful proposals.

For example, amendments would be made to the Insurance Companies Act as follows: to reduce administrative burden from fairly regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements; to allow a segregated fund to invest in an insurance company through a mutual fund that the insurance company controls, provided the shares of the company are part of a recognized market index; to provide federal financial institutions with enhanced flexibility to issue shares to foreign institutions owned by foreign governments; and future adjustments on the limits on transfers to shareholders from participating policy accounts will be facilitated by adding regulatory flexibility.

In conclusion, Mr. Chairman, the industry strongly supports the provisions of Bill S-5 that are relevant to the life and health insurance industry, and it is willing to assist in whatever way it can in ensuring the bill's timely passage.

Thank you very much.

[The Chair, Conservative, James Rajotte]

I call the meeting back to order.

Colleagues, we have an hour with four organizations, so it will be very tight: the Canadian Bankers Association, the Canadian Life and Health Insurance Association, the Financial Consumer Agency of Canada, and the Office of the Superintendent of Financial Institutions.

I want to welcome all of you to the committee on this topic, Bill S-5. You have up to five minutes for an opening statement. I would strongly recommend, though, that you shorten it if at all possible to allow members time to ask questions, because I know they are very interested in this bill.

We'll start with Mr. Campbell, please, from the CBA.

[Ted Menzies, Conservative, Macleod, AB]

Thank you.

I share the comments that you make. It is not only in the United States; when I was in Europe before Christmas I heard the same thing from European bankers, saying that they would like to find a way to invest in Canada. I said, “Well, come on down. We'd be happy to have you.” It's a good model that we have put forward and a model that many other countries perhaps should emulate. I certainly appreciate that the Irish are having a struggle, but we'll support our motherland.

We've done a number of things to modernize our banking system: strengthening the authorities within the Canada Deposit Insurance Corporation—that is the fundamental protection for people's investments in the banking system—and there are a number of tools within Bill S-5.

Perhaps I could defer to one of my colleagues here or one of the people who know all of the background of some of the other pieces in the bill that are important to protecting the banking system.

Mr. Rudin.