Finance Committee on April 2nd, 2009

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll go to Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

This market disruption clause is one of the more obvious things. As soon as there's a claim on the package, the insurer immediately heads to the hills and looks for market disruption, whether it's a Thai bhat or a Mexican peso or whatever, and says, “Look, we have a market disruption clause”. It just seems to be a very bizarre way of having the illusion of insurance, because even if you don't have “market disruption”, if your insurer happens to be AIG, for example, you have no insurance at all.

I'm kind of surprised that it took such a long time to realize that this market disruption clause is a bogus clause. It's a non-insurance clause. Is that a fair observation?

[Peter Bethlenfalvy]

Hindsight is a beautiful thing. That evolved with other participants, Canadian banks, regulators, who came up with that language, and it was active in the Canadian markets through the 1990s. We recognized, when we made our statement in January of 2007, that we would no longer accept market disruption to rate any new programs. We just about got thrown out of Canada by all constituents for making that statement, but that was our...you know, we make tough decisions, so we stood behind that one.

We obviously think now that needed to be a much higher standard, and that's what we've done.

[John McKay, Liberal, Scarborough—Guildwood, ON]

There are a lot of smart people buying the concept that this illusion of insurance is in fact insurance. Are there any other rating agencies operating in Canada that still accept that this is a valid clause, a meaningful clause?

[Peter Bethlenfalvy]

No, not that I'm aware of.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Everybody is now drinking the same Kool-Aid, in that respect.

[Peter Bethlenfalvy]

I'm not sure I'd choose those words, but—

[John McKay, Liberal, Scarborough—Guildwood, ON]

Yes. Well, maybe you were drinking the Kool-Aid before, is the issue.

With respect to this national regulator, presumably a national regulator would include your industry in its purview, and therefore you might in effect have duelling opinions of value.

I'm hard pressed to know how the regulator would get involved in a specific issuance of a security and how that would work, whether there would be an issuance of a security you rated and then the regulator rates your rating.

I'm assuming you support the concept of a national regulator, but I'm not quite sure how it would work in the instance of a rating agency.

[Peter Bethlenfalvy]

I think the key is not to say this should have been double-A or triple-A or single-A, and second-guess. I think the key is to just have oversight. Rating agencies have had no oversight. The first act was really in 2006, in Congress. So it's early days.

The analogy I like to look at is the credit default swap market, which became, I don't know, a $500 trillion market with no oversight. I think it's important to have oversight. Just have that fact, and make sure you're following the rules in all the policies that you've laid out and consistent with the code. That you do that is I think very critical.

[John McKay, Liberal, Scarborough—Guildwood, ON]

There are not that many rating agencies in Canada, I don't think. There are two that I can think of.

Are there more than that? I don't really know what the market is.

[Peter Bethlenfalvy]

Well, there are really four global rating agencies. We're one of four, and the other three are American. Two of them operate here in Canada.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Presumably the regulator would in effect agree on national standards, if not international standards, in order for you to be able to operate in this country. That seems to me to be a step forward and an argument for a national regulator. Is that fair?

[Peter Bethlenfalvy]

I think that's a fair statement. What we're concerned about is having asymmetric regulation. When you're up against three very powerful American rating agencies and trying to compete in markets, such as the U.S. and Europe, having a level playing field is very important, both from a regulatory point of view and a competitive point of view.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

I want to thank all the witnesses for coming today and for their presentations and responses.

I believe there is something that is going to be sent to me, as the chair, or to the clerk. I will distribute that to all committee members.

Members, we have a motion to deal with this morning as well, from Monsieur Laforest.

I want to thank the witnesses. You're free to go.

We'll suspend for a minute or two, and then we'll resume to discuss the motion.

[The Chair, Conservative, James Rajotte]

Members, I'll ask you to take your seats, please, and we will have Monsieur Laforest present his motion.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I tabled this motion and sent it to the clerk last Monday morning. I will read it.

That the Finance Committee conduct a study of the various debit and credit card transaction fees imposed by merchants as well as the standard and transactional practices that justify them and report its observations and recommendations to the House.

MPs have surely received comments from merchants and individuals regarding the lack of transparency in the plastic card transaction system, whether credit or debit cards. The committee must examine this matter, carry out an analysis of these transactions, determine the causes of increases that may seem unjustified, the reasons for differences in transaction fees imposed on merchants and, eventually, passed on to consumers.

There is a serious lack of transparency in this area. The Standing Committee on Finance must look into this, especially since this form of payment is growing. We would go so far as to say that, quite often, merchants refuse cash. Thus, this is an important matter and we must examine it.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Laforest.

I'll go to Mr. Menzies.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

I fundamentally agree with Mr. Laforest that we need to do this.

We've been talking about this before and during the meeting, and our apologies, Mr. Chair, for discussing it then.

But fundamentally, I'm concerned that this will have three committees studying the same thing. The optics of that, when Canadians are losing their jobs, I don't think are good.

I was of the understanding that the industry committee was willing to pass it back to us, but that it needed unanimous support. Now I understand they don't have unanimous support. Having said that, whether we deal with it today or not is irrelevant.

I would like to propose or suggest a friendly amendment to Mr. Laforest's motion. I'll read it into the record:

That the Finance Committee conduct a study of the credit card and debit card system in Canada consisting of at least (10) meetings to examine, but not limited to:

(a) Transaction fees imposed on merchants;

—as Mr. Laforest had referenced—

and

(b) Proposed changes to the credit card interchange fees and the debit payment system; and

report its observations and recommendations to the House.

I would put that forward—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I have a point of order.

[Ted Menzies, Conservative, Macleod, AB]

—as a friendly amendment just to expand it, because I think that when we get into it, we're going to find it's much deeper.

[The Chair, Conservative, James Rajotte]

Mr. Pacetti, on a point of order.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I think we have two different motions circulating. I think Mr. Menzies'—

[Ted Menzies, Conservative, Macleod, AB]

I'm proposing a friendly amendment now.

[The Chair, Conservative, James Rajotte]

I don't know if this would be considered an amendment. It may be another motion.