An Act to amend certain Acts in relation to financial institutions

This bill was last introduced in the 38th Parliament, 1st Session, which ended in November 2005.

Sponsor

Ralph Goodale  Liberal

Status

This bill has received Royal Assent and is now law.

Summary

This is from the published bill. The Library of Parliament often publishes better independent summaries.

This enactment amends certain Acts governing federal financial institutions. It makes changes to the corporate governance framework of banks, bank holding companies, insurance companies, insurance holding companies, trust and loan companies and cooperative credit associations to bring the Acts governing those institutions up to the standards adopted in 2001 for business corporations in the Canada Business Corporations Act that are appropriate for financial institutions and adapted to the financial institutions context, and updates certain governance standards that are unique to financial institutions.

Elsewhere

All sorts of information on this bill is available at LEGISinfo, provided by the Library of Parliament. You can also read the full text of the bill.

Bank ActGovernment Orders

November 23rd, 2005 / 5:15 p.m.
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Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

Madam Speaker, I will speak briefly to Bill C-57.

We had some reservations when this bill was first introduced, but after it went through committee and witnesses suggested avenues for improving it, especially after hearing actuaries and their concerns, we decided to support it.

We still have a few unanswered questions regarding the confidentiality of information on bank operations. However, on the whole, I think this bill is worth passing. It is an improvement on the current situation. It is an extension of Bill S-11, which was introduced last year. We will therefore support it.

As a next step, I think it would be worthwhile to look at the issue of confidentiality of the operations of banks and their boards of directors. But for now, we are supporting the bill. More improvements can be made to it later.

In a nutshell, I am announcing to the House that we will be supporting this bill.

Bank ActGovernment Orders

November 23rd, 2005 / 5:10 p.m.
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Conservative

Charlie Penson Conservative Peace River, AB

Madam Speaker, it is a pleasure to rise today to speak to Bill C-57. The Conservative Party will be supporting this bill. We believe in strong corporate governance and rules around that sector. We believe they are essential to ensuring that shareholders' rights are protected, that consumers are served properly, and that Canada's financial sector is able to be strong and vibrant.

The Conservative Party will continue to look out for the best interests of consumers and shareholders while ensuring that the regulatory environment contributes to a strong financial sector.

This bill would bring the financial sector under the same rules as other business corporations that are currently under the Canada Business Corporations Act which took effect in 2001.

However, this Liberal government should walk the talk. While it is busy bringing in Bill C-57 on corporate governance, cleaning it up and making it transparent, what do we see from the government itself? Canadians have been subjected to another year of false projection, junk accounting and misleading government spin. The Liberals continue to hide behind phoney numbers and false forecasts.

The Liberal budget of 2005 projection of $3 billion was a lowball figure, as we now know. The government would have presented a budget surplus of $6 billion if it had not been engaged in unbudgeted spending and junk accounting which served to reduce the surplus numbers close to what the budget projection then was.

Parliament's numbers, the work done by the four forecasters hired by the finance committee to check on what the projections were from the finance department and, more important, the finance minister, revealed early on that the Liberals were sitting on billions of dollars more than the budget 2005 projections that were claimed.

In April Parliament's numbers projected a surplus of $6.1 billion and most recently, in July, a surplus of $.64 billion. Now those same fiscal forecasters are continuing on and we hope to get a budget for them to continue their work.

This points out the Liberal government's questionable budgetary practices that underscore the need for a parliamentary budget office, as was presented in the new Conservative federal accountability act. Canadians deserve honest and independent forecast projections, so that Parliament can engage in a debate as to how surplus money should be allocated and in fact, whether those kinds of surpluses should be allowed to build up. In any event, maybe we need to lower tax rates, so we do not run those massive surpluses. We see sometimes that the government gets carried away just before elections and all kinds of crazy spending is coming out most recently.

We are in agreement with this. It would help several sectors. It would help The Co-operators, I know, which is a big cooperative financial institution. We have some concerns for other sectors, like the chartered accountants. We are willing to explore those further. I think it is important to get the financial sector under the same rules that other corporations are under in this country and that shareholders have the transparency they need to make investments in the sectors that are involved under this legislation.

Bank ActGovernment Orders

November 23rd, 2005 / 5:05 p.m.
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Etobicoke North Ontario

Liberal

Roy Cullen LiberalParliamentary Secretary to the Minister of Public Safety and Emergency Preparedness

Madam Speaker, I am thankful for the opportunity to speak to Bill C-57 at third reading.

In budget 2005 the government committed to introduce the proposals in this bill, which now fulfill our government's commitment to bring the governance standards for financial institutions up to the levels adopted in 2001 for other federally incorporated companies. Bill C-57 also proposes to update certain governance standards that are unique to financial institutions.

I am told by my colleague, the Parliamentary Secretary to the Minister of Finance, that the members on the House of Commons Standing Committee on Finance worked very constructively and collaboratively on this initiative. We want to thank them for doing that.

There is little doubt of the important role that financial institutions play in the lives of Canadians. They provide services above and beyond what we most often think of as banking services, services such as chequing and savings accounts, and mortgages.

Financial institutions, though, are much more than that. For example, they provide the capital necessary for new or existing businesses. They sell insurance and can administer estates, trusts and agency contracts. In addition, they play a key role in helping governments and corporations to raise capital, as well as offering individuals an opportunity to invest in stocks, bonds and other securities.

The financial services sector is more than a provider of services. It is a critical part of the infrastructure of our economy, employing over 600,000 Canadians with a yearly payroll of over $35 billion. I can say that where I come from in Toronto, the financial services sector is a hugely critical employer in the business activity in the area. Let us not forget also that the financial services sector contributes approximately $13 billion in taxes to all orders of government.

I think everyone would agree that for Canada to continue its economic success, we must think beyond our borders. The same is true of Canadian businesses such as financial institutions. Let us face it, the reality is that we are operating in a global context and in global capital markets, but in order to compete in such an increasingly competitive global marketplace, the financial services sector needs to have a modern and up to date regulatory framework.

It is in this spirit that the government has taken action in recent years to ensure that financial institutions have the up to date regulatory framework they need to compete in today's global economy. In fact, this framework is reviewed every five years. Bill C-57 builds on those initiatives. It equips financial institutions with the modern governance tools that they need to compete in a global economy.

I would like now to quickly outline the five main elements contained in this bill. First, the financial institutions statutes recognize the importance of an effective board of directors. Bill C-57 contains proposals to clarify the role of directors in carrying out their important functions, for example, by explicitly allowing for a due diligence defence and clarifying the conflict of interest rules. I am particularly proud to see that. My first private member's bill called for the defence of due diligence for directors of corporations in Canada incorporated under the Canada Business Corporations Act.

Second, shareholders have certain rights, such as the right to participate in the major decisions of a financial institution in which they have an interest. The proposed legislation enhances those rights. For example, once this bill is passed, shareholders would be permitted electronic participation in meetings using technology such as video conferencing.

Third, Bill C-57 recognizes the importance of good governance in the well-being of a financial institution. As such, the government's framework needs to be kept up to date with best practices in this area.

Fourth, the legislation proposes to strengthen a number of governance elements in the regulatory framework, including improving the flow of information to the regulator. It also harmonizes various governance standards within and across the financial institution statutes.

The fifth element relates to changes in the policy holder governance framework for insurance companies. These changes would work to increase disclosure in respect of participating in adjustable life insurance policies.

We do not have time to go into any more detail on this particular piece of legislation, but it is an important piece of legislation that would affirm the importance of our financial institutions in Canada and would give them the tools necessary to compete in this global economy.

Bank ActGovernment Orders

November 23rd, 2005 / 5:05 p.m.
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Barrie Ontario

Liberal

Aileen Carroll Liberalfor the Minister of Finance

moved that Bill C-57, An Act to amend certain Acts in relation to financial institutions, be read the third time and passed.

Business of the HouseRoutine Proceedings

November 23rd, 2005 / 4:50 p.m.
See context

Some hon. members

Agreed.

(Motion agreed to)

(Bill C-71. On the Order: Government Orders)

November 22, 2005--The Minister of Indian Affairs and Northern Development--Consideration at report stage and second reading of Bill C-71, An Act respecting the regulation of commercial and industrial undertakings on reserve lands, as reported by the Standing Committee on Aboriginal Affairs and Northern Development without amendment.

(Bill concurred in at report stage and read the second time)

(Bill C-57. On the Order: Government Orders:)

November 18, 2005--The Minister of Finance--Consideration at report stage of Bill C-57, An Act to amend certain Acts in relation to financial institutions, as reported by the Standing Committee on Finance with amendments.

(Bill concurred in at report stage)

Business of the HouseRoutine Proceedings

November 23rd, 2005 / 4:45 p.m.
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Hamilton East—Stoney Creek Ontario

Liberal

Tony Valeri LiberalLeader of the Government in the House of Commons

Mr. Speaker, there have been discussions among the parties and I think you would find unanimous consent for the following motion. I move:

That, notwithstanding any standing order or usual practice, Bill C-71 be deemed to have been concurred in at report stage and read a second time in order for consideration at third reading later this day and Bill C-57 be deemed to have been concurred in at report stage in order for consideration at third reading later this day, and that at the third reading stage of each bill, after no more than one speaker from each party has spoken for not more than five minutes, the question shall be deemed put and deemed carried on division.

Committees of the HouseRoutine Proceedings

November 18th, 2005 / 12:05 p.m.
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Scarborough—Guildwood Ontario

Liberal

John McKay LiberalParliamentary Secretary to the Minister of Finance

Mr. Speaker, I have the honour to table, in both official languages, the 18th report of the Standing Committee on Finance on Bill C-57, An Act to amend certain acts in relation to financial institutions and agreed on Thursday, November 18, 2005, to report it with amendments.

Business of the HouseOral Questions

November 17th, 2005 / 3:05 p.m.
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Hamilton East—Stoney Creek Ontario

Liberal

Tony Valeri LiberalLeader of the Government in the House of Commons

Mr. Speaker, we will continue this afternoon with the opposition motion.

On Tuesday, November 22 and Thursday, November 24, we will have allotted days. The opposition House leaders are in fact considering a special House order to expedite Bill C-53, Bill C-54, Bill C-55 and Bill C-66 through all stages with a recorded vote at third reading. I hope we can come to an agreement on that special House order and proceed in that fashion.

If we cannot agree on that special order, then tomorrow we will begin with reference before second reading of Bill C-71, the first nations commercial bill; report stage of Bill S-37, respecting the Hague convention; second reading of Bill S-36, the rough diamonds bill; and reference before second reading of Bill C-72, the bill amending the DNA legislation. We will continue with this business next week, adding the report stage of Bill C-57, the financial governance bill, and other unfinished items.

With respect to the comment about the Chamber of Commerce, it is very clear, and I said this earlier, that Bill C-66 and the ways and means motion are in fact confidence motions. Although I am not sure I should do this, I am taking at the hon. member's word the public statements that in fact those members do support Bill C-66 and the ways and means motion with respect to taxes. Given his comment, I guess I should reconsider and speak to him once again since his party has flip-flopped on a number of occasions.

With respect to prorogation, I have to say that this rumour created by the Conservative Party was merely to keep the NDP in line with its confidence motion that it will put forward in the coming weeks.

Bank ActGovernment Orders

October 6th, 2005 / 12:10 p.m.
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Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, the member has laid out the broad strokes of Bill C-57. It is an important bill. It will update our legislation with regard to financial institutions to bring into line changes that were made to the Canada Business Corporations Act.

I am pleased that all parties seem to have agreed that support will be given at second reading, so that the committee can hear the witnesses as well as to bring to the table some of the important ancillary issues, and the member raised a very important one. I was a member of the finance committee when we went through the last flurry of bank merger discussions. One of the significant debates and concerns that came from Canadians and parliamentarians was the impact on regional banking services and financial services.

I would like to ask the member, does he have any recommendations to give to the committee as it looks at this to ensure that there is a balance across the country and that it takes into account the regional differences throughout Canada?

Bank ActGovernment Orders

October 6th, 2005 / 12:05 p.m.
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Liberal

Michael John Savage Liberal Dartmouth—Cole Harbour, NS

Mr. Speaker, I appreciate the opportunity to speak to Bill C-57 which introduces a new governance framework for the financial services sector. Other colleagues have spoken quite eloquently about how important this bill is to bring governance standards for the financial institutions up to date. This proposed legislation would give financial institutions and their stakeholders the governance tools that they need to allow them to continue to play a key and leading role in Canada's economy. It addresses concerns that many Canadians have about corporate governance.

The financial services sector not only plays a vital role in the economy but also in the financial lives of Canadians, whether it is banking, insurance, financing, investing or financial planning. Every day across the country consumers, businesses and governments depend on the products and services provided by financial institutions. Community groups, arts and culture groups, amateur sports groups across the country also depend on these institutions. We need look no further than the CIBC run for the cure this past weekend to see how important our financial institutions are. In my own province of Nova Scotia we are proud to be the home of Scotiabank which is a leader in corporate responsibility.

I would like to focus my remarks today on the federal legislation and the initiatives the government has introduced that are designed to make the financial services sector more competitive and to enhance consumer protection. The process of implementing the new policy framework began in 1996 with the establishment of the MacKay task force on the future of the Canadian financial services sector. In September 1998 the task force presented the government with its report which was then reviewed by two parliamentary committees.

The committees in turn conducted extensive public consultations and presented the government with their recommendations. This consultation process eventually led to Bill C-8, which in 2001 introduced legislation to reform the policy framework for Canada's financial services sector. That contained a number of measures that focused on four main areas, one of which was to empower and to protect consumers.

Perhaps the most important initiative for consumers that sprung from this legislation was the establishment of the Financial Consumer Agency of Canada in 2001. This agency was established to consolidate and strengthen oversight of consumer protection measures in the federally regulated financial sector as well as to educate consumers. While some consumer protection activities existed before that, they were dispersed among a large number of federal entities making the complaint process more arduous and less responsive to the needs of Canadians. The FCAC consolidated those services.

Hon. members may also be aware of the ombudsman for banking services and investments, OBSI, which was established in 2002. The OBSI is an independent organization that investigates consumer complaints against financial service providers including banks and other deposit taking organizations, investment dealers, mutual fund dealers, and mutual fund companies. It provides prompt and impartial resolution of complaints that customers have been unable to resolve satisfactorily with their own financial services provider. For the first time in Canada customers of banking and investment services now access comprehensive and effective complaint resolution through a single ombudsman.

The OBSI is independent of the financial services industry. To ensure its independence, the ombudsman reports to a board of directors of which a majority of the directors are independent of the financial services industry. The bottom line is that consumers have benefited from the changes in the financial services sector. With new competitors in the marketplace, increased competition among existing institutions and more innovative products and services, consumers now have more choices in deciding who fulfills their financial needs.

Small and medium sized businesses too in some cases have benefited from increased choice among financial service providers. To ensure that there is better information on the financing needs of small and medium sized enterprises and the availability of financing to meet those needs, the government undertook a comprehensive program.

That program was to assist in the development of effective public policy; to promote greater awareness among small businesses of the sources and types of financing available; and to foster a more complete understanding among financing providers of the financing needs of small and medium sized businesses.

I would not suggest that I am entirely delighted with the way that all financial service institutions have responded. I think, particularly in regions of Canada like Atlantic Canada, that we could do a lot better in terms of decision making as well as presence in those regions, but we have come a long way in a lot of areas.

Although the government has introduced consumer safeguards, we have also been mindful not to place too high a regulatory burden on financial institutions. The government is equally committed to providing a policy environment that is fair and balanced.

It is important to mention that the framework for the Canadian financial services sector enacted by the government is not a static process. Rather, it is dynamic, reacting quickly in this world with the rapid pace of globalization and technological innovation that has become a daily reality for businesses in Canada.

Indeed, the policy framework for the financial services sector should be dynamic, flexible and fair. The framework provides that flexibility in three ways. It maintains, first, the long standing practice of ensuring regular updating of the regulatory framework by including an automatic five year review in the legislation, one being scheduled in 2006. This is a practice that sets Canada apart from virtually every other country in the world.

Second, as has been frequently done in the past, the government is prepared to revisit this legislation prior to the five year review if it proves necessary in order to ensure that the framework keeps pace with the rapidly changing marketplace. Finally, the legislation allows for matters of implementation to be dealt with through regulation.

What we have is a balanced framework, a regulatory approach that is well thought out and efficient, with important consumer protection measures. Both aspects are conducive to the growth and success of Canada's financial institution.

One would ask, how does Bill C-57 fit into the big picture? I believe that government policies will continue to evolve over time, so that we can keep pace with the new economy, new innovations and new technology. Bill C-57 is part of that evolution.

The proposals contained in the bill will update and modernize the framework for the financial services sector. It has broad support among stakeholder groups in the country and I believe among Canadians. I urge and expect all members will support Bill C-57.

Bank ActGovernment Orders

October 6th, 2005 / 11:55 a.m.
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Liberal

Paul Szabo Liberal Mississauga South, ON

Madam Speaker, I want to thank the member for her contribution. As a member of the finance committee in this debate at second reading on Bill C-57, she went through some excellent history, particularly that of the Bennett-Broadbent commission report and the MacKay task force report. There is a number of underpinning or foundational documents and studies which I think will be very helpful to the committee as it deals with a bill that is almost 300 pages long in both official languages.

It is going to take some careful work to ensure that we do get it right. That is one of the reasons why at second reading it is important for members who have interests in certain aspects of the bill to ensure that their input, either through debate or through their critics, is brought to the finance committee to help it do the job.

As the member laid out, the bill itself has some themes. There are four broad categories which the committee will be working on. The first is with regard to clarifying the role of directors. The second is about enhancing the rights of shareholders. The third concerns modernizing practices within the financial institution group. The fourth is about strengthening governance elements of the regulatory framework, an extremely important aspect and the member did comment on it. Finally, with regard to the Insurance Companies Act, certainly there is the clarifying of the policyholder governance in view of the fact that we have had this demutualization within the insurance industry.

I want to urge the member to consider one aspect for the committee's consideration, and it is with regard to the role of directors. We know the issues with regard to Enron, WorldCom, et cetera. There were officers and directors who were knowledgeable of the business practices and the decisions taken that gave rise to serious business failures, which led to significant losses to the citizens. However, we should celebrate our financial services industries as well. The failures in Canada have not seen the same kinds of problems that have been experienced in the United States.

The member is also aware that the financial industry, although it takes a pretty good beating in the public with regard to making $1 billion or something like that, does not often get credit for the fact that it employs about 600,000 people and contributes about 6% to Canada's GDP. I would also add that there is the industry's philanthropic work and the matter the member raised about the social aspect of the banks. That has been well established and well appreciated by Canadians for many years.

With regard to the directors and the specific question, there is the issue of directors' liability. Last evening I was at a function sponsored by the Canadian Institute of Chartered Accountants, at which I became aware that there is a serious concern about the low number of people putting their names forward to be directors of corporations because of the high risks and the liabilities associated with directors' responsibilities. It is a very important issue.

At the same time, and the member may have an opportunity at committee to get this kind of information, we have a broad range of financial institutions as well as corporations which have a tendency to seek marquee directors who are paid significant bonuses to join the board, along with stock options, et cetera, simply to be there to attract others. Would the member indicate whether she shares that concern and whether this kind of thing may also help to improve the governance scenario as it relates to financial institutions?

Bank ActGovernment Orders

October 6th, 2005 / 11:35 a.m.
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NDP

Judy Wasylycia-Leis NDP Winnipeg North, MB

Madam Speaker, I am glad to have the opportunity to speak to Bill C-57 at second reading. It is very importance legislation.

Some would think, based on the low key nature of this debate, that this is a rather mundane, routine kind of legislation, that it is housekeeping to simply bring things into line. The NDP views the bill as far more significant than simply a matter of housekeeping and tidying up on the part of the government, and I want to point out some concerns right at the outset.

I begin by referencing those Liberals who this morning had the audacity to stand up and suggest that this was a good example of Liberal efficiency, that the legislation was about making our programs and our institutions more efficient and in line with modern day standards.

Let us look at the history. We are talking about a government that in the year 2005 has brought in legislation to bring in line legislation that was passed in the House in 2001. The last time I checked four years have gone by. Four years is a heck of a long time for the government to move on efficiency. I guess one could say, by the very nature of what we are dealing with, the government belies the very definition of efficiency. Only Liberals could say that waiting four years to bring something into line with a 2001 bill is efficient.

My goodness, this goes to the nub of the issue we face on so many fronts when we deal with finance. We have a government that dithers. We have a finance minister who cannot make up his mind about bank mergers. I also want to reference the speech by the Parliamentary Secretary to the Minister of Public Safety and Emergency Preparedness who focused so much of his remarks on bank mergers, suggesting that this was a matter that would be advanced if the banks supported the idea of mergers and wanted it to come forward.

The parliamentary secretary is being a little disingenuous. We know the banks have been demanding that the government bring forward merger legislation for years. We have a finance minister who promised it would be on the table this summer and this fall. Now we understand that the finance minister got cold feet because he was not sure the had the support of everyone in the House for bank mergers. He dared to suggest that he had to pull it back because of political game in this area and that it had become a political issue.

The government of the day sets the agenda. The government of the day determines what needs to be acted on. The government of the day is supposed to deal with the public interest. Surely, if the finance minister thought it was important, he would have brought it forward.

However, we recognize the fact that the Minister of Finance was cautious in his approach and needed some more support and backing. Therefore, we presented a very reasonable proposal to the Minister of Finance. We suggested to him that there would be support perhaps for the idea of bank mergers if the government would finally deal with a long list of outstanding issues that were of concern to Canadians and consumers in all our communities.

We pointed out to the Minister of Finance that he was not in a very strong position to move on bank mergers if he had not dealt with banks that shut down branches without any regard for the communities they were abandoning. The parliamentary secretary who just spoke tried to suggest that in small towns banks no longer do that, that they do not close branches and leave a community high and dry.

Perhaps that is true in small towns, but it is certainly not true for communities within large cities. It is certainly not true for inner city neighbourhoods. It is certainly not true for older north end communities. It is certainly not true for Winnipeg North, where the banks shut down every branch in the entire north end of Winnipeg without regard for citizens to be served or for the needs of people to have access to financial institutions.

We suggest to the Minister of Finance that if he wants to move on bank mergers and wants us to even look at the idea, then perhaps he should deal with that very issue. Perhaps he should have some teeth in legislation that prevents banks from unilaterally shutting down branches and abandoning entire communities. Perhaps he should deal with the credit card interest rates that banks set. Perhaps he should deal with the huge rise in numbers of payday lenders without regard for regulation. Perhaps he should deal with a form of reinvestment in our communities, which is present in the United States, and ensure that banks that benefit from communities and that reap their profits from loyal customers over the years put something back into those communities before they up and leave and abandon entire neighbourhoods.

We gave the minister all kinds of ideas and help to bring forward this issue. I want the record to show that it is absolutely irresponsible on the part of the Minister of Finance to suggest that he could not go forward because of political games that were played by members in the opposition.

On the part of the New Democratic Party, we are not playing political games. We are trying to do what is in the best interest of Canadians. We are trying to ensure there is some measure of accountability, efficiency and transparency in the area of financial institutions. That gets us right to the heart of the bill.

The bill attempts to modernize the corporate governance framework for Canada's federally regulated institutions. That is clearly an issue of great importance in this day and age of corruption and scandals in the corporate sector. We would expect the legislation to help us deal with accountability and transparency in all federally regulated institutions.

As I already said, we had a lot of chances to deal with this before, and finally we see something happening. I wish it had not taken so long. We have to see Bill C-57 as a process that has been underway in the country for a long time, certainly in a formal way since 1994. It is one that has seen other phases and has taken other legislative forms. Bill S-19, Bill S-11 and Bill C-8 are all legislative examples that leap to mind. Let us not forget the MacKay task force and the several parliamentary committees that have studied this issue over the years.

There is another aspect to this whole debate. It is the need for reform that comes not just from corporations or the financial sector as a whole, but one that is part of an ongoing broadly based shareholder and consumer movement, a movement that is trying desperately to establish greater public access to the instruments that control our economy and the impact on our livelihoods and finances in major ways.

That is part of the debate we have to address today. At least members of the New Democratic Party have been diligent about raising such issues in the past. I want to refer members to the January 2004 announcement of my party for a pocketbook protector, which outlines a comprehensive set of proposals to protect Canadian consumers including, may I emphasize, the establishment of citizen utility boards to give stakeholders an organized voice and some real clout and increased openness in Canadian financial and other corporations that would be modelled on the American experience with the Sarbanes Oxley act and other measures.

I mentioned that we gave the minister all kinds of suggestions around the whole bank merger issue for bringing more accountability to our banking sector. This summer I responded to the Minister of Finance's letter on his demand that the NDP and other opposition parties come clean with their position on bank mergers. I said to him that legislators and consumers currently lacked basic information to determine whether banks acted in the public benefit in accordance with their public charters. There is a huge potential for improving transparency in banking without compromising legitimate privacy concerns or good business practices. Legislative changes are clearly needed to enable the public to track bank activity in our communities

I want to mention another indirect initiative from the NDP. That is the Canadian Democracy and Corporate Accountability Commission, chaired by the member for Ottawa Centre. This commission examined ways to increase corporate responsibility. The member for Ottawa Centre attempted to raise many important issues and to lead efforts to reform Parliament to better embody our democratic impulses. However, those political reforms would be incomplete if our financial institutions and their decisions remained isolated from the vast number of Canadians that they serve.

What took the government so long? Why does it go in starts and fits? Why does it get something going and then pull back? In the case of banker mergers, why has it dithered about its response? On the question of income trusts, why does the government suddenly decide to study the issue and the next minute decide to crack down on the expansion of any income trusts, knowing full well the millions of dollars that are lost to our public coffers because of corporations taking advantage of this loophole?

Finally we have a chance for action, and that is what we are about to do.

There are some positives in the bill and some negatives. There are measures in it that would improve financial sector governance, and I do not want to dispute that. It recognizes changes in our communications technology and reflects those changes by accommodating electronic communications.

Bill C-57 would relax the overly restrictive limitations on shareholder communications. For example, it would allow shareholder communications without necessarily triggering proxy rules. The bill also would harmonize the legislation covering the various types of financial institutions. It introduces some long overdue measures to upgrade governance of the crucial financial institutions regulated under the direct authority of the federal government closer to a standard appropriate for the 21st century.

In particular, I want to emphasize a change that has been long overdue and one that all of us have fought for in this place. That is the alignment of the Cooperative Credit Associations Act and the Bank Act. This is very important because it will provide cooperatively structured companies with equal treatment on their share requirements as that afforded other more traditionally structured groups. This previously has been denied to them on account of the outdated limitations imposed by current legislation. Cooperatively structured corporations should be encouraged in Canada, not penalized. The measure in the bill at least puts them on an equal footing in one important area.

I will now get on to some of the negatives in Bill C-57.

I want to emphasize the fact that this legislation ignores the Broadbent commission. It has failed to incorporate modern, progressive, corporate-social responsibility initiatives recommended by the Canadian Democracy and Corporate Accountability Commission, also known as the Bennett-Broadbent commission of 2002.

Despite assurances at the time of the passage of Bill S-11 that the government would as a matter of course incorporate the positive suggestions of the commission into its corporate reform vision, the thrust of the commission's work and its specific recommendations remain largely ignored in Bill C-57.

That independently funded commission was composed of five members, three from the business community, one from organized labour and one with a political background, that being the member for Ottawa Centre.

Between February and September of 2001 the commission travelled across Canada. It held public hearings, meetings and received briefs and presentations from a wide cross-section of Canadians interested in corporate governance issues. It further conducted a public poll on the issues and concluded its activities with a report in 2002 containing 24 recommendations.

Regrettably, the work of the commission was superseded back in 2002 with the government's Bill S-11. We tried at that time to get the whole process to address the commission's findings but unfortunately were not able to do so.

Among the recommendations contained in the Broadbent commission's final report, entitled “The New Balance Sheet: Corporate Profits and Responsibility in the 21st Century”, was this recommendation:

Companies should have governance structures facilitating the development of a corporate culture supportive of corporate social responsibility. In particular, a committee of the board of directors should be assigned responsibility for corporate social responsibility matters. A senior executive should be appointed corporate social-responsibility ombudsperson and have direct access to the chair of that committee.

Many other recommendations put forward by the commission are important and have not yet been accommodated in this legislation.

I want to mention another very important issue and that has to do with a watchdog agency, because I think that perhaps the key element in any progress in realigning stakeholder authority and increasing accountability lies in the development of an independent watchdog capacity. This element has been missing in the governance of federal financial institutions generally and it is still not there. This has left stakeholder voices without a vehicle of expression when concerns about corporate behaviour arise.

Provision for the formal recognition and integration of independent watchdog groups must be incorporated, in our view, as an essential part of any corporate governance landscape. The NDP, together with many consumer advocates, has proposed an effective, inexpensive way of starting and maintaining such groups. This involves utilizing the already existing corporate communications network, mail-outs or other communications to shareholders, policyholders, et cetera, and using that network to disseminate information about forming a consumer watchdog group, along with contact numbers for those who wish to follow up.

This type of communications tool should become, in our view, a regular element of corporate mailings at specified intervals. The distribution of notices of annual meetings or annual reports is commonly suggested as a very minimum.

Having a consumers' agency with responsibilities to others besides stakeholders may be appropriate for other purposes, but it is not an adequate response to the need for an independent and exclusively consumer-oriented mechanism.

There has been a lot of support for such an oversight group. It has been endorsed by 31 citizen groups, including 18 national organizations, but it is not limited to citizens' groups alone. It has also received support from the House of Commons and Senate finance committees. Also, it was supported by the 1998 MacKay task force on the future of the Canadian financial services sector.

There has been a heck of a lot of discussion on this issue over the years and a lot of support from all sectors. The question is, how can we make it a reality? We have an opportunity in this bill to do just that. We have an opportunity to modernize the fiduciary framework for financial institutions.

There has been a battle raging for some time now over the parameters of legitimate director activity. In Bill C-57 it is apparent that those favouring a narrow, conservative and, some would say, dated interpretation must be questioned. To turn a profit for shareholders irrespective of the consequences is an approach better suited to the 19th century than the 21st century.

I could go on with many other recommendations, but let me conclude by saying that this bill is long overdue. There are some major parts to it that are important. We particularly value the acknowledgement of the cooperative sector and we want to see this bill approved with that component in it, but we would also like to see some changes. We will be working very hard in committee to address the outstanding issues and to ensure that consumers have access to financial institutions on a basis of accountability, efficiency and transparency.

Bank ActGovernment Orders

October 6th, 2005 / 11:25 a.m.
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Bloc

Louise Thibault Bloc Rimouski—Témiscouata, QC

Madam Speaker, I have a related question for the hon. member who just spoke.

At the beginning of his speech, he indicated that Bill C-57 was part of a modern regulatory framework. That is understandable. We have to keep up with the times.

On the whole issue of access to information and the use of electronic communications to transmit any type of information, I was wondering if this was satisfactory? Is the hon. member satisfied? He did point out that this was a large piece of legislation. I am not as knowledgeable as our hon. colleague, but I am concerned because of the major challenges we are facing. I will not run down the list, but there have been scandals and, in one instance, privileged and confidential information held by a financial institution was made public.

Given the large number of amendments contained in Bill C-57 and the large number of acts in relation to financial institutions affected by these changes, I was wondering whether it had been necessary to improve security once again around the whole access to information issue, particularly where the privacy of individual citizens is concerned.

Bank ActGovernment Orders

October 6th, 2005 / 11:05 a.m.
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Etobicoke North Ontario

Liberal

Roy Cullen LiberalParliamentary Secretary to the Minister of Public Safety and Emergency Preparedness

Madam Speaker, I thank my colleague from Mississauga South. I welcome this opportunity to rise in this House to speak on Bill C-57.

We are well aware of just how important the financial services sector is to the Canadian economy, and that of Toronto in particular, where my riding is located. The steps taken by our government in recent years attest to that fact. We have passed legislation ensuring that financial institutions have the modern regulatory framework they need in order to be competitive in today's global economy. Bill C-57 builds on these initiatives.

This bill builds on the financial services restructuring package that was introduced and passed by Parliament in 2000. I think it was the largest piece of legislation that was introduced and passed by Parliament dealing with the financial sector in Canada and how it was going to be structured or allowed to structure itself. Of course, a major piece of that legislation dealt with bank merger guidelines.

At the time there were governance issues affecting the major banks and financial institutions that were not dealt with, so this bill addresses some of those governance issues. For example, it brings the legislation up to date to recognize the fact that the major insurance companies were demutualized. It also deals with the issues around deposit insurance and aligns this act with some of the features of the Canada Business Corporations Act, for example, the question of the defence of due diligence by directors.

In fact, my first private member's bill in 1997 dealt with giving directors the defence of due diligence for corporations incorporated under the Canada Business Corporations Act. It was necessary I felt, and in fact it was incorporated later into the Canada Business Corporations Act, that directors would be given the defence of due diligence.

What that means is that if directors of companies asked all the right questions, demanded certain information in certain ways and did everything that was reasonable for directors to do, then they would not be held liable if something occurred subsequently which created problems for the corporation. I think it is fair for directors to have that defence because directors come together for board meetings maybe once a month. It is management that is primarily responsible for running the company.

For example, if a company was building a big plant and the director asked about the impact on the environment by the plant, and wanted an independent study conducted by environmental engineers, once the study was conducted and the environmental engineers said the plant would create no environmental difficulties, then at that point in time I think the director has discharged his or her responsibility. Subsequently, if the plant creates some environmental problems, then I do not think the director should be held liable. That is what the change to the Canada Business Corporations Act did and that is what the changes to Bill C-57 contemplate as one of the pieces with respect to the financial institutions legislation.

Corporate governance is one of those items that has received more attention in the last few years around the world, particularly with the advent of the Enron scandal in the United States and WorldCom. We have not been immune in Canada either. We have had some difficulties with corporate governance at Nortel. I cannot remember the company name, but there was the Drabinsky theatre group that got into some problems.

Corporate governance is a very topical matter and concerns, of course, a lot of citizens who own shares in companies, pension plans and mutual funds. In fact, many Canadians hold shares in companies in Canada through either mutual funds or pension plans or hold those shares directly. It is important to them that corporate governance is sound.

That is why, following the Enron and WorldCom situations in the United States, members on this side reacted. I do not know about members on the other side as I do not think they spend much time worrying about things like this. They are more interested in a $1.50 pack of gum that Mr. Dingwall bought. Nonetheless, corporate governance is a very important matter because it affects the investments that many Canadians have made. Following Enron and WorldCom, the United States, through its Congress, brought in legislation referred to as Sarbanes-Oxley that basically brought in tough corporate governance rules for companies.

The reality is that the Sarbanes-Oxley legislation, while well intentioned, has had some mixed reviews, but it did raise the question, certainly on this side of the House, of what we should be doing in Canada, so we struck a caucus committee, which I was honoured to chair, and we looked at corporate governance in Canada.

Canada has a complicated quilt of different jurisdictions and different organizations that get involved in corporate governance. We have the Ontario Securities Commission. We have organizations like the Canadian Public Accountability Board, which was set up just two years ago to give oversight over auditing firms, so that auditing firms are held accountable to the audit reports that they issue. Many investors rely on these audit reports because if they give companies a clean bill of health, then someone investing in those companies has a right to expect that they have a clean bill of health. The Canadian Public Accountability Board was set up to monitor the performance of auditing firms.

We also have the Canada Business Corporations Act. I forget the exact statistic but something like 30% to 40% of the public companies in Canada are incorporated under the Canada Business Corporations Act. It is a large number of companies. It does not represent all companies, but it is quite comprehensive.

Therefore, our view, coming out of that review, was that the Canada Business Corporations Act could be used and should be used as a benchmark, as a worldclass standard that should be implemented. This is an area that the Government of Canada can control very directly. Through Parliament, we can pass legislation that sets the corporate governance rules for corporations incorporated under the Canada Business Corporations Act.

What does corporate governance consider? It deals with a whole host of things. It deals with things such as the composition of a board of directors and whether there should be independent boards of directors. We saw problems, for example with Nabisco, which was a big fiasco years ago where the CEO hand-picked all the members of the board of directors and paid them $40,000 U.S. a year. They would go to fancy meetings and so on. When the executive made presentations to the board of directors, they were all hand-picked buddies of the CEO and chairman, and nothing really came under close scrutiny. There are issues around the independence of the members of the board.

There is the question, which particularly comes up in the context of financial institutions in Canada, of what the requirements or limitations are in terms of the participation of foreign directors on boards of directors. Should a bank such as the Bank of Montreal or an insurance company such as Sun Life be allowed to have unfettered access to members of their boards who are U.S. citizens, for example, as opposed to Canadian citizens?

There are issues whether the role of the chief executive officer should be split from the role of chairman of the corporation, so that the chair could be independent and provide more oversight over the CEO and his or her executive team.

There are issues around executive compensation, stock option plans and the transparency of those. One of the problems or challenges we had was public companies' quarterly profits being reported and those profits really determining the share price of a company to a large extent. The management of companies is under huge pressure to keep earnings per share on the rise. That sometimes puts officers of a company in a position where they might compromise their ethical standards, frankly.

We saw that in a big company in the United States, Xerox or one of those, that simply capitalized a whole range of expenses that should have been expensed. Of course, if those costs had been expensed, it would have had an impact on earnings per share. Its share price would have been affected, so they treated them as assets rather than expenses. Even the most cursory examination by an accountant would have or should have revealed that those were not assets, those were expenses.

With the pressures on management to perform in terms of earnings per share, we need to have complete transparency with respect to stock options, so that shareholders know that the executive of a company has certain incentives to see the share price increase. In this way shareholders know precisely what is going on.

There are issues about the handling of proxies for meetings, so that the executive and the management of a company do not dominate what happens at these meetings. There are a whole range of developments under corporate governance, but I am pleased to note that the Minister of Industry is conducting a review of the corporate governance under the Canada Business Corporations Act and I hope that he picks the best practices.

We have had some time now to learn from the experiences of other jurisdictions, looking at what the United States did and others, and consulting with the industry and other stakeholders to pick the best practices in terms of corporate governance and enshrine them in the Canada Business Corporations Act.

That would not impact every single company in Canada, but it will be the new benchmark. It will set the standard and the Government of Canada can take pride in that because it will protect investors, whether they are direct investors, big monied investors, or small investors through mutual funds, pension plans or the like.

There has been a great deal of press recently about the bank merger guidelines, whether the Minister of Finance will come out with the new bank merger guidelines. The financial sector legislation was enacted by this Parliament around 2000 set up a process for large bank mergers. It set up a role for the Standing Committee on Finance of the House of Commons and the Senate banking committee, so that those committees would be charged by Parliament to assess the public interest questions around major bank mergers. It was enshrined in Bill C-7.

The banks of course are looking for certain clarity around what a large bank merger would entail, what would be the appetite of the government to allow another bank merger. This is a vexing question because in Canada we know there is a large concentration of banks and further consolidation would raise some questions.

The bottom line is that if we were to allow another merger of two major banks, what would the benefit be to Canadian consumers and Canadian business? We know the benefit to the shareholders of major banks, to the boards of directors and all those with stock options. They would receive a benefit and that is fine. Profit is not a dirty word. However, we need to understand what the benefit would be to consumers in terms of choice, access to services, and would it enhance the ability of Canadians to do their banking? That is the question on the table.

Another issue that has been presented has to do with cross-pillar mergers. When the finance standing committee of the House of Commons dealt with large bank mergers and the public interest aspects of that, the committee did not really deal with the question of cross-pillar mergers. Cross-pillar mergers would entail the merger of a large bank with a major insurance company, for example, Sun Life merging with the Royal Bank of Canada.

There has been some discussion, pro and con, as to whether that would be a good thing or a bad thing. The empirical evidence would suggest that there is not a lot of synergy or appetite within those two different sectors. They have a different business culture, a different business model, but nonetheless, it is an important question because it allows a concentration of capital. It allows a company to have stronger capitalization.

This is one of the things that is important for banks because they are dealing in an international world. If their client is a Canadian company that is a multinational and wants to expand globally, the banks have to have the capital, the care and the capacity to do that kind of work. So, there is some interest there. That is a debate I am sure we will have maybe in the next Parliament, but it is an important question.

When the Minister of Finance comes out with his bank merger guidelines I hope he will ask the Standing Committee on Finance to examine the public interest aspects of cross-pillar mergers because that was not really dealt with in any detail by the finance committee. We focused mostly on large bank mergers.

As I said, this huge piece of the legislation did a number of things. It described the process under which large banks could come to government seeking a merger but it did much more than that. What it attempted to do was create more competition within the banking sector so it created greater opportunities for the credit union movement to grow and enlarge. It gave more opportunities for foreign banks to participate in the economy in Canada. It gave a lower threshold for start-ups of banks in Canada. It set up the consumer protection agency. It did a number of things, which is why it was such a large bill when it was presented to the House.

Not only does the House of Commons committee and the Senate banking committee look at the public interest aspects, but the Competition Bureau weighs in and makes a determination of whether a bank merger would create any anti-competitive types of situations. The Office of the Superintendent of Financial Institutions also makes a determination of whether a merger would create any issues around prudence and stability of the financial sector in Canada. Therefore it is quite a rigorous process.

One of the ironies is that if two major banks were to merge, the Competition Bureau would very likely say that there would have to be a divestiture of certain branches. Let us say, in the case of the Toronto-Dominion Bank and the Bank of Montreal, if they ended up with too many of their banks in a small town in Ontario and not enough of the other banks, the Royal Bank and CIBC for example and others, the Competition Bureau might say that now with this merger there is too much of a dominant position by that bank in that city or that region and it has to divest of certain branches.

This creates an interesting aspect. In the past this has always been seen as a negative in the sense that if they have to divest that means the people in that local community have less choice and they do not have the range of options that they might have had if the banks just stayed the way they were. There is clearly some truth to that.

In the last few years some of the smaller banks, Laurentian Bank, the National Bank and the credit union movement, have indicated very clearly that if the Competition Bureau indicates that a bank merger would require divestitures that they would be very interested in buying up those branches. The ironic twist is that we could end up with more competition in a regional market if we ended up with some of these smaller banks in those locations.

Therefore it is an important question and it is a vexing question and I am sure the next Parliament will deal with that.

However I am very happy to support this bill because it would bring the financial institutions legislation more in line with the Canada Business Corporations Act. It would provide the corporate governance requirements that we need. I hope down the road that there will be further enhancements to governance for banks that will be further aligned with the changes to the Canada Business Corporations Act that I certainly expect will be coming.

Bank ActGovernment Orders

October 6th, 2005 / 10:55 a.m.
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NDP

Alexa McDonough NDP Halifax, NS

Madam Speaker, I welcome the opportunity to ask the hon. member from the Bloc Québécois a couple of questions, although my colleague, the finance critic in the New Democratic Party caucus will be speaking more broadly in the debate on Bill C-57, an act to amend certain acts in relation to financial institutions.

The couple of questions I want to put to the member arise out of some of the concerns I have about the gap between the rhetoric we have heard from Liberal members, the parliamentary secretary and the member for Esquimalt—Juan de Fuca, and the actions. The rhetoric that has accompanied the introduction of the bill is along the lines that this is about greater efficiency, more responsible use of taxpayer dollars, greater dollars and transparency and ensuring that every taxpayer dollar is protected. Yet when one looks at what we are dealing with, and this is the government's explanation and not some partisan twist on what we see before us, the act is about is making changes to the corporate government's framework of banks, insurance companies, et cetera to bring them into line with the changes to the Canada Business Corporations Act for business corporations. These changes were adopted in 2001.

When it comes to efficiency, if we are to believe that the bill before us is so incredibly important and great results will flow to taxpayers of Canada from it, one has to ask about the inefficiency of waiting four years before the bill was brought forward. No wonder we have some strains on the public purse, and that is even before we get to the Dingwalls and all the other things that are the subject of the Gomery inquiry, et cetera.

First, does the member share that concern? Does he not think there probably were other priorities for tax dollars, which apparently have not been protected during these four years while the government delayed?

Second, in the same sort of context of efficiency, of the government moving quickly to address these matters, one has to be concerned. The New Democratic Party very much shares a concern, and it is not just about our colleague from Ottawa Centre who was a major architect of the important work done.

The Canadian Democracy and Corporate Accountability Commission addressed many of the same kinds of issues, and it has been sitting gathering dust for a long time. The former New Democratic Party leader, who now sits in the House and provides very distinguished leadership, was the co-chair of that commission. Again, many of these recommendations have yet to be introduced which certainly raises in our mind concerns about how efficient and effective the government is in moving on these important issues. Could the member indicate if he shares some of those concerns?