Bill C-57 (Historical)

An Act to amend certain Acts in relation to financial institutions

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.

Bank Act

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Madam Speaker, I thank my Liberal colleague for his applause. But I would rather he held off until l am done with my presentation, in case he did not feel like applauding at all by then.

I also thank my colleague from Cariboo—Prince George for his excellent presentation. I will not repeat all the points he made about the government's mismanagement. He has covered the issue extensively. A government can hardly have the necessary credibility to impose new, stricter control rules on directors of public corporations when it is faced with all these scandals.

On the face of it, my colleagues and myself think that Bill C-57 is a good bill. It responds to a need. In 2001, if memory serves, this House passed Bill S-11, which dealt precisely with clarity and new rules for proper management and accountability by both shareholders and directors of public corporations.

At the time, we omitted to include certain financial institutions, such as banks, cooperative credit associations and insurance companies, as part of the federally chartered institutions. Now, Bill C-57 is completing the process by reforming the governance of federally chartered institutions. But it is not making any changes to monitoring rules.

I was listening to my hon. colleague from the Conservative Party who, together with other Conservative and Bloc members, has worked very hard on the Standing Committee on Finance to develop these new rules. I heard him suggest that this bill would shield us against Enron and WorldCom-type scandals. I do not think so, because the new rules govern the accountability of directors. No new rules were imposed to monitor the statements and corporations concerned. If there is one improvement that should be made following the work done at the finance committee, it is in that respect that it should be made. As far as we are concerned, we are not shielded in any way against Enron or WorldCom-type scandals.

The bill has its good points. It also relaxes the regulations on the exchange of information and on proxies, which is a very onerous procedure for banks, particularly cooperative credit associations and insurance companies. Furthermore, companies and shareholders are now allowed to do something they could not do before, which is communicate electronically and exchange information on the Internet. We must adapt to the new era of communication and this bill does just that.

The process by which information is disclosed to policyholders is also strengthened. I think this is a good thing. By doing so, we are making the underwriting of public companies more transparent.

The bill also attempts to increase director liability. We have questions about this. We will ask them during consideration in the Standing Committee on Finance and before the expert witnesses we intend to call. Since such bills are extremely technical, we need to call upon people in the field who worked under the old provisions and who may have an opinion about the new ones.

With regard to director liability, when such directors are taken to court, for example, there is a new defence. Previously, there was the defence of acting in good faith. A director was able to say, “Given what we were told, I made my decisions according to the information I had available”. Now, we want to adopt a new type of defence for directors, which is called due diligence.

We do not know just how far this new defence for directors can go. I think that it would be worthwhile to examine this issue in greater depth, particularly since there are strong hints of scandals every week. We saw it in Quebec, among other places, with the Norbourg affair. In order to protect shareholders, we need much more than a potentially meaningless concept, such as due diligence. We need directors who are liable and audit methods that prevent scandals similar to those we have seen in recent years and now.

These involve insider transactions, on which we can never be too vigilant or severe. This is a provision that could improve our control over such offences.

Then there is the matter of public holder requirement, which requires institutions with equity holdings between $1 billion and $5 billion to make at least 35% of their voting shares available for trading on the public stock exchange. We have a number of questions on exemptions from this provision as it relates to public financial institutions. Among other things, we are going to clarify the situation with the cooperatives, but it does seem a positive change.

If we have to work on this bill—as we will do with all possible seriousness in the Standing Committee on Finance—there are some questions we will assign importance to, including the need for clarifications on the amendments relating to insider trading. Will this really help to catch the guilty parties?

As well, we have some questions on the consequences of broadening the possible defences for directors, as I have said, under this new concept of due diligence rather than the former good faith. Not that the latter is being done away with, but due diligence is being added as a defence when directors come before the courts.

We also have some questions on the consequences of opening up the criteria for application for exemption from the requirement to float 35% of voting shares on a stock exchange. That was our objection four years ago in connection with Bill S-11 and it still is today: the bill gives no consideration whatsoever to small shareholders. We will try to improve this bill so that small shareholders have a say in decisions made by the directors and will be better treated than they are at present. It is, for instance, my intention to personally invite Mr. Michaud, dubbed “the Robin Hood of banking”, who is engaged in a pitched battle for those rights.

We are in favour of the bill in principle at second reading. We will be making some improvements and some clarifications during its examination in the Standing Committee on Finance.

Like my colleague from Cariboo—Prince George, when he said that, as a public administrator, the government should set itself strict guidelines on liability, I remembered a debate that we have been having since 1994 and that may well reach its apex in the coming weeks, during an extraordinary session of the Standing Committee on Finance. Furthermore, we will have a debate this evening on a motion by my colleague from Portneuf—Jacques-Cartier to abolish various corporate income tax regulations as they relate to the tax treaty with Barbados.

The state must be viewed as a big democratic company. This big democratic company has millions of shareholders: the taxpayers and citizens of Quebec and Canada. They are all shareholders in the state. If we draw a parallel between the public and democratic company called Canada and the regulations before us today, we see that some directors are not subject to the same rules that we want to impose upon the directors of crown corporations under Bill C-57. I am thinking, for example, of individuals who are in good position to apply double standards when it comes to calls for strict guidelines, liability, accountability, the elimination of conflicts of interest, and so forth. Some people who have worked for the Canadian state for a long time have used their status to get the governor in council and cabinet to amend tax laws and regulations so they can fill their pockets, as we say in Quebec. This was the case with the former finance minister and current Prime Minister.

I am often told, “Your approach is overly aggressive. You are always on the Prime Minister's back because of his shipping company, but it no longer belongs to him. It belongs to his children”. It is still a family business. And this is not aggression, but rather merely concern that all taxpayers be treated fairly.

What shareholders and company directors are being asked to do in this bill, the Prime Minister has not required of himself since 1994, not since he was named Minister of Finance and not since he became Prime Minister. He changed the rules of the game for international shipping corporations operating in international waters. The headquarters of Canada Steamship Lines International has been in Barbados since 1994, in other words since the tax regulations and related legislation were changed. At that time, an exception was made in the tax treaty with Barbados so that Canada Steamship Lines International would not have to pay taxes to Canada. The current Prime Minister changed the rules, taking advantage of his position as finance minister.

I would like to return to my example of Quebec, which is a large democratic corporation in which everyone is a shareholder. The Prime Minister has managed to save more than $100 million in taxes since 1998, thanks to provisions that he himself had passed. It was he who introduced Bill C-28 in 1998. And in 1994 there was the change to the tax regulations.

So he built a gilded cage for himself in order to fleece the shareholders in the democratic country of Canada. As a result, he has not paid more than $100 million in taxes since 1998. That hurts all the other shareholders, to draw a connection with Bill C-57. When they do not pay their taxes—he and other corporations that are structured similarly, that is to say, a consortium of shipping companies or other corporations headquartered in countries considered tax havens, especially Barbados—it is all the other shareholders who pay for the poorer returns of the democratic corporation known as Canada.

This evening we will have an opportunity to remind ourselves of this with the motion of my colleague from Portneuf. We are going to have a special session in November when we will fully expose the machinations of the current Prime Minister at the time he was Minister of Finance and built a gilded cage for himself. He made sure that Canada Steamship Lines and other similar companies, his friends, could take advantage of these tax loopholes. As a result, we are still paying taxes to Canada while he fleeced the Government of Canada out of about $100 million.

We are speaking about the responsibility of all citizens of this country. All the citizens are shareholders or company directors and should feel a certain amount of responsibility. For starters, when a person is Prime Minister and was finance minister for years, he or she should set an example. I think he set the wrong example. And we are going to prove it over the next few weeks.

I repeat that the Bloc Québécois will support this bill in principle. However, we are going to make some improvements to it. In regard to the other matter of the large democratic corporation in which we are all shareholders, we will be keeping an eye out and will shed light on the allegations that I have made.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Madam Speaker, I am well aware of what the member is talking about concerning the guidelines and the safety nets that the government has set out for itself in the operation of how it handles the taxpayers' money. On the surface that looks pretty good.

The difference between the government and the institutions that are going to be affected by Bill C-57 is that under this bill, when banks and financial institutions and insurance companies fail to abide by the rules of the game in their operation, they are subject to very heavy penalities because of the regulation. They are subject to being charged with criminal activity.

The government has made, and may continue to make, all the rules of operation of how it spends taxpayers' money that it wants and it all sounds good. The difference is when the Liberals do not live by the rules, when they break their own guidelines, when they break their own regulations, they set themselves up while they are in office as the judge and jury of their own misdeeds. We know what the outcome of that is, just about zero penality.

That is the difference between what the Liberal government does within the guidelines it sets and what happens when it breaks its own guidelines as opposed to the regulations laid out in Bill C-57. The member knows that very well.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Madam Speaker, I did exactly that yesterday. I outlined the importance of the bill.

The member brought forward a couple of points that I would like to address in talking about the building that was not moved into for a year after it was built, although the lease was paid. That is not the fault of the builder. That is the fault of the government.

The other thing Canadians expect from good government is good business planning. If a government, with all the resources and all the expertise it says it has, cannot plan something as simple as a date to move into a building when it is ready, if there is a year delay because of bad business planning, that is really letting down Canadians. I think Canadians would expect more than that.

In talking about the efficient operation of banks and financial institutions, that is the very thing Canadians expect from a government as well, efficient operation. That has not happened with the Liberal government.

The sole sourcing issue is something we could probably debate all day. There could be example after example where it was probably close to rightly perceived that some of the sole sourcing examples may have been created so that they could happen. We will just leave it at that. I think the member knows what I am talking about.

In closing, Bill C-57 is a good bill. We have had a lot of input into the bill and we will certainly take credit for that. It gives the financial institutions some real guidelines to operate under. It lets them do some long term efficient business planning now, something the government apparently is incapable of.

What still remains in the minds of Canadians is if financial institutions are expected to operate under very strict governance guidelines, at the very least the government should practise what it preaches.

[Paul Szabo, Liberal, Mississauga South, ON]

Madam Speaker, I will not disagree with the member on his point, as long as he understands that the member himself also has to meet the criteria that he has laid out. I think the member would agree. I would like to point out a couple of examples used by the member.

He said that an office building was leased and the building was not moved into for a year. He used that as an example of patent patronage.

The matter came before the Standing Committee on Government Operations and Estimates. The building actually was built by the company to the specifications of Public Works and Government Services. It was delivered on time and on spec. The tenants scheduled by the government to move in required substantial changes to the building layout and to the preparations of it. It led to about a year's delay in their getting into the building.

The member is suggesting that since a person who was an officer of that company at the time subsequently became a senator it is a Liberal payoff.

Clearly, as was stated at committee, the company that built the building and is leasing it had absolutely nothing to do with the delay. That in fact was confirmed by the ethics officer of the Senate in a complete 20 page report which is available to the member as he knows.

He mentioned sole sourcing and that somehow sole sourcing without going to competitive bids is a nefarious activity.

Under Treasury Board guidelines sole sourcing is permitted in certain circumstances. For example it is permitted for contracts under $25,000, where there is only one possible supplier, and where there is an emergency and it has to be dealt with quickly. I believe there are a couple of other circumstances.

The member would like to throw around a lot of examples but I am really concerned why the member did not talk about the significance and importance of making the changes proposed in Bill C-57 to bring it into line with the Canada Business Corporations Act and the Insurance Companies Act. It is going to ensure that there is an efficient operation within the financial system and provides a better foundation for accountability, transparency and governance.

These are the important things that Canadians should be advised of on this matter. If the member wants to use examples, I understand the opposition will take every opportunity. It is the opposition's job to talk about other things, but I think it is important first of all to emphasize the priority, which is the importance of the financial sector to Canada's economy.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Madam Speaker, as I say, in a courtroom I intend to show the relevance of my presentation to you, and you will find out how it unfolds. I can understand the member wanting to jump up and defend his government against, quite frankly, the indefensible.

What I was trying to point out is that Canadians have to form an opinion about everything we do in this chamber that affects them. They have formed an opinion about Bill C-57 and they like it. It gives them some security. Canadians will draw a comparison between Bill C-57 and how the government wants these financial institutions to operate, and they will draw a comparison between that and how Canadians want their government to operate.

The question they are asking themselves, I am sure, is the question of how this Liberal government can demand that financial institutions operate with honesty, transparency, full disclosure and accountability when the Government of Canada, those Liberals, fail to do that themselves. This is the question that Bill C-57 raises among Canadians. I am drawing that comparison to point out that a government is responsible not only for talking the talk but, in addition, for walking the walk. This government has not done it.

The member wants some examples. We can go right back to early in the first time I was in Parliament, to the infamous sale of the Grand-Mère Golf Club, when the Prime Minister himself was perceived to have been involved in a golf course and hotel that received government financing. We can go from there to the office building leases not too long ago, when the government leased an office building from a Liberal friend, it turned out, that it did not even move into for about a year.

There was the flagrant use of the Challenger jets, the sole sourcing of government contracts to Liberal friends, and the sponsorship scandal, when hundreds of millions of dollars went into the pockets and companies of Liberal friends. The list goes on and on. Now we have the famous David Dingwall case where, as an unregistered lobbyist, he received a success fee of $350,000 for successfully placing a request for several million dollars in government funding for the company he was representing, and he is not paying it back.

The relevance is this: Canadians are looking at Bill C-57 and saying, “That is really nice and it gives us some comfort, but why can the government not learn to live by its own rules?” Why has this Liberal government failed to be accountable? Why has it failed to be transparent? Why, in many cases, has it been involved in cover-ups? Why can the government itself not do all the things which Bill C-57 is designed to ensure that these financial institutions do? That is what Canadians are asking.

I am sure the word “hypocrisy” must be on the minds of Canadians as they listen to the presentations that have been made by the Liberal members throughout this debate. Canadians must be saying that it is all very nice and they like Bill C-57, but where is the accountability, the honesty, the set of strict guidelines, and the application of opportunities for redress to the government? Where is this within the government itself? Why can it flagrantly abuse the very rules that it is setting down for the financial institutions? Those are questions that average Canadians must be asking themselves.

It is very simple. This bill talks about the standards and duties and the ethics of the directors of financial institutions, including allowing for a due diligence defence and clarifying conflict of interest. There is a provision to make minutes of board meetings available to the public where conflicts are disclosed. Could these same rules not be applied to the cabinet of the government? The cabinet operates in much the same way, with much bigger numbers than financial institutions. Cabinet members handle a budget well over $100 billion a year, yet they are not expecting themselves to operate within the same guidelines that they want the financial institutions to operate within.

There are four simple rules which the government, and every government in the world, should operate by if they want to earn and maintain the confidence of Canadians: Do not lie. Do not cheat. Do not steal. Do not pay off their political friends with taxpayers' money. It is so simple, yet the Liberal government has a hard time grasping it.

I speak on behalf of so many Canadians who are asking themselves that if the government expects, and demands through law and legislation, that financial institutions and insurance companies operate within this very clear set of guidelines as far as their governance goes, why on earth can the government itself not adopt the same policy? That is the question. The Liberals have not done it. They have been wrought with scandal, rampant with corruption and rife with patronage payoffs. Canadians have had enough. When Canadians look at Bill C-57 they just roll their eyes and say, “what hypocrisy”.

We in the Conservative Party are always vigilant about how our financial institutions, insurance companies and credit unions handle the money of Canadians. We will always be vigilant in ensuring that the investments of Canadians are safe and sound, and that the companies that look after them are operating in an open, transparent and honest manner. At the same time, I would like to say on behalf of Canadians that it would be nice if the government could do the same.

[Paul Szabo, Liberal, Mississauga South, ON]

Madam Speaker, I rise on a point of order on two matters. First of all, with regard to allegations of corruption of anyone, whether it be a member or any other organization, that is in a legal situation which has not been adjudicated, and to suggest such is just improper. Second, we are talking about Bill C-57. To deal with matters to do with political party performance is not relevant to the debate. I would ask the member to keep his comments relevant to Bill C-57.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Mr. Speaker, I am pleased to rise today to continue the presentation I started yesterday. To quickly review, Bill C-57 is about the governance laws of banks, insurance companies, their holding companies, and credit unions. It is to provide a framework that they are going to be obligated to operate within. It also brings this in line with the Senate bill, Bill S-11, which was a standards update that occurred in 2001.

I am sure that Bill C-57 is going to give a lot of comfort to Canadians who invest and who have savings and business with financial institutions. I think this is a good bill. My party agrees with it, of course, because while the Liberals failed to mention this in their presentation, it is here because of the insistence of members of our finance group, the member for Medicine Hat, the member for Edmonton—Spruce Grove, the member for Peace River and the member for Portage—Lisgar and, of course, also the insistence of the chief member of the finance committee from the Bloc. They have insisted that the government not delay the introduction of this legislation to provide this framework and to update the governance regulations, basically so these institutions will have a clear understanding of where and how they are supposed to operate within these guidelines. I know that does give a level of comfort to Canadians.

As part of my presentation on the bill, I want to now move to what Paul Harvey might refer to as “the rest of the story”. Canadians who are watching the progression of this bill through House and who have read about it are no doubt, as I mentioned earlier, getting a great deal of comfort from knowing that the trust they have in their financial institutions is going to be even more secure and they are not going to be troubled by having another Enron or a WorldCom here in Canada. That is a good thing for Canadians, and I think all parliamentarians should take credit for getting the bill into the House.

The rest of the story is this. Let us imagine the average Canadian watching the progress of this piece of legislation about how these financial institutions are going to be governed and how they are doing their business. Let us imagine the questions they must have in their minds about how this Liberal government, which has shamelessly, over the last 12 years that I have been in the House and probably longer than that, been followed by scandal after scandal, by corruption after corruption, plagued by evidence and accusations and acts of patronage that are just beyond the comprehension of—

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Madam Speaker, it is my pleasure to speak today to Bill C-57. The Parliamentary Secretary to the Minister of Finance has given a pretty good explanation of what the bill is all about.

It is very important to mention the participation of the corporations, such as banks, bank holding companies, the insurance companies and all the corporations for which the bill would set, modernize and update governance rules.

The parliamentary secretary did not mention this but it is also important to thank the members of the official opposition finance team for the input they gave to the government. I know the government, on many occasions, sought the advice of our finance critic, the member for Medicine Hat; the member for Edmonton—Spruce Grove; the member for Peace River; and the member for Portage—Lisgar, who all played a part in the formation of this bill. They have given input to the government over the years at committee and in the House. I know the government appreciated the fact that the members of the official opposition's finance group were able to participate and help the government out when it was seeking advice on some very complex issues of this bill.

The bill would make 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 them in line with the Senate Bill S-11, which was updated in 2001 for business corporations under the Canada Business Corporations Act. That is a mouthful to the average person out there watching this debate but what it means is to modernize the governance framework that the banks and financial institutions operate under so that what they do becomes more open and more transparent to shareholders and the general public at large that may do business or invest in these corporations or be part of credit unions and cooperatives. They would now be able to sleep a little better at night knowing that these governance regulations on how these corporations operate would be open and transparent. It would give them an extra measure of comfort when they are placing their money in the trust of these people.

The bill also enhances the ability of shareholders to exercise their rights by allowing for the electronic participation at meetings, which is important because many times shareholders may be living in Vancouver or Toronto and they just cannot afford to jump on a plane, fly across the country and be part of a shareholders meeting, even though they may have something important to say or to cast their votes. This would let them cast those votes electronically, something we have talked about in the House here. I am sure the day will come when members of Parliament may be able to cast their votes electronically from the other side of the country if they cannot make it to the House of Commons, which certainly would be a savings to the taxpayer given the cost of air travel these days.

The bill seeks to improve the flow of information from financial institutions to the Office of the Superintendent of Financial Institutions. The important part of the bill is that it would allow medium sized insurers and trust companies to apply for an exemption to the public holder requirement which requires institutions with equity holdings between $1 billion and $5 billion to make at least 35% of their voting shares available for trading on the public stock exchange. That is going to be a huge benefit to credit unions and co-ops that have been seeking this modernization of the rules.

The bill proposes changes to the policyholder governance framework and the Insurance Companies Act, which would be intended to increase disclosure in regard to participating in adjustable policies.

Millions of Canadians have insurance policies and millions of Canadians invest in insurance companies. These companies are reputable and have demonstrated that they are trustworthy, and although Canadians may feel comfortable investing in them, I would hazard a guess that many shareholders and policyholders really do not understand the fine print in their policies. This legislation would give that more disclosure.

It is important to point out that after the next election a Conservative government, this Conservative Party, will protect the best interests of consumers by fostering competition and ensuring that the financial services sector is appropriately regulated for the protection of shareholders and balanced with stability and the opportunity for success and growth. This is a written policy of our party, which we intend to follow through on when we become the next government in this House.

Cooperative organizations and banks have all expressed a level of comfort with Bill C-57. I think it is important to keep a line of communication open to the very companies that Bill C-57 would apply to, particularly banks and other financial institutions in our country.

In many cases, the government has failed to do this. Many times, banks have been left hanging by the indecision of the Minister of Finance on some very key issues such as bank mergers and cross-pillar merging. Credit unions have been seeking some administrative changes.

[Guy Côté, Bloc, Portneuf, QC]

Madam Speaker, I have already, in this House, told my colleague from Scarborough—Guildwood how much I like having an opportunity to debate various issues with him and to show him that, too often, he contradicts himself. However, I must admit today that following this most interesting speech on Bill C-57, it would seem that, this time, for once, the government is on the right track, which I must say does not happen often enough.

Indeed, there seem to be a number of very interesting measures in Bill C-57. It should be understood, however, that I am still not convinced that this bill cannot be improved. But the government is certainly on the right track. That being said, the member mentioned earlier a number of provisions dealing with institutions that have between $1 billion and $5 billion in equity. He was talking more specifically about cooperatives. He mentioned in his speech that other types of institutions could also be exempted from these obligations.

Could the member elaborate on those other types of institutions that could be exempted from the obligations set out in this bill?

[John McKay, Liberal, Parliamentary Secretary to the Minister of Finance]

Madam Speaker, I am thankful for the opportunity to speak to this bill and for the resounding thunderous applause and enthusiasm with which this bill has been greeted.

This is a bill of great significance to our economy because the financial services in this country are extremely important to the functioning of our entire economy. For instance, in my area, which is the greater Toronto area, it is estimated that financial services account for something in the order of 21% or 22% of the GDP. That is a pretty significant industry when one thinks of all of the people in the GTA.

The proposed legislation fulfills a commitment made in budget 2005 to bring governance standards for financial institutions up to the levels adopted in 2001 for other federally regulated corporations. As well, this bill proposes to update certain provisions and governance standards that are unique to financial institutions. In 2001 we brought up the corporate standards. This bill in some measure follows on that initiative in 2001 and makes certain changes that are unique to financial institutions.

The financial services sector is one of the key foundations of a modern industrial economy. It is an important part of Canada's economic infrastructure and plays an essential role in ensuring stability, safeguarding wealth and fuelling growth and productivity. In this regard, the Government of Canada can ensure a modern and efficient regulatory framework needed to support a successful financial services sector. That is what Bill C-57 is all about, providing an updated and modernized governance framework that will help Canada's financial sector succeed and better serve Canadians.

A well functioning and innovative financial services sector is essential for the Canadian economy to achieve its full potential. Healthy financial markets represent a critical element of a positive and competitive business environment and are fundamental to achieving key economic policy objectives. A successful financial services sector is also critical to the interest of all Canadians.

As I said earlier, Canada's federally regulated financial institutions play a pivotal role in the national economy. Not only that, but they play a significant role in the lives of Canadians. That is why, notwithstanding the fact that some of this bill is quite technical in nature, all Canadians should in fact be interested in the progress of this bill through the House.

Indeed, financial institutions employ about 600,000 Canadians and account for something in the order of about 6% of Canada's GDP. Of course, they are also leaders in the use of information technology.

Because of the sector's importance, the policy framework must ensure that financial institutions have the tools they need to adapt to a changing marketplace. One of the tools that is essential to the effectiveness, safety and soundness of the financial system is good corporate governance practices.

Governance rules underpin the effective functioning of these institutions by setting up rules relating to the rights of shareholders, policy holders and members, the role of directors, auditors and other advisers, and rules relating to the preparation, review and disclosure of information. In this bill all of those elements are touched on in one way or another. Some changes are made. Some changes are parallel to what happens in other corporations that are federally regulated.

Effective governance benefits all stakeholders, including the financial institutions themselves and their shareholders. The regulator, in turn, relies on sound practices as part of its regulation and supervision of the financial system. For these reasons, the governance rules of financial institutions need to be updated on a regular basis. This is where Bill C-57 comes in.

To set the stage for changes proposed in this bill, as hon. members may know, federal financial statutes such as the Bank Act, the Insurance Companies Act, the Trust and Loan Companies Act, the Cooperative Credit Associations Act and related legislation set out the governance rules for federally incorporated financial institutions.

The governance framework set out in the financial institutions statutes uses the Canada Business Corporations Act, otherwise known as CBCA, as a reference point. As I said earlier, take the CBCA and therein is our basic governing structure for all federally regulated corporations. Then from there go to financial institutions and we will see some changes which are unique to financial institutions. There, in and of itself, is a key to reading the bill.

Changes made to this act are normally implemented in the statutes as appropriate for financial institutions. Members may recall that in 2001 the government undertook a comprehensive reform and modernization of the CBCA, as well as the Canada Cooperatives Act in Bill S-11, which received royal assent in June 2001.

Bill C-57 would provide financial institutions with the same modern governance tools by updating their governance framework generally along the lines of the changes made in the CBCA in 2001 and would update certain governance standards that would be unique to financial institutions.

The measures in the proposed new legislation fall into five broad categories that I mentioned earlier, adapted to each particular type of financial institution. These categories are: clarifying the roles of directors; enhancing the rights of shareholders; modernizing governance practices; strengthening the governance elements of the regulatory framework; and increasing disclosure in respect of participating and adjustable life insurance policies, otherwise known as par policies.

Let me take a moment to explain how the proposals in this bill will affect each of these categories.

First is with respect to clarifying the role of directors. An effective board of directors is key and critical to protecting the best interests of a financial institution. The financial institutions statutes recognize the importance of the board by setting out the standards, qualifications and duties expected of directors of those institutions, and it is quite extensive.

The new legislation contained in Bill C-57 also would clarify the role of directors in carrying out these important functions, for example, by explicitly allowing a due diligence defence. A due diligence defence in simple parlance is a director saying, “ I did everything possible within the bounds of reasonableness to understand what was happening in that institution. Therefore, when things went bad on this institution, I was still fulfilling my role as director and, therefore, should not be liable”. In simple terms that is a due diligence defence.

The way things stand currently, directors are liable in court if they do not fulfill their duties as prescribed in the financial institutions legislation. Imposing liability is a fair way of helping assure that directors comply with their responsibilities. It also is, and this is the point, fair to give directors an opportunity to demonstrate that they have exercised good judgment in fulfilling their responsibilities by doing such things as setting up appropriate policies and procedures.

Under the proposals contained in this bill, directors of financial institutions would have the same rights as directors of other corporations, namely, they can rely on what is known as a due diligence defence if, and this is a big if, they can demonstrate that they have fulfilled their responsibilities by exercising “care, due diligence and skill that a reasonably prudent person would have exercised in comparable circumstances”. That quote is from the CBCA legislation. This due diligence defence has now been incorporated into financial institutions legislation. This legislative standard would allow directors of financial services providers to show the proactive steps that they have taken in the exercise of their duties

The next point to be emphasized is the enhancement of the rights of shareholders.

The ability of shareholders to discuss and monitor corporate performance is an important element of good governance. The financial institutions statutes set out the rights of shareholders to participate in major decisions of a financial institution in which they have an interest. For shareholders to exercise these rights, they must have access to corporate information because, as they say, information is power and if one does not have the information, it is very difficult to exercise the power that would normally accrue to oneself as a part owner of the corporation.

Bill C-57 would enhance the ability of shareholders to exercise their rights by, for example, allowing shareholders greater freedom to communicate without triggering the proxy rules. Normally shareholders who wish to communicate about issues to be considered at the annual general meeting must circulate a formal document to every shareholder of the bank. This is intended to ensure that all shareholders receive timely and accurate information, but it is also an impediment to information communications among shareholders. Imagine if a person was a shareholder in bank X and was concerned about whatever was happening in bank X, that person would be loath to trigger a proxy fight by virtue of simply communicating his or her concern to other shareholders.

Bill C-57 would create greater freedom for shareholders to communicate without triggering a requirement to send out information to all the shareholders. As we know, in Canada, bank stocks are widely held. To communicate to all shareholders would indeed be a very expensive proposition even for a shareholder who was wealthy. For example, they would be able to make public announcements and issue press releases and would be able to communicate with small groups of shareholders without, as I say, triggering the proxy rules.

The third element of the bill concerns the modernizing governance practices. Given the importance of good governance to the well-being of a financial institution, the governance framework needs to be kept up to date with the best practices in this area. The new legislation in the bill would create a new going private transaction regime and would enable insider reporting, proxy and prospectus rules to be harmonized with the rules applied by provincial regulatory authorities.

Bill C-57 also would facilitate electronic communication and the voluntary use of electronic documents. Facilitating a more efficient flow of information would reduce compliance costs for the institutions and promote more effective governance practices. The bill would make it possible for financial institutions that get written consent to communicate with their shareholders electronically. As we can imagine, with a lot of the banks and other financial institutions, there are literally thousands of shareholders. Anything which would allow a more efficient form of communication as opposed to sending everything in the mail would be good for not only the shareholders but for the institution itself and all the stakeholders in the institution as well.

The fourth element of the bill concerns the governance elements of the regulatory framework. Unlike ordinary business corporations, federal financial institutions are regulated by the Office of the Superintendent of Financial Institutions which oversees the safety and soundness of federally regulated financial institutions. Bill C-57 proposes to strength a number of governance elements of the regulatory framework, including improving the flow of the information to the regulator.

The bill also would harmonize various governance standards within and across financial institutions and statutes. For example, the legislation would harmonize the authority of the minister to exempt and ensure a trust and loan company from its 35% public vote requirement with the same exception authority that applies to banks.

To clarify what that means, when an institution such as a co-op reaches a standard of $1 billion in equity, the normal requirement would be that the institution make 35% of that billion dollars in equity available to the public for purchase on an institution such as the Toronto Stock Exchange.

If we think about it, a co-op is owned by its members and it is uniquely inappropriate for the requirement of a co-op to float stock on an institution such as the Toronto Stock Exchange. The change proposed by the bill will allow a broader range of companies to apply to the minister for an exemption from the public float requirement. Currently they cannot even apply for the exemption.

A number of co-ops have come to me to express their support for the legislation. It was not contemplated when these institutions and this legislation was created, literally decades ago, that these kinds of institutions would achieve a $1 billion equity requirement. This catches up to the reality of the marketplace in the year 2005.

Finally, the policy governance framework in the Insurance Companies Act reflects the unique interests of the role of policyholders in corporate governance of insurance companies. The new legislation in Bill C-57 contains a limited number of proposed changes to the framework. These would work to increase disclosure in respect to participating and adjustable policies, otherwise known as par policies.

For example, the new legislation would require directors to establish corporate policies on participating accounts and changes to adjustable insurance policies. It would require actuaries to prepare fairness reports for the board's consideration. It also sets out requirements for communicating and making information available to policyholders, shareholders and the public. The details would be set out in the regulations which would be developed in consultation with the stakeholders.

A par policy at its simplest is a right on the part of the owner of the policy to participate in the governance of the institution. There were some difficulties with respect to some par policyholders getting sufficient and adequate information in order to make informed decisions with respect to their policies and with respect to their participation, such as it was, in the individual insurance company.

As well as committing to updating the financial institutions governance regime, budget 2005 also announced a review of the legislation concerning financial institutions. The Government of Canada's commitment to conducting regular reviews of the federal financial services regulatory framework has been key to promoting efficiency and competitiveness in the sector.

The sunset clauses in the Bank Act, the Insurance Companies Act, the Trust and Loan Companies Act and the Cooperative Credit Associations Act provide for an automatic five year review of the legislation. Therefore, legislation amending the financial institutions ought to be brought into force by October 2006. I hope it does not take all this period of time, but we have basically a year to get royal assent on this bill. I hope members opposite will be cooperative and recognize that this important to our sector.

This is a practice that sets Canada apart from virtually every country in the world, providing an important advantage to Canadian financial institutions relative to their foreign competitors. We are constantly refreshing the legislation that governs these banks.

During the upcoming months work will progress on the review of the federal financial services regulatory framework so that draft legislation will be ready to present to the House in early 2006 with a view to having it come into force by the deadline of October 2006.

The bottom line is that the intent of the bill is to provide Canada's financial institutions with the modern government tools they need. The initiatives proposed in Bill C-57 would provide them with the tools to do exactly that. I therefore urge all hon. members to give the bill their full support.

[Ralph Goodale, Liberal, Minister of Finance]

moved that Bill C-57, an act to amend certain Acts in relation to financial institutions, be read the second time and referred to a committee.

Business of the House

[Tony Valeri, Liberal, Leader of the Government in the House of Commons]

Mr. Speaker, I would like to lay out the business for the next week.

We will continue this afternoon with Bill C-55, which is the wage earner protection program. Then we will proceed to the second reading of Bill C-57, the financial institutions bill, followed by second reading of Bill C-54, which is the first nations oil and gas and moneys management act.

Tomorrow we will consider report stage and, if possible, third reading of Bill C-25 respecting Radarsat. I understand as well that there are some ongoing discussions about the disposal of Bill C-63, amending the Canada Elections Act. We would also like to deal with Bill S-38 respecting the spirits trade and Bill S-31 respecting autoroute 30.

On Monday we propose to commence report stage of Bill C-11, which is the whistleblower bill. We would like to give this bill priority all week in the hope of completing all of the remaining stages.

We would then return to any business left over from this week and, if there is time, begin consideration of Bill C-44, the transport bill; Bill C-28, the food and drug legislation; Bill S-37, respecting the Hague convention; Bill S-36, the diamonds bill; and Bill C-52, the fisheries bill.

With respect to the business of supply during the present period, Mr. Speaker, I will reconfirm that you confirmed to the House that there will be seven allotted days during this period. In response directly to the opposition House leader's question, as per our discussion at the House leader's meeting this past Tuesday, we understood we would schedule the supply days after the Thanksgiving break.

In any event, it will be a topic that I look forward to discussing with House leaders at our meeting this coming Tuesday, so that we can in fact schedule all the required opposition days.

Bank Act

[Ethel Blondin-Andrew, Liberal, for the Minister of Finance]

moved for leave to introduce Bill C-57, an act to amend certain acts in relation to financial institutions.

(Motions deemed adopted, bill read the first time and printed)