Bill S-5 (Historical)

Financial System Review Act

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

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

Financial System Review Act

[Tyrone Benskin, NDP, Jeanne-Le Ber, QC]

Mr. Speaker, it is one thing to be able to see the information, and I appreciate that aspect. It is one thing as consumers to know how much we are getting dinged. I wonder if there are any aspects of the bill that look to curtailing some of the seemingly gouging practices of banks, as concerns fees and interest rates?

[Rod Bruinooge, Conservative, Winnipeg South, MB]

Mr. Speaker, I think obviously it is important that people are able to have a fair interest rate. Ironically, we may be living in the lowest interest rate moment in world history. I know recently, in Canada, five-year mortgages have dropped to historic lows of 2.99%, although perhaps I will move to another realm, which I think the member was probably asking about, in relation to credit card fees.

As I said earlier in a previous answer, I believe these companies that are engaging in offering credit sometimes to people who do not have excellent credit ratings should be able to earn a living off of that. It is up the consumer, I think, provided the information is provided, to choose whether or not to take part in that type of credit facility.

[Susan Truppe, Conservative, Parliamentary Secretary for Status of Women]

Mr. Speaker, I would like to thank my hon. colleague for his detailed and passionate remarks.

I would like to ask the hon. member if he would tell the House what the process was for the consultation.

[Rod Bruinooge, Conservative, Winnipeg South, MB]

Mr. Speaker, I do want to thank the parliamentary secretary for doing incredible work since she has been elected to this House. She has been a real pleasure to work with and I am honoured to be her colleague.

As I said earlier, there has been an extensive process of consultation, but there is always ongoing consultation when we are involved in processes that engage the public to the wide degree that this bill has. It is really an ongoing consultative process, and with a sunset clause in five years, of course, we will be continuing to consult.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Mr. Speaker, I am thankful for this opportunity, albeit brief, here today.

I had a chance to go through the legislative summary for Bill S-5, and I must say that I am always very impressed by the lot over at the Library of Parliament. I want to thank them for their research and mention, for the record, Mark Mahabir and Adriane Yong who are both from the International Affairs, Trade and Finance Division, Parliamentary Information and Research Service. We do not always give them the credit they are due, and I hope this goes in just a small way toward acknowledging the work they do for us here in the House of Commons and the Senate as well.

The committee reported Bill S-5, an act to amend the law governing financial institutions and to provide for related and consequential matters from the Senate on December 15, 2011. There were no major amendments made in the Senate, but certainly it came with, as described here, observations.

The bill amends four primary statutes under which federally regulated financial institutions are governed. They would be the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act and the Trust and Loan Companies Act. There are also major amendments to other provisions regarding the financial institutions of our country.

Bill S-5 contains various measures to update the law governing financial institutions, as I have mentioned. The shares of a Canadian financial institution being held by foreign financial institutions controlled by foreign governments is one of those and it is certainly a timely matter given the world of finance we are in. We experienced this several years ago when we slid into a recession initially sparked by some financial tools in the United States in many cases. Of course, that wreaked havoc around the globe for all financial institutions such as in Asia and the European Union, which is now suffering through this, and austerity measures have followed suit as a result of that.

This illustrates to us and the entire country that we are certainly intertwined with the rest of the world as far as financial institutions are concerned. When something causes headaches for people in one part of the world, those headaches will reverberate around every corner of the world, given the financial institutions and the technology we use to trade currently. It gives us an idea of how important this is when it comes to international institutions.

On the acquisition of foreign entities by Canadian financial institutions, as a matter of fact, we are now seeing financial institutions in this country, banks, for example, with bigger investments around the globe. We certainly see it in the United States currently with institutions such as Toronto Dominion and others, as well as in Europe and Asia. In a country the size of ours, it gives us an idea of how good we are and how large our financial institutions are, as we are able to be a major player around the globe.

On the widely held ownership threshold for banks, it was always a contentious issue. It certainly was contentious when I first came here in 2004-05 and it continues to be.

The authority of the Superintendent of Financial Institutions over certain types of transactions, the administration of unclaimed insurance deposit accounts by the CDIC and the Bank of Canada, the insolvency of financial institutions and the liability of the CDIC when acting as a receiver during receivership of insolvent financial institutions are also very important at this point. There is also the restructuring of insurance companies and the liability of officials and employees of the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada.

When we look back, this bill really got its roots from Bill C-37, which was back in June 2006. There was a paper entitled “Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework”. The legislative changes included greater disclosure for consumers in relation to investment products, very important, and complaint procedures, the introduction of electronic cheque imaging and clearing, and an increase in the widely held threshold for large banks from $5 billion to $8 billion in equity.

This reminds me of the legislation we dealt with not too long ago when we talked about copyright. We are seeing the proliferation of technology right now that allows us to transact around the world instantaneously. As a result, the legislation has to keep up with the changing technologies around the world in, as I mentioned, copyright, banking and financial institutions. It shows not only the speed and brevity by which financial transactions are able to go around the world, but it also gives us an idea that the scope has become much larger, as well as the depth of the banking institutions. Therefore, we have to look at this and update legislation, as we did with the copyright bill. It is somewhat of a new concept when we have to review it after four or five years. Nonetheless, it is a concept that is certainly necessary.

We are seeing that now with the sunset provision. The Bank Act, the Cooperative Credit Associations Act, the insurance companies and trust and loan companies contain a statutory sunset date set out some time ago. The legislative changes will include greater disclosure for consumers in relation to investment products and complaint procedures. We went through the updating measures that were contained in Bill C-37, which was introduced in the House on November 27, 2006. In order to have sufficient time, we went through this review, which went from the October 24, 2006 to April 24, 2007, to accommodate that.

That puts us in the place we are now as we go through the review once again, as it was introduced in the Senate as Bill S-5. It went through the three readings and the committee procedure and came back with some of those observations.

Clauses 53(2) and 53(3) require a Canadian bank to obtain approval from the Minister of Finance prior to acquiring control of a foreign entity, and this is important, if the bank has equity of $2 billion or more and the value of the foreign entity's consolidated assets in combination with the value of the consolidated assets of the bank's other foreign control acquisitions in the past 12 months exceed 10% of the value of the bank's consolidated assets prior to the preceding 12-month period. I hope everyone got that because there will be a test at the end of the speech, though probably not, as I excite the masses talking about financial institutions.

The minister, in contemplating the acquisition, can take into account all matters considered relevant in the circumstances, including the stability and best interests of Canada's financial system. We go back to Canada's financial system and the emphasis that we put on this to ensure it is suited for Canadians. We know that in the past we have faced this primarily from breakdowns in financial institutions around the globe. If one finds trouble or turbulent waters, that ripples throughout the global system. Therefore, we have to ensure our system is able to withstand some of the shocks that occur around the globe. The sunset clause is to renew the acts, as I mentioned earlier.

Let us take a look at Bill S-5. It does not represent a significant change in policy, per se. It is crucial that the existing sunset clauses are extended so Canada's statutes for financial institutions do not expire, which is around April 20. Bill S-5 is not what I would call an ambitious bill. It does not significantly change Canada's banking policy or address Canada's record levels of household debt. However, Canada's banking laws are set to expire.

There is one thing I can point out about the government. The Conservatives called on the previous Liberals to follow the U.S. example and deregulate the Canadian banking sector. I remember at the time there was quite a debate and there were certain stands that all members of the House took in 2003 to 2005. I am sure they wish they had them back in light of what has happened around the globe when financial institution measures such as these become critical and very important for us to consider.

Liberals will support Bill S-5 at report stage and third reading because of this. Again, I revert to what I said earlier. Given the intertwine nature of the financial institutions around the globe, it certainly falls upon us in the House to have this debate so we can ensure the regulations are updated in light of certain troubles around the world and certainly with the advent and proliferation of technology that allows us to pass our money around the world and invest.

[Glenn Thibeault, NDP, Sudbury, ON]

Mr. Speaker, I thank my colleague for all his knowledge and the test for members of Parliament. We will wait for that test.

My colleague talked about a lot of the things in the legislation. I have noticed what is actually missing from the bill. There are a lot of things the government could have put in the bill, but it chose not to.

One of the things the New Democrats have been talking about for the last couple of months is the lack of support for the Ombudsman for Banking Services and Investments, OBSI. This was something that happened before 2006. The government had a choice to bring forward legislation to ensure consumers and small businesses would be protected if they had a complaint against one of the large institutions. That is the job of OBSI.

On the front page of the Globe and Mail today, OBSI is now worried and the board is considering closing because of the government's inaction.

Would it be fair to say that it is time the government starts to look at what is missing and to listen to what other organizations are saying about putting stuff in that will help small businesses and consumers?

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Mr. Speaker, my colleague is absolutely correct. I have always been interesting in participating, especially for youth in my riding, in financial literacy. He points out some of the factors, like having an ombudsman, which is ideal in this case. There are so many instruments out there and so many ways to invest from our basement, or our living room or in front of our laptop that it now becomes overly cumbersome to know all the rules and regulations about this.

The debate to bring some of the elements of consumer protection into this are absolutely necessary. I do not know if this is where we go with this. Bill S-5 is to update the financial regulations in our country so they are in tune with other things.

I would agree with the member that we should have a larger debate on this. In my opinion, it should be focused on the protection of the consumer in light of the increasingly larger institutions out there.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Mr. Speaker, I appreciate the speech by my hon. colleague from Bonavista—Gander—Grand Falls—Windsor. Terra Nova should be the name of his riding, but we will talk about that another time.

I am speaking of things that are not in the act, and I hope this will not be a troubling question. The financial transaction tax was mentioned earlier today in debate by a Conservative member as something the Conservative Party opposed. The Green Party supports it.

Does the hon. member have any thoughts about bringing in an international levy at a very tiny level that would create funds that could be used if we were to have another collapse of the highly speculative derivative market globally, which in my view is still not adequately regulated?

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Mr. Speaker, that opens up a fascinating discussion if we are talking about an international levy, and I am assuming in minuscule amounts. As a cushion or protection, I do not think the government would be adverse to talking about that. It did bring in the security fee for people travelling in airports, which I would call a travellers tax. Nonetheless, the Conservatives certainly see the importance of bringing in some of these fees or particular levies for the sake of protection of the consumer, in that case the protection of the traveller.

I do not have much knowledge on the levy itself she is talking about, but I would consider it if in the end it provided protection, not just for a particular consumer but also for employees in case of bankruptcy or environmental hazards.

I would like to see some kind of international levy for businesses regarding environmental hazardous waste. When companies wind down and leave, who cleans up after them? There is no money available for that, unless it is on a military base or something of that sort, but what about industrial bases? I may be getting off topic, and I think I am, but nonetheless I should probably stop there.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Mr. Speaker, I am pleased to speak to Bill S-5.

Today we have discussed many of the important features of Bill S-5, which will strengthen Canada's financial sector advantage. As many speakers before me have noted, this is a mandatory, routine bill. Moreover, it includes many technical or administrative amendments that can be somewhat classified as housekeeping. However, there are a few more substantive measures that address current, global and domestic trends that I would like to highlight today.

The financial crisis highlighted the importance of evaluating the overall size of financial institutions, their global linkages and the impact these factors had on financial stability and the best interests of Canada's financial system.

In response to lessons learned, today's legislation proposes to reinstate an existing ministerial approval for select foreign acquisitions of financial institutions.

While Canada's sound financial system is a model for countries around the world, and we want to ensure that it remains secure, the global banking crisis nevertheless highlighted additional risk factors that supported more oversight of large foreign acquisitions.

To provide historical background, prior to 1992, banks were prohibited from owning a foreign subsidiary. In 1992 the government of the day amended the legislation to allow federally-regulated financial institutions to own a foreign subsidiary or hold a substantial investment in a foreign institution with the approval of the minister.

In 2001 that requirement for ministerial approval and review by the Department of Finance was repealed and oversight was limited to the Office of the Superintendent of Financial Institutions.

However, since 2001, the global banking crisis has highlighted additional risk factors that support the need for greater oversight to keep our financial system secure. As such, we are reinstating in today's bill some of those historical oversight provisions that were repealed in early 2001.

This bill would simply add ministerial approval if a federally-regulated financial institution acquired a major foreign entity which increased its assets by more than 10%. The criteria that the minister could consider are hard-wired in the legislation, those being the stability and best interests of the financial sector. The timeline for approval is also hard-wired. The legislation would require the minister's consideration in 30 days or it would be deemed approved. This would likely only apply rarely. In fact, since 2004, there have only been a small number of cases where this proposed legislation would have applied.

The reactions from academics, bankers and the Superintendent of Financial Institutions have been quite supportive of the provision. I would like to share some of their reactions with the House.

Michael King, finance professor of the Ivy School of Business stated:

This kind of a rule is actually one of the reasons why Canadian banks weathered the crisis so well over the years...Canadian banks have done well. And it’s helped the Canadian economy to have such stable banks.

Terry Campbell, president of the Canadian Bankers Association stated:

That power was given to OSFI, and now it is back with the Finance Minister to, in our view, give him a full suite of tools as part of his oversight of the financial system in Canada.

Julie Dickson, the Superintendent of Financial Institutions, stated:

—we fully support that decision. It makes sense for the Minister of Finance to ultimately have the ability to approve. It’s just going back to the way it used to be.

Today's bill would help ensure that Canadians would continue to have a strong and secure financial system on which they could rely. Canadians are proud that, unlike Europe or the U.S., we did not have to nationalize or bailout banks with taxpayer money. Canada has shown the value of ensuring a well-regulated financial system. That is something that has been recognized around the world.

Canada was ranked as having the soundest banks in the world by the World Economic Forum.

The influential magazine The Economist has also proclaimed:

Canada has had an easier time than most during the recent global recession, in part because of a conservative and well-regulated banking system.

Canadians use financial services every day, be it by using their credit card, cashing a cheque, going to the bank, or signing a mortgage. I think members would agree that Canadians deserve to be treated fairly when using these products and to be provided with clear information before agreeing to use them.

Indeed, since being elected in 2006, our government has taken important steps to address consumer concerns and make financial services products more consumer friendly. Those measures have included: protecting consumers with new credit card rules, such as requiring consent for credit limit increases, a minimum 21-day grace period on new purchases, full disclosure for consumers, and limiting other anti-consumer business practices; bringing in a code of conduct for the credit and debit card industry to help small businesses dealing with unfair practices, as the code would help ensure fairness, encourage real choice and competition, and protect businesses from rising costs; and banning negative option billing for financial products. There is much more.

Our government agrees that making financial services products more consumer friendly is an important goal.

In this legislation, we are making a few important changes to federal financial institution statutes, including confirming that Canadians, including bank customers, are able to cash government cheques in amounts of less than $1,500 free of charge at any bank in Canada, and improving consumer protection by increasing the maximum administrative penalty that the Financial Consumer Agency of Canada, FCAC, could levy from $200,000 to $500,000. This would also bring FCAC penalties in line with other financial regulatory authorities, like the Office of the Superintendent of Financial Institutions and the Financial Transactions and Reports Analysis Centre of Canada.

This is in addition to consumer-friendly measures we announced in budget 2011, such as banning unsolicited credit card cheques, moving to protect consumers of prepaid cards, beginning to implement the task force on financial literacy's recommendations, starting with the creation of a financial literacy leader in the government. In fact, it was only last month that we introduced the financial literacy leader act to move forward on the financial literacy front.

I could go on to outline other very important components of the bill, but I will close by encouraging all members of the House to support this very important mandatory and routine legislation so as to ensure it is passed without delay so that we can continue to enjoy a strong, stable financial sector.

[Dany Morin, NDP, Chicoutimi—Le Fjord, QC]

Mr. Speaker, as my NDP colleague from Sudbury mentioned a little earlier, the NDP is more concerned about what is not in the bill than about what is actually there.

I am going to start by saying that when it comes to consumer protection, Canadians continue, in general, to get ripped off by the banks with their high service and user fees and their outrageous interest rates on loans and credit cards, despite record profits. Last year, the banks profited to the tune of $25.5 billion, while Canadians' salaries are in decline.

I want to ask the hon. member the following question. In this bill, why does the government not concentrate more on protecting consumers rather than supporting the position of the big Canadian banks?

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Mr. Speaker, what we do know is that we have a very sound financial system and that it is a model for countries around the world. In fact, for the fourth year in a row, Canada was recently ranked as having the soundest banks in the world by the World Economic Forum.

I believe that ensuring we have a sound banking system ultimately benefits consumers.

I would like to talk about what acts are included in this bill.

The four principal acts that govern the financial sector, the Bank Act, the Insurance Companies Act, the Trust and Loan Companies Act, and the Cooperative Credit Associations Act, all have their sunset dates renewed for five years.

There are also changes to related statutes, such as the Financial Consumer Agency of Canada Act, the Office of the Superintendent of Financial Institutions Act, the Bank of Canada Act, the Canada Deposit Insurance Corporation Act, and the Canadian Payments Act.

There has been a fairly broad inclusion with some of these organizations in this legislation.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Mr. Speaker, I congratulate the member on her speech in which she talked about several very important planks that are contained in Bill S-5.

I would like her to expand on some of the consumer protections. We have done some work on expanding the transparency for consumers when they apply for and receive their credit cards, and several other measures to protect consumers. I wonder if she could expand on those aspects.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Mr. Speaker, I appreciate the work my colleague does on the government operations and estimates committee.

As I said in my opening remarks, since being elected in 2006, our government has taken many important steps to address consumer concerns and make financial services products more consumer friendly. I mentioned that we have introduced new credit rules, such as requiring consent for credit limit increases, a minimum 21-day grace period on new purchases, full disclosure for consumers, and limiting other anti-consumer business practices.

We have also brought in the code of conduct for the credit and debit card industry. This helps small businesses deal with unfair practices.

The bill addresses the concerns of consumers. It also ensures that we have a strong financial sector.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Mr. Speaker, I listened closely to my colleague's remarks, and I must admit that I am very concerned, as are all my colleagues here, about foreign acquisitions by our financial institutions.

These acquisitions are currently subject to the approval of the Office of the Superintendent of Financial Institutions, but under this bill, they would instead be subject to ministerial approval. Let us be clear. When we look at the work done by ministers in this cabinet, there are no two ways about it: there are a lot of double standards.

How can my colleague justify taking this responsibility away from a neutral stakeholder and handing it over to another stakeholder who may not be impartial?