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.

Motion in Amendment

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Mr. Speaker, I would like to thank the hon. member for his speech. I would like him to elaborate on the connection between the financial system and the Canadian economy.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Mr. Speaker, I would like to thank the hon. member for Saint-Lambert for her question.

We did not put forward an excessive number of amendments to this bill. The amendments merely served to connect the approval of the department or minister to the Canadian economy, to show that there is a link between them. If we consider only the interests of financial institutions and not the interests of our country's economy, the approach will be unbalanced. We simply want the minister to also consider the Canadian economy when making decisions. Unfortunately, the Conservatives rejected the amendments.

[Robert Goguen, Conservative, Parliamentary Secretary to the Minister of Justice]

Mr. Speaker, my hon. colleagues have discussed many of the important features of Bill S-5 which would strengthen Canada's financial sector to its advantage. I particularly appreciate my hon. colleagues' characterization of the financial system as being only as strong as its weakest link and for outlining some of the key areas where the government has acted, both within Bill S-5 and elsewhere, to strengthen those links that needed the most attention.

The banking sector has expressed its strong support for this mandatory legislation. For example, Terry Campbell, president of the Canadian Bankers Association has explained, “In Bill S-5, the government has stepped up to the plate and is proposing what we think are very needed clarifications”.

I also agree with my colleagues' emphasis on the importance of considering the health of the whole financial system as fundamental to the growth and success of the entire economy. With this in mind, I would like to dedicate my allotted time to considering one special crucial link in the system which Bill S-5 would act to fortify, and that is Canada's payment system.

Our payment system is the set of instruments, procedures and rules used to transfer funds among financial institutions, either on their own behalf or that of their customers. This is not to be confused with the various other payment instruments Canadians use, such as cash, cheques, debit cards and credit cards to purchase goods and services, to make financial investments and to transfer funds from one person to another. The two are not unrelated, however, because these payment instruments, with the exception of cash, normally involve a claim on a financial institution such as a bank, credit union or caisse populaire. Financial institutions therefore need arrangements to transfer funds among themselves, which is why the payment system exists.

In Canada, the national systems for clearing and settlement of payment are run by the Canadian Payments Association, also known as the CPA, a not-for-profit organization of federally regulated financial institutions. This system has served Canadian financial institutions and their customers well. However, in a world of ever-changing demands, technological innovation, increased global integration and competition, no responsible and effective government can afford to let such a system remain static. That is why Bill S-5 takes action to ensure that this system can meet the ongoing demands of an increasingly dynamic, innovative and globalized financial system. I must note that the CPA provided input on these measures through an open public consultation process and has told the House finance committee that it welcomes ”the incorporation of technical and housekeeping amendments to the Canadian Payments Act legislation to provide greater clarity surrounding our membership”.

It is clear that the payments landscape is changing. For example, since 1996 we have seen in Canada and abroad increasing cases where clearing and settlement systems do not include banks as direct participants. To better accommodate this development, Bill S-5 proposes to amend the Payment Clearing and Settlement Act to remove the requirement that there must be at least one bank involved. The new definition would allow more flexibility in establishing systems to clear such complex financial instruments as over the counter derivatives, or OTCs. This change has the added benefit of allowing the Bank of Canada to oversee the transactions of these complex financial instruments to help ensure they pose no systematic risk to the financial system. Not only is this prudent, it is also in keeping with Canada's commitment to our G20 partners that by 2012 our OTCs be cleared through central counterparties.

Bill S-5 also proposes to change the Payment Clearing and Settlement Act to allow the Bank of Canada to disclose information to other regulators of payment clearing and settlement systems and to coordinate activities across current federal and provincial jurisdictions as well as with foreign regulators. This would also help us meet our G20 commitments by ensuring that Canadian prudential and market conduct regulators have the authority, tools and information they need to maintain effective ongoing oversight over the Canadian OTC derivative market. Moreover, the information sharing would help all parties understand the potential risk in these linked systems, building upon lessons learned from the 2008 financial crisis and helping in our efforts with our international partners to prevent such instances in the future. Failing to form such links could actually delay our ability to link to foreign systems and undermine Canada's ability to meet the commitments all G20 nations made. This is a key fact for hon. members to consider when debating the timely passage of Bill S-5.

If that does not convince hon. members to get behind the bill, I will offer another good reason.

As many hon. members appreciate, Canada's credit unions are a valuable source of financial services in communities across the country. In recognition of the important role credit unions play, in budget 2010 our government created a new legislative framework for federal credit unions to accommodate growth and expansion of the Canadian credit union system, putting them on a more level playing field with other financial service providers.

Once implemented through regulation, this would enable those credit unions that choose to do so to extend beyond provincial borders and pursue business strategies that are not limited by provincial incorporation. This change would encourage competition among financial institutions and promote a more level playing field within the financial sector, supporting a stronger and more stable system overall. It would also give credit unions a way to expand their sources of funding and diversify their geographic risk exposure.

Bill S-5 supports these efforts by amending the Canadian Payments Act so that credit unions fall within the co-operatives class in the act rather than the bank class, giving federal credit unions a more effective voice in the CPA. I am pleased to report that this measure has been very positively received by the federal credit unions.

According to Credit Union Central of Canada, the national voice for credit unions across the country, these changes would help credit unions represent their members more effectively at the payments table.

In the words of David Phillips, president and CEO of Credit Union Central:

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

At the same time, credit unions would still enjoy the long-standing, well-understood and robust governance, liquidity and clearing and settlement frameworks that they use today.

For these reasons, I would encourage hon. members of the House to support the timely passage of Bill S-5. They can do so with the confidence that by making these important improvements to Canada's payment system they will be strengthening key links in Canada's financial system and better connecting it with the world.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Mr. Speaker, we are debating Bill S-5. However, we are also debating part of the amendment that was tabled.

Let us be very clear. The amendment talks about the fact that the immunity resulting from this provision could negatively impact the office's transparency and accountability to the Canadian public with respect to Bill S-5. That is why we have tabled it, to talk about transparency and accountability, which it is obvious the government is not willing to support.

This bill was pushed through the Senate. It is such an important and crucial bill when it comes to the well-being of finances, not only of the banks but of Canadians as a whole. Why is it that the government will not support an amendment that would assure transparency and accountability, and would also prevent the time lost as a result of frivolous civil lawsuits?

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

Mr. Speaker, we believe that the legislation when read in its entirety has all the elements of transparency necessary to ensure the best protection of the public. Consumer protection is at the heart of this very legislation.

[Kevin Lamoureux, Liberal, Winnipeg North, MB]

Mr. Speaker, why did the government choose to bring in Bill S-5 through the Senate as opposed to the House of Commons?

It seems that the government's attitude, as has been demonstrated on other pieces of legislation that have come before the House, is to minimize the contributions of members of Parliament on legislation.

We all acknowledge that this is very important legislation and it will pass. Why is it that the government continues to look at ways in which to minimize input and debate in the House of Commons where that debate should be taking place on all legislation as much as possible? Why bring it in through the Senate as opposed to the House of Commons?

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

Mr. Speaker, the House has a very busy agenda and has very capable members, as does the other house, the Senate, which is equally capable of coming up with a very well crafted bill such as Bill S-5. In its field of competency, it has come through with what we feel is a very good piece of legislation.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Mr. Speaker, my colleague made a couple of comments toward the end of his speech about putting credit unions in the co-operatives class. As he would know, there is a tremendous amount of importance around credit unions in New Brunswick which service our rural areas. In come cases, if it was not for credit unions, there would not be any banking services in the rural areas.

I would like the member to take a minute to comment on the competitive aspects and what this is doing for credit unions in allowing them to continue to build strength in our rural areas.

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

Mr. Speaker, credit unions play a very important role in Canada's economy. Many of the credit unions are in the smaller areas where the bigger banks have pulled out because of lack of population. The fact that they are now becoming full members of this competitive process will benefit consumers. We know that credit unions, being of a smaller nature, pay very much attention to their members. They will offer more competitive rates. This will sharpen the pencils of the bigger banks which are sometimes subject to criticism.

[Brian Masse, NDP, Windsor West, ON]

Mr. Speaker, it is a pleasure to rise here today on Bill S-5 and the amendments that the NDP has put forward with regard to creating more transparency and accountability in this bill.

We do support the bill. However, we see this as a missed opportunity because there are so many issues relating to the banking industry right now that affect Canadian consumers, and also Canadian companies. I was at committee today and so I do not know if this has been discussed a great deal here, but small and medium size businesses have been hurt exponentially by the banking system in recent years. I will get into more detail on that later, but it is important to put that as part of the equation as we talk about this missed opportunity here.

First, as my colleague from the Liberal Party noted, the bill comes from the Senate. That is a concern for us. Why would the government table a bill in the Senate and then have it come to the House of Commons? A Conservative called the Senate equally capable. That is an interesting description for the Senate coming from the Alliance/Reform Party base out there when senators are unelected, unaccountable individuals.

While there are some very good people in the Senate who do some good work, at the same time they are not elected and not accountable to the Canadian people. Therefore, I do not think the Senate is equal to the House in any sense whatsoever. I am shocked that a Conservative/Reform/Alliance person would call the Senate that, because senators are political patronage appointments made by the Prime Minister, whether that be Joe Clark at the time, Pierre Trudeau, Jean Chrétien, Paul Martin or now our current Prime Minister.

Senators do not have to go to the electorate and earn their seat. Once again, there are some very good people there whom I have worked with on a lot of good issues and I respect them a great deal, but there is a big difference between them and having to go to the person checking out groceries and selling cars. They are our bosses. They are the ones who decide whether we get to this place or not.

Having said that, I am a little concerned that the bill is from the Senate. I say this because in the past I worked on Bill C-393, a bill on providing generic drugs to developing countries for tuberculosis, AIDS and malaria. The House of Commons passed it, but it actually died in the Senate. Thus the elected body here passed a bill, sent it to the Senate, but it never made it through, even though it should be Canadian law right now so that we could provide medicines to those who are suffering from tuberculosis, malaria and AIDS in developing countries. There was also the bill from Jack Layton, the climate change bill, that was passed in this House of Commons, but, again, did not make it out the door of the Senate.

Now we have the reverse coming back here and what we see is a very scoped bill on the banking industry. However, I am glad that the Conservatives are dealing with this. The government is actually addressing some component of it, but let us take a step back in history, which I think is very important.

It is interesting that representatives of the banking industry came into my office a year ago and said that I should be thanking them for the work they had done and the fact they had propped up the Canadian financial system because of the way banks were structured and had done business. At that point, I asked if they wanted me to go to my computer or to my filing system and pull out all of the presentation decks and summaries they had previously provided me saying that they had to become like the American banks.

It was the New Democrat members in the House of Commons who fought against that. I will admit there were some Liberals who did so too, because I have been corrected in the past on this, and quite sincerely, by some of my Liberal friends. However, it was John Manley under Paul Martin who was trying to move our banks towards the American model. We voted against that and stopped it and it did not pass the House of Common, as there were some others who supported that notion to keep our banks the way they were. However, it was certainly the Conservatives, the right wing members, who got up day after day to complain about how Canadian banks would be swallowed up by U.S. institutions if we did not act at that particular time. That took on—

[The Acting Speaker, Bruce Stanton]

On a point of order, the member for Bourassa.

[Denis Coderre, Liberal, Bourassa, QC]

Mr. Speaker, there is an issue called relevance.

The claim that Jean Chrétien's government wanted to deregulate banks is completely false. I was part of that government. I would like us to render unto Caesar the things which are Caesar's. We are in this situation because a Liberal government protected our banks so that we did not become a copy of the American model.

[The Acting Speaker, Bruce Stanton]

First of all, I thank the member for Bourassa for his intervention. The second part of his intervention related more to debate on the facts. I would say, however, and this has been a point of possible interest through the course of the day today, that the debate, the question before the House today, is on the amendment. It is perhaps an opportunity to remind hon. members that while they have great freedom to explore these ideas around the question that is before the House, they may wish to tie those ideas together in terms of how they are in fact pertinent to the question before the House.

The hon. member for Windsor West.

[Brian Masse, NDP, Windsor West, ON]

Mr. Speaker, I will keep that advice in mind and return to the amendment.

It was part of the larger framework that we were dealing here, which is why I was trying to connect the two. The assumption or proposition of the banking industry is that they have basically propped up the Canadian economy with their wisdom, whereas if we look at history, there was clearly an attempt to actually to do something different.

However, I will go back to the amendment and the issue related to transparency, which I think is really important. It is important for the bill itself because it shows that there was an attempt to get an amendment that would clearly define where there would be some transparency for the banking industry related to transactions. The bill does actually have some interesting points related to foreign investments and a series of different things.

However, again, it speaks to the point that we have this small amendment that has been denied, whereas the banking industry in its entirety has not been dealt with in this chamber. That is a real problem.

I started my speech here today by noting that the banking industry affects consumers and businesses, and I would like to move to that point, especially the business point because I am not sure it has been addressed here in the chamber. This is a missed opportunity on credit lending and rates, and transparency is important in regard to that, because we need to have real decisions made about the lending practices and percentages.

Let me give an example. We have a successful automobile plant in Windsor that produces Ford products. It has been very good, even during the auto downturn, at expanding itself. It actually feeds into supplier markets and supplier chains that have very important jobs. These jobs are critical because they have value-added elements, but they only pay $15 an hour. In terms of an auto supply market job, their profit margin is very small. The workers make around $15 an hour and get some benefits. Here is the real connection to the banks, because these supplier have had to rely upon government lending versus their own bank, because the bank interest rate margins are so high they actually eat into the profit margins of the auto suppliers so much they actually lose money.

Here is an auto plant that produces parts for the Ford Focus in particular. It has automated itself and has workers that do some manual labour and some industrial labour related to servicing of those, including everything, from windows to doors and a series of things, and it only pays people $15 an hour, along with some modest benefits. There is also low management overhead. However, they are losing money if they have to borrow from the Canadian banks, despite the fact they made $25.5 billion in profits this past year. They have to rely on going to the Canadian Business Development Bank or Export Development Canada to actually borrow the money necessary.

What we are saying here, to conclude, is that we see this as a missed opportunity in the House of Commons to reform our banking industry. It is important for consumers. However, it is also important for the small and medium size businesses that are providing value-added work for the Canadian economy that we are missing out on and losing to the United States and other places right now, because we have a poor financial system that actually does not provide borrowing capacity at the rates necessary to survive in this industry.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Mr. Speaker, I know that my colleague still had quite a bit to say, so I am going to give him a bit of time to speak some more.

Certainly this is a bill that is moving in the right direction. Maybe my colleague can elaborate a little more on some of the amendments we have attempted to put forward, the one that we actually put forward, and why we need to move down the road of transparency and accountability. This is about democracy, not only for today but tomorrow.