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.

Second Reading

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Madam Speaker, Bill S-5 contains new elements that nobody is talking about. The government talks about stabilizing the financial system. Bill S-5 fails to address a number of new products such as commercial paper, derivatives, aggressive tax planning and offshore accounts—an invitation to tax evasion. What does that mean for stability? What about the holds on cheques and the credit card interest rates that consumers are concerned about? My question is for my distinguished colleague, the member for Brossard—La Prairie. Should these issues not be thoroughly debated?

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

Madam Speaker, I want to thank the hon. member for the question. My colleague, who is also a member of the Standing Committee on Finance, knows full well that these issues are very important. The government is losing billions of dollars in revenue. Speculation is allowed in certain transactions and that is a problem. We have to study the situation more at length. It has a profound impact on our economy, and on the money that taxpayers are losing. What is more, it destabilizes our system. There are certain ways to do things and to work. We must study the bill, but unfortunately the government is closing the door yet again.

[James Rajotte, Conservative, Edmonton—Leduc, AB]

Madam Speaker, I want to ask my colleague a question. He is the vice-chair of the finance committee and works very hard in that role.

He said there were groups or organizations that were excluded from the discussion on this bill in the Senate. Could he identify those individuals and organizations that were excluded and that he would want to be part of the discussion at the House of Commons finance committee?

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

Madam Speaker, I want to thank my colleague, who does excellent work as the chair of the Standing Committee on Finance. He is one of the rare Conservatives to do good work.

The official opposition is not in the Senate. That is why we are criticizing the fact that the bill is coming from the Senate instead of from the House of Commons. The Conservatives say there were debates and discussions in the Senate. Were we there? No. Were there public discussions on this issue? No. Submissions were sent, but there was no general consultation. The Senate's mandate was very limited. There were consultations on the technical aspects, but there has been no debate in the House on the big ideas. This is where we should discuss the direction we want to take with a bill.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Madam Speaker, I will be sharing my time with the parliamentary secretary, the hon. member for Kamloops—Thompson—Cariboo. I am pleased to have the opportunity to speak in support of Bill S-5, the financial system review act.

I note from the outset that while this is mandatory and routine legislation, it is vital to the continued strength and security of the financial system that Canadians depend on daily.

By way of background, the government reviews all legislation governing federally-regulated financial institutions every five years to ensure the stability of the Canadian financial services sector. Indeed, the last review was completed in 2007.

I should also mention that it is imperative that today's act be renewed by April 20, the legislated sunset date to allow the continued functioning of Canada's financial institutions.

The current five year review began with an open and public consultation, a process that began in September 2010, when the Minister of Finance invited the views of all Canadians on how to improve our financial system. During that consultation, a diverse group of Canadians engaged in the process and provided their thoughts to help further strengthen Canada's financial system.

Much of that feedback is reflected within today's bill. Indeed the financial system review act takes into account the feedback from consumer groups, industry groups and other Canadians to make targeted, many large and technical alterations to strengthen Canada's regulatory framework. Furthermore, I would also note that the bill has already been reviewed by the Senate and, in particular, the Senate Banking Trade and Commerce Committee.

The committee engaged in a detailed and timely review of the act, hearing from groups ranging from the Credit Union Central of Canada, the Canadian Life and Health Insurance Association, the Financial Consumer Agency of Canada, the Office of the Superintendent of Financial Institutions Canada, the Canadian Bankers Association and the Canadian Payments Association. We thank all the witnesses who appeared before the committee and shared their thoughts on the financial systems review act.

The witnesses, while keeping in mind its technical nature, were very supportive of the act overall. For instance, the Canadian Life and Health Insurance Association said, “Bill S-5 represents a welcome fine tuning of the various financial institution statutes”.

I will briefly outline some of the measures taken in the act at this time. Again, while the majority are largely technical, they are necessary to ensure continued stability and security of Canada's financial system. That is why the act will make changes to the following: update legislation to promote financial stability and ensure that Canada's financial institutions continue to operate in a competitive, efficient and stable environment; and fine tune the consumer protection framework, including enhancing the powers of the Financial Consumer Agency of Canada, to protect Canadian consumers and improve efficiency by reducing the red tape and regulatory burden on financial institutions.

Other measures contained in the act include reducing the administrative red tape burden for federally-regulated insurance companies and offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements. We certainly know, with the growth in the insurance industry, especially our Canadian insurance companies, that around the globe these are vitally important. I would also clarify that Canadians, including bank customers, would be able to cash government cheques under $1,500 free of charge at any bank in Canada, which is another key point, It would improve the ability of regulators to share information efficiently with international counterparts, while respecting the privacy of clients. It would also promote competition and innovation by enabling co-operative credit associations to provide technological services to broader markets.

The importance of the legislation and the need to keep Canada's financial system safe and secure has been made very clear with the recent global economic crisis and the demise of some of the world's most well-known banks.

Canadians recognize how fortunate we have been in recent years, due in large part to our sound financial system. Without a doubt, Canada's system has been a model for countries around the world. We did not have to nationalize, bail out or buy equity stakes in banks like the U.S., the U.K. and around the rest of the EU. In fact, for the fourth consecutive year, Canada is ranked number one for having the soundest banks in the world by the World Economic Forum.

The prominent business magazine, Forbes, recently stated, “With no bailouts, [Canada's financial system] is the soundest system in the world, marked by a steady and responsible continuation of lending and profits”.

As recently reported by the Toronto Star, a new report from the United States Congressional Research Service underlined how well Canada's system was regarded. It said:

—Canada’s supervisory system and regulatory structure have proven less susceptible to the bank failures that have loomed in the United States and Europe and may offer insight for U.S. policymakers.

Our safe and secure financial system is envied around the world. As the Consumer's Council of Canada has declared, “we have been identified internationally as having the best banking regulations in the world”. Canadians are no doubt aware of the troubled financial systems that have recently crippled other countries, leaving significant instability in the financial sector, housing market and economic marketplace. Many of the financial sector solutions now being promoted and adopted around the globe are modelled on the Canadian system that serves us so well.

Through today's bill, Canada's financial system would continue to be a fundamental source of strength for our economy and would remain secure for Canadians who rely on it daily. Today's legislation is also significant because it would support one of the most important drivers of our economy and jobs, the financial services sector.

Our financial sector plays a vital role in financial stability, safeguarding savings and fuelling the growth that is essential to the success of our Canadian economy, representing about 7% of Canada's GDP. Even more, this sector employs over 750,000 Canadians in good, well-paying jobs. Our financial sector provides stability to the housing market and other markets requiring significant borrowing. In that respect, the financial services sector also plays a significant part in the daily lives of Canadians.

The measures in the financial systems review act would provide for a framework that would benefit all participants in the financial services sector, financial institutions, as well as Canadians. The long-standing practice of assuring regular reviews of the regulatory framework for financial institutions is a distinctive practice that sets Canada apart from almost any other country in the world, a positive practice that is vital to the stability of this sector.

All Canadians should recognize the importance of regularly considering how we can better ensure the safety and soundness of our financial system. Today's legislation does just that. I encourage all members to support this important legislation and see that it progresses to the finance committee in a timely manner.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Madam Speaker, in his speech, the hon. member spoke a lot about how Canada's financial system is setting an example for the entire world and how it is completely effective. That is wonderful, but it is not because of the Conservatives. They have always supported deregulation. And that is what they are doing now: they are deciding not to regulate certain elements.

With regard to derivatives, a Montreal exchange handles only derivatives. How does the hon. member define derivatives? Does he even know what a derivative is? What does he think about aggressive tax planning that opens the door to tax evasion? How is it that we cannot regulate all this, and that Bill S-5 does not address these issues?

[Ben Lobb, Conservative, Huron—Bruce, ON]

Madam Speaker, I am not surprised to hear about the NDP's desire to over-regulate Canadians. I live in the province of Ontario and for five years in the early 1990s, we saw a vast increase in regulation.

However, I would like to talk about the bill. One of the pieces of that is to look at the five year review, which is very important. No one needs to take credit for having a review every five years. It is a practical piece inside the bill. It is similar to what I looked at in the new veterans charter. It is a living document and it has to reflect the changes of the day and the business climate of the day. Having the five year review inside the bill is positive, and it was supported by the Senate committee.

[John McCallum, Liberal, Markham—Unionville, ON]

Madam Speaker, as someone who used to work for the Royal Bank, I can agree that the Canadian banks do very well and are the envy of the world, as I think the member said.

The point I would make is that this favourable position of our banks is not because of the Conservative Party. It is in spite of actions by the Conservative Party. For example, in the nineties the Liberal government prevented banks from going down the path of deregulation. The Conservatives wanted to take that path. The Liberal government said no to bank mergers. The Conservatives wanted the banks to merge. Under the Liberals, people could have a mortgage for 25 years with 5% down. In 2006 the Conservatives made that 40 years and 0% down.

Does the member agree that the favourable situation of Canadian banks is in spite of positions taken by the members of his party rather than because of them?

[Ben Lobb, Conservative, Huron—Bruce, ON]

Madam Speaker, the hon. member might note that in my speech I never talked about who should take credit. Our government is not looking to take credit for anything. We are looking to ensure that all businesses succeed and that they take credit for the work they do.

With respect to his point about reliving the past, I liken the Liberal Party to retired hockey players who are has-beens, rehashing all of the things they did—

[The Deputy Speaker, Denise Savoie]

Order, please. I regret to interrupt the hon. member. I would ask for a little order from members while the member for Huron—Bruce is answer questions.

The hon. member for Huron—Bruce.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Madam Speaker, getting back to my point about the parallel I was drawing between has-been hockey players and the members of the has-been party down there who are reliving the past. They are talking about things that were done in the early and mid-nineties. I mean we are 15, 16, 17 years on now. It is time to move forward.

We are looking forward to the success of all companies in Canada.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Madam Speaker, I appreciate my colleague for Huron—Bruce's comments. There were two notions in particular. I understand this is legislation, but the red tape reduction is of particular interest to me as it impacts the insurance industry. In fact, the president of the independent insurance brokers lives just down the street from me. I would love to be able to report how this legislation would assist him and so many other small business people in Winnipeg South Centre.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Madam Speaker, just briefly on red tape, one piece the member might look at in the bill is the Canadian acquisition of foreign entities and the ministerial review process that will take place with purchases over 10% of their assets value. That is important. We need to ensure, when there is an acquisition of a foreign bank or a position taken within a foreign entity, that there is a quick and timely review by the minister and the department. That would be part of cutting the red tape so a Canadian bank or institution does not have to wait for a prolonged period of time for approval.

[Cathy McLeod, Conservative, Parliamentary Secretary to the Minister of National Revenue]

Madam Speaker, it is a privilege to rise today in support of Bill S-5, the financial system review act.

While Bill S-5 is albeit largely a technical bill, it represents an important piece of legislation as it will help guarantee the ongoing security and strength of Canada's financial system, a vital sector of our economy. Today's bill would accomplish this by making a series of alterations to the various pieces of legislation governing Canada's financial system, including the Canadian Payments Act, which I will speak to in greater detail a little later.

Before doing that, I want to underline that today's legislation is mandatory and routine. This is as result of a long-established practice in Canada of engaging in mandatory five year reviews of our financial sector legislation. I will note that this latest five year review process began formally in September 2010 when our Conservative government launched a public consultation process open to all Canadians. Such mandatory five year reviews have helped to ensure that Canada has a well-regulated financial system. Indeed, it is the safest and most secure in the world.

As most members know, for four straight years Canada has been ranked by the World Economic Forum as having the soundest banks in the world. What is more, our well-regulated financial system is widely admired throughout the world.

In the words of a recent Ottawa Citizen editorial:

Our banking and financial system is the envy of the world. While the great money edifices of countries such as the U.S., Britain and Switzerland cracked at the beginning of the recession, Canadian banks stood firm.

As I mentioned earlier in my remarks, I would like to speak to elements of the financial system review act that address Canada's payment system, something Canadians interact with each and every day. Indeed, every year Canadians make 24 billion payments, worth more than $44 trillion. These payments allow us to run our businesses, sustain our household and allow governments to fund essential programs.

Canadians use various payment instruments to purchase goods and services, to make financial investments and to transfer funds from one person to another. These instruments include cash, cheques and debit and credit cards. Except for cash, payment instruments have traditionally involved the claim on a financial institution, such as a bank, credit union or caisses populaire.

Financial institutions, therefore, needed arrangements to transfer funds among themselves, either on their own or on behalf of that or their customers. A payment system is a set of instruments, procedures and rules used to transfer these funds. In Canada, our national system for the clearing and settlement of payments is run by the Canadian Payments Association, or the CPA, a not for profit organization of federally regulated financial institutions.

Clearly, no economy can properly function without a reliable and secure system of payments. However, the payments landscape is changing. For example, experiences in Canada and abroad since the 1990s demonstrate that clearing and settlement systems do not always include banks as direct participants. That is why 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 would allow the Bank of Canada to oversee such systems that could pose systemic risk to the financial system.

Canada's leadership in reforming the global financial system through mechanisms, such as the G20, is well-known and a source of great pride for Canadians. One important Canadian commitment to our G20 partners is that all OTCs be cleared through central counterparties by 2012. This is an important step to ensure the resilience and stability of our financial system.

To meet our G20 commitments, it is imperative that Canadian prudential and market conduct regulators have the authority, tools and information necessary to monitor and regulate the Canadian OTC derivatives market on an ongoing basis. This means coordinating activities across current federal and provincial jurisdictions, as well as foreign regulators.

Bill S-5 proposes a change to the Payment Clearing and Settlement Act to make it clearer that the Bank of Canada can dispose information to other regulators, the payments clearing and settlement systems. This information sharing would help all parties understand the risks inherent in these link systems. Furthermore, failing to form such links could delay our ability to link to foreign systems and impinge on our ability to meet our G20 commitments.

This is the kind of evolutionary change that demonstrates the importance of regular reviews of our legislative framework to maintain Canada's leadership in financial services.

Bill S-5 would make another important and much needed change to the payments landscape. As hon. members know, Canada's credit unions are an important provider of financial services. More than five million Canadians and business owners are grassroots shareholders of co-operative financial services in Canada. One in three Canadians is a member of a credit union or caisse populaire.

In recent years, our Conservative government has shown its support for credit unions by supporting a federal credit union charter to accommodate growth and expansion of the Canadian credit union system. This would enable those credit unions that so choose to reach beyond provincial boundaries and pursue business strategies that are not constrained by provincial incorporation. It would also give credit unions a means to diversify their source of funding and spread their geographic risk exposure.

In that vein, in order to give federal credit unions a more effective voice in the Canadian Payments Association, today's bill would amend the Canadian Payments Act so that credit unions would fall within the co-operative class in the act rather than the bank class. At the same time, credit unions would still employ the long-standing, well-understood and robust governance, liquidity and clearing and settlement framework in use today. While it may sound like a simple technical change, it is an important one. This change would continue to promote a level playing field within the financial sector which would foster competition among players and ensure a stronger, more stable system overall.

The Credit Union Central of Canada, the national association for credit unions in Canada, said:

...we want to note our support for the proposed amendments....

Placing the federal credit union in the cooperatives class will preserve and strengthen the credit union system representation at the CPA. It will ensure that a federal credit union will be represented by a director, who speaks for the interests of cooperative financial institutions in CPA matters. A strong advocate at the CPA is important for the credit union system's ability to advocate on behalf of credit unions and to continue to operate payments facility efficiently and cost effectively, which has a direct impact on overall credit union system competitiveness.

I think all members would agree that a strengthened credit union is good for all Canadians.

For those reasons, I urge members to support the passage of this largely technical but important act which would ensure the smooth functioning of Canada's payment systems.

The House resumed consideration of the motion that Bill S-5, An Act to amend the law governing financial institutions and to provide for related and consequential matters, be read the second time and referred to a committee.