Finance Committee on May 17th, 2006

[Nicholas Le Pan]

Personally, I would not wish to do so. For us, the current situation is satisfactory. On the other hand, if someone else were to decide that there should be more regulation...

[Luc Harvey, Conservative, Louis-Hébert, QC]

We now have new services like the Internet whereby many transactions can be carried out directly. Do you have the means to supervise these services? Should you intervene in this area under the regulations?

[Nicholas Le Pan]

No, we are a prudential regulator; we do not regulate transactions. Some of the institutions we regulate have Internet banking operations. We will oversee the quality of the bank's management of those operations, but we are not regulating or looking at individual transactions. When there are issues of privacy, customer confidentiality, or adequate disclosure—that kind of stuff—it's all market conduct; it's somebody else. Broadly speaking, the Internet banking operations run by banks we regulate and supervise in Canada are I think pretty well run, but we're not in the transaction business.

[The Chair, Conservative, Brian Pallister]

You have time for a short additional question.

[Luc Harvey, Conservative, Louis-Hébert, QC]

Does your office receive complaints concerning the fees applicable to bank transactions?

[Nicholas Le Pan]

Yes, we receive complaints about that. An integrated system has been set up, which we are not part of, to deal with complaints about fees and relations between banks and their customers. Again, we are focused on solvency, safety, and soundness. We think that's pretty important for consumers.

When we get requests about our operations, we deal with them, but requests about things such as fees, Internet banking, etc., we will pass on to the appropriate other organization, including the Financial Consumer Agency of Canada, the FCAC, which is also part of the Finance portfolio—I don't know whether you're having them before you. We don't deal with those complaints directly because we don't regulate those areas.

[The Chair, Conservative, Brian Pallister]

Perhaps at a future meeting. Sorry, but time for questions has elapsed.

Over to you, Mr. Pacetti, please.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

Have some financial institutions asked your permission to become income trusts?

[Nicholas Le Pan]

I think one or two smaller, middle-sized institutions have asked us about it. No major institution has approached us with an application, or even the early stage of an application.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay. Thank you.

Getting back to your annual report, I'd like to tie in some of these numbers. I was looking at the income statement...or if I look at your detailed notes, shouldn't I be able to see the $755 million from the Office of the Chief Actuary or the net expenses somewhere?

[Nicholas Le Pan]

First, Mr. Chair, it's $755,000 or $768,000, not million, the amount for the Chief Actuary.

We prepare two sets of financial statements. One set is on the main estimates basis, which is prepared on the government's basis of accounting. Second, we prepare and have audited, as the Auditor General has recommended, financial statements on the basis of generally accepted accounting principles, and those are the statements we bill on. So in the case of our main estimates financial statements, we are asking for an appropriation from Parliament for 2006-07, $768,000, which is everything we don't recover from financial institutions. That number is disclosed separately in the main estimates because we're asking Parliament to appropriate that money to us.

Our income statement on generally accepted accounting principles...that number is part of the expenses of the Chief Actuary's office, but it would not be shown separately—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

No, but I think I answered my question, because in it you have a line called “Government Funding" for 2005, and it's for $724,000, but I realize last year's number is for 2005-06.

[Nicholas Le Pan]

Exactly. So we will focus on government funding as a source of revenue. Okay?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay. I see again there's a deficit in the annual report of $359,000 and $679,000 for 2005 and then 2004. I'm not going to say net profit, but shouldn't you come out to zero?

[Nicholas Le Pan]

Yes, aside from minor timing differences, we'll come out to zero.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But why are we getting government funding? You're still asking for the $724,000...or you're still asking for the $890,000. I'm looking at 2004. There was $890,000 asked for in 2004.

[Nicholas Le Pan]

Most of the operations of the Chief Actuary's office are about $4.5 million. We can't recover those costs from financial institutions because they relate to the Canada Pension Plan, Treasury Board programs, or public service pensions. Most of those costs are billed directly to government departments, and they will show up in those department's estimates. The only part that's left is the $724,000.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay. Another question. Our time is limited and the chair is very stringent; he's not very lenient.

Last year we spoke about certain costs duplicated between the Office of the Superintendent and the Canada Deposit Insurance Corporation. Now I see one of the achievements in your annual report is that you have some arrangements with FINTRAC. FINTRAC was created a couple of years ago, they're nice and proud that FINTRAC has been created, but with all these organizations that we're creating, is there a duplication? Has there been any effort to try to streamline them? I know it was mentioned in last year's budget, but we haven't heard anything.

[Nicholas Le Pan]

With respect to CDIC, I'll keep it simple. Some further streamlining of back-office operations may be possible. We looked at that a bit. A new chair will be appointed to the board of CDIC. It's been proposed. One of the things the new chair and I will sit down to look at very quickly, assuming he is appointed, is how we can move that forward. I don't think it's $20 million or $30 million or $40 million, but it may be mature old economies we should be trying to get at, things like IT and—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Who will save? Your customers? Or will it save the taxpayer any money?

[Nicholas Le Pan]

CDIC is all related to financial institutions, so any savings there will reduce the assessments of our costs to financial institutions, because none of that will relate to the Office of the Chief Actuary. The only part of our business that's flowing through to taxpayers is the part related to the Chief Actuary's office, so that won't save taxpayers directly.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

If I'm not mistaken, you've been conducting this exercise for more than a year now, maybe even closer to two years. You must be close to something. Are we looking at a merger? When you say “back-office”, what are you looking at?

[Nicholas Le Pan]

We already took step one, Mr. Pacetti, under about a year and a bit ago, to rationalize the operations. Previously both of us were in the approvals business. We've eliminated that. Previously both of us were setting rules and guidelines. We've eliminated that. So a whole bunch was done a year ago under the former government and was reported on to Parliament in that budget. There is now a back-office part that is a second step. I don't know how big that is.

[The Chair, Conservative, Brian Pallister]

Over to you, Mr. Turner, for five minutes.

[Garth Turner, Conservative, Halton, ON]

Thank you. I'd like to return for a moment to the issue of mortgage insurance, if you don't mind.

You mentioned that your chief responsibility is really in reviewing the viability of business plans of new entrants into the marketplace. To do that you really need to know whether they're going to succeed or fail in the marketplace, and that takes a knowledge of the marketplace obviously. I'm wondering if you could remind members of the committee right now of the relative importance of mortgage insurance, because the marketplace has changed in the last few years, hasn't it?