Thank you very much, Mr. Chairman and members of the committee. I really appreciate the opportunity to contribute to your review of Bill C-37, the amendments to the Bank Act and other federal statutes.
My name is Terry Campbell, and I am vice-president of policy at the Canadian Bankers Association. With me today are my colleagues Karen Michell, the vice-president of banking operations; and Linda Routledge, the director of our consumer affairs area.
Mr. Chair and members of the committee, the banking industry believes strongly in the importance of ensuring that the legislative and regulatory framework is reviewed regularly in order to keep it up to date with technological developments, to eliminate obsolete provisions that no longer reflect sector realities, and to make the framework as efficient as possible for the benefit of Canadian consumers and the industry's competitiveness. Canada's banks and other financial institutions operate in an environment of rapidly increasing regulatory burden, particularly in light of the explosion of international regulation, which impacts the regulatory environment here in Canada. Since this environment affects the ability of institutions to innovate and serve their customers, it's critical that policy-makers and legislators here in Canada ensure that the legislative framework provides as much flexibility as possible and avoids imposing unnecessary or prescriptive measures.
With these principles in mind, we were deeply disappointed that the government did not adopt our proposals for the insurance rules. In our view, the facts of the case—the benefits to consumers of removing out-of-date restrictions and the positive experiences in other jurisdictions that do not have these restrictions—told a good, common-sense public policy story. Nevertheless, as we heard from the minister this morning and as we've heard from the minister in the past, the government has made it clear that changes will not be made to the insurance rules, so we are turning our attention to the piece of legislation at hand, Bill C-37.
As you know from commentary this morning, the bill is focused on technical matters. Those matters are the focus of our commentary to you today. Describing these matters as technical doesn't mean they're not important for consumers or the efficient operation of the marketplace. Indeed, in some key areas the government has taken positive steps in the direction of modernizing the framework.
One such step that we would like to highlight was mentioned this morning, and that was the government's proposal to amend the Bills of Exchange Act to allow for the introduction of electronic cheque imaging. Canada has one of the most highly efficient cheque-clearing systems in the world, but it's still largely based on the physical clearing of paper cheques. Cheques drawn on one bank and cashed or deposited at another must be physically transported between banks and processing centres—sometimes right across the country—before they can be cleared. The proposed amendments would allow financial institutions to use electronic images of cheques. In effect, rather than having to physically transport pieces of paper, images of the cheques could be sent electronically. Making an already-efficient system even more efficient will speed up the cheque clearing process, reduce the amount of time that funds are held, and, importantly, will reduce risk.
All of this will bring real benefit to consumers. In fact, as was mentioned, the banking industry has been working with the government on this and has agreed to reduce the maximum period for the very small number of cheques that actually have holds on them from ten business days to seven business days by April, and to then reduce that further to four business days upon full implementation of the Canadian Payments Association's cheque imaging system.
Another positive step in Bill C-37 is the proposal to streamline the foreign bank entry regime. We have a highly competitive financial services marketplace in Canada, with some fifty foreign bank subsidiaries and foreign bank branches competing to provide services to individual and business consumers.
While Canada's market is open to the entry of foreign banks, the actual structure of the legislation is highly complex, cumbersome, and difficult to navigate. The rules apply to real foreign banks as well as to what are called near-banks, or companies that are not banks in their own country but want to undertake activities in Canada that normally would not be regulated. The result of having to deal with both types of entities in the legislation currently is a very convoluted set of approval processes for near-banks, and these processes don't seem to be necessary.
We'll see the details in the regulations ultimately, but it appears that in this area Bill C-37 does help to streamline the system by focusing the rules on real foreign banks wishing to enter this country.
While we do think Bill C-37 does take positive steps, there are some areas where we feel some targeted changes would improve the bill. For example, in clause 31 of the bill, the government is proposing to extend the current disclosure requirements to deposit-type registered plans such as RRSPs.
We understand what the government is trying to achieve here, but we think the actual drafting of the bill is simply unworkable. The bill doesn't adequately distinguish among registered plans, deposit accounts, and deposit products; it doesn't take adequately into account that registered plans often contain products that are not federally regulated or are offered by institutions that are not federally regulated. In short, we think the current drafting of the bill could actually frustrate the government's policy intents and potentially confuse consumers.
We think this is a provision that needs further tinkering. It's a very technical area, and we're offering to work with the government to explore ways to address the technical issues.
A further and in effect final point we would like to raise this morning concerns bank holding companies. As you know, in the 2001 round of reform of the Bank Act—the regular five-year review—banks were allowed to structure themselves as holding companies, as banks in most other countries around the world are allowed to do. The option held out the promise of greater flexibility and a more targeted and streamlined regulatory system.
Unfortunately, while the power to create bank holding companies was provided in 2001, other rules in the Bank Act make it very difficult for banks to actually convert to this structure. In our view, it adds or could add regulation rather than streamlining it. The practical result is that six years after the 2001 reforms, the bank holding company model is still not an option that banks can use.
In effect, what the rules say is this: a bank can enter into such transactions as offering loans or guarantees to its downstream subsidiaries without restrictions, but if those same subsidiaries become sister companies of the bank under a holding company, then restrictions on transactions between the bank and its sister companies now must be imposed, even though no new risk has entered the system.
We are working with the government and with the superintendent's office to sort through these issues, but in our view more work is need. Given this committee's interest in the efficient operations of the financial sector, we would encourage the committee to urge the government to take steps to ensure that the holding company model is in fact a workable option for the industry.
Chair and members of the committee, in conclusion, let me thank you again very much, on behalf of my colleagues, for the opportunity to provide our thoughts and to engage in some discussion with you.
To sum up, while we have some improvements to the bill that we would encourage you to consider, we feel that this is a technical bill that makes useful improvements for the benefit of consumers and the efficiency of the system. The goal of making the regulatory system as efficient and effective as possible and of making the system as supportive of innovation and international competitiveness as possible is an ongoing task. Bill C-37 is an important step in this process, but of course we look forward to continuing to work with the government and with members of this committee on these important goals.
That concludes my remarks. We look forward to discussion with you.
