Finance Committee on Feb. 15th, 2007

[Karen Michell]

I would simply reinforce that under the current debit card code of conduct, if there is fraud or unauthorized use of a debit card, the consumer is not liable for any of that loss at all. We're certainly looking forward to participating in the discussions about the electronic code as well, and on this issue also.

[Pierre Paquette, Bloc, Joliette, QC]

Do I have a little more time?

[The Vice-Chair, Liberal, Massimo Pacetti]

Yes.

[Pierre Paquette, Bloc, Joliette, QC]

I put the question to the minister, and I'll put it to you as well. For a lot of people, the fact that the consumer protection system is financed by the banks, including the banks ombudsman, seems to give rise to a conflict of interest. The banks pay for the system that protects them. Some think that should be changed. I'd like to know the association's view on that point.

[Terry Campbell]

If you look around the world and if you look at regulatory bodies in Canada, like the FCAC or OSFI, all of the agencies are funded by the banks and other financial institutions. You have to ask the question about where else the money would come from.

I think one of your questions was a very good example in terms of independence and avoiding the problems of conflicts of interest in the ombudsman system. Canada has an absolutely first-rate ombudsman system, the OBSI, or Ombudsman for Banking Services and Investments.

While OBSI is funded out of levies on the banks, there is a range of protections and structures in place that guarantees independence. There's a nine-person board of directors, six of whom are independent, and the independents appoint themselves. The industry people have nothing to do with that. There is a wide range of very knowledgeable people. Senator Plamondon was on the board a few years ago.

The board cannot countermand or even review the individual decisions by the ombudsman. If you actually get to the stage where you have to terminate the ombudsman position, again it's only the independents that can do that. There's a whole series of protections in place that guarantee the independence of that body, so our sense is that when people go through the system, it works very well.

The other thing is that the ombudsman system that we have is very powerful in the sense that nobody wants to be on the wrong side of an ombudsman decision. The ombudsman has the power to name a particular institution. I believe it's true—and Linda can tell me if it's wrong—that there has not been a single recommendation coming out of the ombudsman's office, in the 11 years it has existed, where the banks haven't said, okay, you're right.

So I understand the point, but we think there is a range of protections in place.

[The Vice-Chair, Liberal, Massimo Pacetti]

Merci, monsieur Paquette.

Mr. Dykstra.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair.

A couple of things that I noted in your presentation, Terry, were a couple of issues that you did have and would like some further study on. One was the extent of the current disclosure requirements to deposit-type registered plans, such as RRSPs. I didn't see any recommendations in the report itself, and I wondered if you had a couple.

Further to that, as our chair indicated, we are moving to clause-by-clause fairly quickly. I don't know whether these are substantive changes or whether these are changes that could be negotiated between the ministry and the industry. We see your issue coming forward here. Having said that, obviously if there are a couple of recommendations, what might they be with respect to the first part of the RRSP section?

[Terry Campbell]

Fair enough. In terms of process, I think the best answer is just that we have raised this issue with the department. We have worked through our technical concerns in some detail in order to have the department understand them.

Our sense, sir, is that the legislation itself just talks now about plans. If you go through and try to sort it out, it's not at all clear what the disclosure would apply to. Is it a plan itself? Is it the products in the plan? Is it the accounts? RRSP registered accounts can have deposit accounts and can also have mutual funds and other things. It just isn't clear.

There's another issue. As you know, we're talking about the Bank Act, but the bill also amends a series of other statutes, including the Trust and Loan Companies Act, for instance. Trust companies can offer these things on their own account, but they can also act as trustees, which means a whole range of other plans can get sucked into the ambit of this, perhaps unintentionally.

The approach we're trying to take is to work with the department and suggest some areas that they may wish to consider, and we'll see how that goes.

Linda, is there anything you would suggest on that?

[Rick Dykstra, Conservative, St. Catharines, ON]

I was going to ask the same question with respect to bank holding companies, but I suspect your response will be somewhat similar to that in terms of working with the ministry.

[Terry Campbell]

Yes, that's exactly right. We have been talking about this for a while. There are a couple of different elements. There are the capital rules and there are these related party rules within the Bank Act. There are tax rules. I have to say that these are thorny issues, but we are working ahead on them. Of course, we'd be delighted if the government said they're going to amend the bill, but these are thorny issues.

From our point of view, sir, this is an issue of the efficiency of the regulatory system and the ability of financial institutions to structure themselves so that they can serve the customers better or be more focused on how they can allocate their resources both here in Canada and internationally. We think that—

[Rick Dykstra, Conservative, St. Catharines, ON]

When you touched on foreign and domestic, that kind of led into my next question.

[Terry Campbell]

Fair enough.

[Rick Dykstra, Conservative, St. Catharines, ON]

That relates to one of the issues with respect to Canadian financial institutions at the present time requiring that two-thirds of their board members be Canadian citizens. The act now will actually amend that portion to mean that only a majority of the members of the boards of directors will have to be Canadian citizens, and that obviously opens the boards up to foreign folks sitting on them and giving advice. You supported that obviously. Could you comment on why it's a good idea to do this?

And perhaps I could get a brief comment from Serge as well.

[Terry Campbell]

We think it is a good idea because it provides more flexibility. If you look at corporate governance rules in other parts of the economy, there's a fair amount of flexibility here. We understand, of course, that these are Canadian financial institutions and there are rules within the legislation about keeping their Canadian character. But as the minister mentioned quite eloquently earlier today, these are international financial institutions. They have a base here, and quite frankly, they pay most of their taxes and keep their employment here, but they're international.

As you grow internationally, you need to have the perspectives on what is going on in the world. Sometimes it's very useful to have on your board senior qualified representatives from foreign jurisdictions, from foreign financial institutions that you've partnered with or acquired, and so on, so that they can bring in those perspectives. I think it's all about bringing perspectives, because boards work best when you have a variety of views. If you're planning internationally, your board should reflect that.

That would be our take, but I turn to Serge.

[Serge Dupont]

I think the issue is as the minister explained. It's trying to look to ways to encourage that we have strong Canada-based global corporations, including banks in this case, or insurance companies. With insurance companies—for example, life insurers—the large ones derive about 60% of their revenue from outside of Canada at this point in time. For banks, I think it's closer to 35% or 40% on average. As they grow that, whether it's in the United States or in Asia or in China, you want to say it would really be good to have that perspective on the board, and that's just giving them the opportunity while maintaining a majority-Canadian board.

[Rick Dykstra, Conservative, St. Catharines, ON]

Obviously, therefore, we're not hurting our Canadian identity internationally by moving in this direction.

[Serge Dupont]

I think you may be giving yourself a way to have a stronger Canadian identity internationally.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Dykstra.

Monsieur Thibault. Then I have Monsieur St-Cyr and Monsieur Del Mastro.

[Robert Thibault, Liberal, West Nova, NS]

Thank you, Mr. Chair.

Thank you all for being here.

Mr. Dupont, Mr. Campbell raised a few problems that this bill could pose. In your view, would that require changes to clauses as presented? Could we amend the regulations for implementing this bill? Have you planned that or are these new ideas that are being presented to you?

[Serge Dupont]

The ideas were presented to us a few days ago, Mr. Chair.

That said, we have to complete our analysis, which we'll do as soon as possible in order to determine whether a technical amendment would enable the government to achieve its objectives more effectively. I think that, if we come to that conclusion, the committee will of course be informed of it. Otherwise we'll be working with the Bankers Association to ensure the bill is implemented as it is currently worded.

[Robert Thibault, Liberal, West Nova, NS]

Merci.

Thank you, Mr. Campbell, for appearing and for your comments. I think there's been some discussion amongst parties or at committee on this bill and I think there's general agreement that it's a good advancement, it's a modernization and largely technical. We look forward, of course, to the other presentations and your recommendations, during clause-by-clause, on modifications that could be made to take out the irritants and make it work and achieve its goals.

But it's difficult to have the bankers here and not talk about something else. One of the concerns we hear of in the Canadian public is this. It appears that at a time when the banking sector is making increased profits and seems to be doing well both domestically and internationally, and on their brokerage arm as well, we see a proliferation of fees, and sometimes not with great understanding by consumers. So I would like you to take this opportunity to explain to me how fees for ATMs, for example, are established. Why is there such a differentiation? Sometimes if I'm in a restaurant and I have access to one, I'll pay a different fee than I will if I go to my local bank or to a competitor's bank and use their ATM machines.

Could you help us understand that process better?

[Terry Campbell]

Certainly. Thank you very much for that. I'll turn to my colleague Karen.

[Karen Michell]

Thanks very much.

In Canada we have a very competitive system. We have a number of different financial institutions competing for the business of their clients, and one of the ways they do that is to invest in networks like ABM networks to serve their own clients. We also do have a white label industry in Canada, white-label ABMs owned by institutions other than the banks. They also participate in this marketplace, and in fact they're the majority of the marketplace in terms of ABMs. So while banks do invest in the ABM network to serve their own clients, there is the possibility of getting your money out from another bank, a bank that you don't bank at. But there's a convenience fee associated with doing that. So it allows you the convenience to do that if you choose to do it.

Interestingly, a lot of Canadians don't choose to do that. They choose to use their own bank's ABM, or other ways of getting access to their cash. For example, at a point-of-sale terminal, you can get cash back and there's no fee associated with that.

So there's a variety of different options in terms of how you can get your cash, how you can pay for goods and services, and sometimes there are fees associated with the convenience of doing that. But the range of options exists, and consumers are making rational choices about what works best for them.

[Terry Campbell]

In fact, if I could just elaborate for a moment, 75% actually of the consumers who use bank machines are choosing to use their own machine. They avoid that fee. What we see here is—and this isn't just us talking, this is actually documented—Canada has the number one ABM system in the world. If you look at it in terms of access to machines per capita, we're number one. And this is a big country. There's lots of geography here. We're the number one. If you look at other countries, they go down the list, I think. The United States is well down. The U.K. is something like number 22. The business model that underlies that particular aspect helps make this happen.