Finance Committee on Feb. 19th, 2007

[John McKay, Liberal, Scarborough—Guildwood, ON]

So that's not a function of the quality of the customer; that's a function of the quality of the system between credit unions and banks. Is that what you're saying?

[Duff Conacher]

Yes, that's true in some cases, or if the cheque is from out of the country. They could make slightly longer periods for other things. Mr. Lawford could speak to this as well, I'm sure. If you're talking about bank-to-bank cheques within Canada, the CPA will tell you that 98% are clearing overnight.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Your argument applies just within the bank circle itself, rather than within the bank, credit union, and foreign institution circle. I want to understand which is the 98%. Is it the whole circle or is it just simply bank-to-bank?

[Duff Conacher]

Yes, 98% is everything, according to the CPA.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So if it's bank-to-bank, is it 100% clearance in 24 hours?

[Duff Conacher]

CPA will be able to give you those figures in detail, of course.

It's a barrier, among many others, that has to be removed. It's almost too late. We have a two-tier banking system because the federal government has allowed it and facilitated it. It shouldn't be a two-tiered banking system, not when banking is an essential service.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Phillips, if in fact you drop the requirements of ten institutions down to two institutions, you bring yourself within federal regulation. Do you lose your ability to sell insurance in the branches?

[David Phillips]

Yes, if that change is not made to the federal statute, and for those credit unions that have that authority, that would be another disincentive to move under the federal statute. Our concern is really to develop this entity, under the federal law, as an option for credit unions down the road. As I mentioned, the act, in some ways, is a work-in-progress.

We did, in our submission, support the principle that deposit-taking financial institutions should be able to distribute insurance in their branches. That is not an issue for us at the federal level, but we accept that, and we support that as a principle, and in jurisdictions where we do not have that power currently, it's a power that we seek when the opportunity arises.

So at the federal level, certainly it would be important, eventually, that this power also be in the federal entity if this is going to be a realistic option for those credit unions that already have that authority.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. McKay.

Mr. Wallace, for five minutes.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman, and thank you to everyone for coming this afternoon.

My questions are strictly for Mr. Lawford, whom I met in my office last November. We talked about a number of issues, and we settled on the one with the banking issue.

I appreciate the follow-up you gave me on my questions.

Just so I'm clear, I have a copy of the federal act here, at least one that's readable in English, not in legalese. There are a number of provisions in here that don't apply to the act.

Are you satisfied as an organization with what the EFTA actually covers in the United States? Do you want something very similar? You quoted a couple of sections actually in the Bank Act that could apply if we made changes. Does that cover those things off?

[John Lawford]

I suggested a couple of places where I thought there was enough jurisdiction to sneak this material in, to be honest, and the one on information seemed to be the best place to put it. In terms of what substantive rights we would like, the American law that we're referring to, the Electronic Fund Transfer Act, has provisions, for example, when there is a debit or a pre-authorized transaction problem. The burden of proof, if there's a problem of proof, lies on the financial institution and not on the consumer, for example. It has other provisions, where you have 60 days to find this and if you're diligent and you report it to the bank, then they have to look after it.

Those sorts of things make it a lot easier for consumers.

[Mike Wallace, Conservative, Burlington, ON]

So there was a pre-consultation process on this Bank Act. Did you submit that to the Department of Finance in the pre-consultation, that this is what you'd like to see in terms of actual changes in the Bank Act?

[John Lawford]

I'm sorry, in terms of the actual place to put it?

[Mike Wallace, Conservative, Burlington, ON]

Did you actually give them those suggestions or not?

[John Lawford]

I believe we did not. We gave the background paper saying these are the principles.

At that time, our thinking hadn't gotten that crystallized--to putting it right here--so that's our fault, I agree.

[Mike Wallace, Conservative, Burlington, ON]

Okay. So the chances of us doing major changes to the Bank Act legislation--

[A voice]

It still is possible.

[Mike Wallace, Conservative, Burlington, ON]

It's possible, but not likely. Let's say it's not likely.

Would you be satisfied that if the committee in their wisdom decided to have a separate report completely in terms of issues that need further study, that...? And it's possible; I checked with the clerk. Is that something you'd be interested in, further study on electronic fund transfer issues as they relate to all financial institutions, not just banking?

[John Lawford]

I think that would be one good way to go, because it's an issue that will only get larger. As you're saying, it may be difficult for you to put specific wording into this bill at this point, so we would be happy with that.

[Mike Wallace, Conservative, Burlington, ON]

Okay, thank you very much.

Those are my questions, Mr. Chairman.

[The Vice-Chair, Liberal, Massimo Pacetti]

Before we wrap it up, we have a good panel here, and I think you're all aware of the timelines we're working under. So if you do have amendments, I suggest you speak to one of the members. It would be the best way to amend the bill. It's never too late. The worst thing that can happen is it's ruled out of order. So if you do have amendments, the best thing to do is give them to a member, as I said.

In answer to your question, Mr. Wallace, we had the Finance officials here last Thursday and we also had the CBA. They're working on something for electronic fund transfers. We're going to have the Financial Consumer Agency of Canada on the next panel, and the payments people, so we can ask them some of the questions. At that point, we can decide as a committee what we want to do.

Again, thank you for your time, witnesses.

We'll suspend the meeting for about five minutes.

[The Vice-Chair, Liberal, Massimo Pacetti]

We have before us, pursuant to the Order of Reference of Thursday, December 17, 2006, Bill C-37, An Act to amend the law governing financial institutions and to provide for related consequential matters.

I think that most of you know how this works. I give you five minutes for preliminary statements. Let us begin with the witnesses on this list. First, let us hear the Canadian Association of Mutual Insurance Companies.

Mr. Lafrenière, welcome. You have five minutes, please.

[Normand Lafrenière, President, Canadian Association of Mutual Insurance Companies]

Thank you, Mr. Chairman.

CAMIC commends the government for tabling a review of the financial services legislation that maintains unchanged subsection 416(2) of the Bank Act that prohibits the retailing of insurance in the branches of a bank. In our view, this will maintain the level playing field in which the insurance industry currently operates.

With respect to the amendments brought to the Insurance Companies Act, CAMIC concurs with all the amendments that specifically target mutual insurance companies, i.e., the amendment to paragraph 449(2)(c), which clarifies the exemption from the Property and Casualty Insurance Compensation Corporation afforded to mutual insurance companies' members of the fire mutuals guarantee fund.

We also support the amendment brought to subsection 346(3) of the Insurance Companies Act to recognize the audit work done by an actuary who is not the actuary of the company. While this amendment is brought to reflect the new audit guidelines set by the Institute of Chartered Accountants, it also serves provincially licensed mutual insurance companies that often do not have an appointed actuary and will simply depend on the actuary of the audit team to ascertain a company's liabilities.

Our only disagreement is on not seeing any measure requiring property and casualty insurers to set up catastrophe reserves. Because of our lack of action on this front, many foreign companies are better prepared than Canadian companies to face major natural or man-made catastrophes.

Foreign-owned property and casualty insurance companies doing business in Canada often benefit from taxation provisions in other countries that allow them to set aside reserves, free from income tax, to meet their obligations in cases of labour catastrophes. For its part, the Canadian system considers as profit in any given year sums of money received but not reserved for the payment of a specific claim.

To establish a level playing field with their foreign competitors, many Canadian-based companies have resorted to establishing what are called offshore companies. Through these offshore companies, they can obtain tax advantages equivalent to those enjoyed by many foreign companies doing business in Canada. For their part, mutual insurers do not resort to the offshore companies' concept and find themselves at a tax disadvantage with many of their foreign-owned and Canadian-owned competitors.

The solution lies in allowing the establishment of a man-made and natural catastrophe reserve in Canada that is free from income tax, similar to the catastrophe reserve concept implemented in many European countries and in Japan and in tune with the commitment of the U.S. federal government to help should a major terrorist or man-made catastrophe occur in the U.S. Our catastrophe reserve proposal is self-financing, as the investment income generated by these reserves would be taxable.

We also regret the fact that nothing is being done to help create mutual insurance companies in Canada. Fifty years have gone by since the last mutual insurance company was created. We should reassess the minimum amount of capital needed for setting up a mutual insurance company, if we want to help the future growth of this kind of investment.

Moreover, the mutual insurance companies will be holding a conference on the modern state of the mutual principle all day tomorrow. There will be a reception at the end of the day, and we would appreciate it very much if you, honourable members, could come to join us tomorrow at 4:00 p.m., at the Château Laurier.

This concludes my presentation. Thank you very much.

[The Vice-Chair, Liberal, Massimo Pacetti]

You concluded your presentation on a positive note. Thank you.

From the Financial Consumer Agency of Canada, Mr. Callon.

[Jim Callon, Acting Commissioner, Financial Consumer Agency of Canada]

Good afternoon, Mr. Chairman. I thank you and the Finance Committee for inviting the Financial Consumer Agency of Canada, the FCAC. As we are short of time, and as the chairman requested, I will make my opening statement as brief as I can.

This afternoon, I will discuss the mandate and the role of the agency, in the context of Bill C-37. Afterward, I will be pleased to answer all of your questions.

FCAC's mandate is set out in the FCAC Act and can be summed up succinctly by saying that we protect and inform Canadians with respect to the financial sector. Parliament, in establishing the financial consumer protection framework, clearly separated the concept of individual consumer redress from the enforcement of the law. The ombud services were in part a response to Parliament's desire that all financial institutions belong to an independent third-party dispute resolution body that would provide redress for individual consumers, based on fairness.

Rather, FCAC focuses on law enforcement, addressing issues and making improvements in the public interest. As a market-conduct regulator, our ultimate objective is to encourage a fair and competitive marketplace. We make sure that financial institutions meet their obligations to consumers, as outlined in the federal statutes. In some cases, a compliance decision can affect hundreds of thousands of consumers. When we deal with individual consumers seeking redress, we provide them with the tools and information they need and we'll refer them to the complaint-handling processes provided by their financial institution.

Where regulatory action is required, the agency undertakes investigations and examinations. When addressing problems with compliance with the law, the legislation provides the commissioner with options in terms of how best to address the matter. The commissioner may enter into a binding compliance agreement that requires financial institutions to take actions to improve their level of compliance with the law. The commissioner may initiate a legal process for determining if an institution has committed a violation, and, where appropriate, impose an administrative penalty up to $100,000. That decision is subject to court appeal. And if you note, Bill C-37 proposes to increase this to $200,000. After finding a violation, the commissioner has the discretion to publicize the nature of the violation, the name of the person who committed it, and the amount of the penalty imposed.

With respect to our consumer education mandate, FCAC informs consumers about their rights and responsibilities when dealing with financial institutions. We provide objective and timely information to help Canadians understand and shop around for day-to-day financial services and products. Our publications and online interactive tools provide information on financial products and services such as credit cards, mortgages, and bank accounts. By addressing the information gaps that exist in the marketplace, FCAC provides Canadians with the tools they need to help them navigate the financial marketplace.

Demand for our services is growing. Every year, thousands of Canadians come to us to obtain information or to register a complaint about a financial institution. Since 2001 FCAC has received more than 123,000 phone calls, e-mails, and letters from Canadians. Last year, in 2005-06, we distributed more than 450,000 publications across the country. Our website has become one of Canada's best sources of objective, up-to-date information on financial products and services. Since 2002 the number of visits to our website has increased by 69% each year. This year our website has already reached 1.1 million visits for the first nine months of the year. Through our outreach program, FCAC is working closely with a growing number of partners to increase our reach and awareness of the agency among consumers. For example, this past year our partnership with Canada Revenue Agency helped us reach over six million consumers directly through inserts with Government of Canada cheques.

Finally, with respect to Bill C-37, FCAC will be responsible for enforcing all the key consumer-related changes that are being proposed to the current legislative framework. And in keeping with the agency's broad consumer-education mandate, the FCAC will continue to be proactive in informing consumers of the changes being made by this broader legislative review.

In closing, I would like to thank you for the opportunity to appear before the committee. I look forward to answering any of your questions.