Evidence of meeting #67 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was banks.
A recording is available from Parliament.
5:55 p.m.
Liberal
The Vice-Chair Liberal Massimo Pacetti
Thank you, Ms. Wasylycia-Leis.
Mr. McKay, and then I have Monsieur Godin and Mr. Wallace, for five minutes.
5:55 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Mr. Callon, you may surpass Mr. Legault in popularity.
According to your handout here, you've had 120 violations over a five-year period. Given the number of financial institutions in this country that would be covered by your legislation, this strikes me as a very low number of violations. And it appears that on the monetary side, your administrative monetary penalties totalled $117,000 of which $50,000 was on one loan company that didn't disclose a non-interest fee, and then another $30,000 on somebody else.
I'm hard-pressed to know whether there's an issue here of unhappiness with Canadians' bank system.
5:55 p.m.
Acting Commissioner, Financial Consumer Agency of Canada
I can assure you that simply using a hammer doesn't get you very far. We have uncovered some significant issues that we've been able to address with the institutions, through sitting down across the table and negotiating an agreement and improving the level of compliance. For example, we audited the penalty clauses.
We as an agency have a call centre. We monitor the trends that happen at the call centre on a weekly basis, and where we notice there's a problem, we start inquiring further. In this particular case, the example I used is the mortgages and penalty clauses. We noticed that consumers were complaining, not just about the amount, but they just didn't understand what was happening. On our own, we decided we would ask all the large banks to file all their mortgage documents--English and French--with us.
You can imagine there were hundreds of documents we ended up going through.
Then, in reviewing those documents, we found a significant number of errors in terms of how the disclosure was made. You can tie yourself up as a small agency in the courts for years or you can sit down with the industry, with a firm hand, and demand that changes get made to the documents and within a certain timeframe. The industry did that.
Almost every mortgage document that we found has been revised over the last two years. We've done that in terms of cost-of-borrowing issues. We also did a mystery shop dealing with access to banking, where, although it was an improved performance from previous measures, it still wasn't good enough in terms of what we consider is the level of compliance that we expect.
They have sat down and they have committed to action plans in terms of improving training at the branch, in terms of providing better tools that branch personnel can refer to with respect to, for example, demanding ID of consumers. We'll take that approach where we can see discernable progress in improving the marketplace.
6 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Okay, thank you. I'm still not clear as to whether this is a....
I agree with your approach, but you know, you practice law for 22 years...and trying to read mortgage documents can drive you crazy. If you can do anything in that area to simplify it and make it understandable to everybody, I think everyone is ahead of the game. I recognize the approach, but I'm still grasping whether in fact it's half full or half empty here.
At any rate, let me shift questions here to Ms. Dickson.
One of the issues is that the audit work for the insurance companies is going to be a little downloaded here. The audit work is done by an actuary who is not necessarily the actuary of the company. I'm not sure what I think of that. I'd be interested in your comments as to whether you think this is appropriate.
6 p.m.
Acting Superintendent, Financial Institutions, Office of the Superintendent of Financial Institutions Canada
I have no particular issues with that. We do rely on actuaries' work, and the actuaries are in a self-regulatory profession. If we have any concerns whatsoever...because we do have actuaries on our staff. If they have concerns about any of the work they see, there is a mechanism where you can report the actuary to the Canadian Institute of Actuaries.
So at the end of the day, we're not concerned about it.
6 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
A lot of people rely on these actuarial documents. If an actuary is retained for a particular purpose and has their work used by other people, presumably that's a liability on the part of the actuary. Are you not concerned about that?
6 p.m.
Acting Superintendent, Financial Institutions, Office of the Superintendent of Financial Institutions Canada
Sometimes when a company chooses an actuary to do some work for them, we do focus on independence and whether the actuary who they are getting to do the work is someone who is independent. So this is not an actuary who the company constantly turns to and who might have built up a personal relationship with the company. We do have a document out on that which talks about the independence principle, when you are going outside.
So again, I'm not concerned about that provision.
6 p.m.
Liberal
The Vice-Chair Liberal Massimo Pacetti
Thank you, Mr. McKay.
Monsieur Gaudet, cinq minutes, s'il vous plaît.
6 p.m.
Bloc
Roger Gaudet Bloc Montcalm, QC
Thank you, Mr. Chairman.
Ms. Dickson, I am looking at your mandate and I am wondering how you monitor banks. Do you have actuaries or accountants? You must not be the only ones monitoring the banks, which are making billions of dollars a year.
6 p.m.
Acting Superintendent, Financial Institutions, Office of the Superintendent of Financial Institutions Canada
We have about 450 people. A lot of them, 200 of them, are in Toronto. Many of them have come from the financial services industry. They are accountants, auditors, actuaries, or people who have just worked in the industry.
We send in teams to look at the internal controls within financial institutions--what kinds of controls they have in place before they make loans, for example. I will actually go in and look at the quality of the loan book. We'll send people in to look at many different aspects of the bank's business, whether it be outsourcing or IT practices. Credit quality is something we focus on a lot. So we would be sending in teams regularly to look at the credit quality.
What we do is consistent with what is done by other international agencies like ours.
6:05 p.m.
Bloc
Roger Gaudet Bloc Montcalm, QC
It's not my intention to say that you're doing a poor job. I simply would like you to give me a concrete example of the anomalies you have discovered in a bank. You have not named the bank in question.
6:05 p.m.
Acting Superintendent, Financial Institutions, Office of the Superintendent of Financial Institutions Canada
In the credit portfolio, what you might find is that management might decide to go for a riskier segment of the business, and they might not put the controls in place to monitor. You'd have to monitor the portfolio a lot more closely if you were going for a riskier segment of the business. You'd have to have discussion with your board of directors to ensure that they were onside with this change in strategy.
That would be an example of something that we have found in the past. Management has decided to go out to try to make more money. They would target another business that they hadn't yet targeted, and they wouldn't put the controls in place to monitor it. That's an issue for us, and we'd force them to change that.
6:05 p.m.
Bloc
Roger Gaudet Bloc Montcalm, QC
Thank you.
Mr. Lafrenière, you said that the contingency funds are taxed. Is it like winning the lottery, meaning that revenues are taxed, or is it your reserve fund that is taxed directly?
February 19th, 2007 / 6:05 p.m.
President, Canadian Association of Mutual Insurance Companies
The contingency funds are not taxed. When we have a contingency fund, it is set. Therefore, this is money set aside to offset current or anticipated losses. We are talking here about incurred but not yet reported losses.
However, when we cannot prove that losses are being incurred, among other things, this money is considered a profit. Taxes have to be paid on profits. When we have money left over after paying taxes, we put it into our surplus fund. The surplus is the money we can keep once taxes have been paid.
6:05 p.m.
Bloc
Roger Gaudet Bloc Montcalm, QC
You can't do what the banks do and create a contingency fund for bad debts for example. Things are different for insurance companies.
6:05 p.m.
President, Canadian Association of Mutual Insurance Companies
True. What we have are contingency funds for accidents that have occurred, the cost of which we don't yet know, such as car accidents. Often, it can take several years before we learn how much an accident cost. So we put that money aside. It is allowed, given the risk exposure.
6:05 p.m.
Bloc
Roger Gaudet Bloc Montcalm, QC
I agree. Otherwise, you wouldn't be able to manage.
How is it that some foreign companies do not pay these taxes?
6:05 p.m.
President, Canadian Association of Mutual Insurance Companies
No, it's not that they are not paying these taxes. Foreign companies, in their own countries, often have contingency funds for disasters. The government tells them to put money aside in case there is a major disaster. We don't need to look far for an example. We need only think of Hurricane Katrina which affected the United States just over a year ago. It cost the U.S. a fortune. You need to have money set aside to deal with such an event.
The American government has told insurance companies that it would help them offset their losses if ever such an act of God occurred. European countries, as well as Australia and Japan, among others, are telling insurance companies to set money aside in case of major disasters. But no such system exists here.
6:05 p.m.
Bloc
Roger Gaudet Bloc Montcalm, QC
Thank you.
Mr. Legault, earlier you congratulated the Minister of Finance. I would like you to tell me why you did that; I'm curious.
6:05 p.m.
President and Chief Executive Officer, Canadian Payments Association
I said that we were congratulating the Department of Finance and the officials with whom we have had to work when we presented our goals and the changes that we would like to see made to the Bills of Exchange Act and Canadian Payments Act.
6:05 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Thank you, Mr. Chairman, and thank you, everyone, for coming this evening.
Just so we're clear, we're obviously dealing with the Bank Act today, but there is legislation dealing with Canadian payments. I think it's called the Canadian Payments Act. Is that an accurate statement?
I'm interested in the discussion we had earlier today about electronic fund transfer and a review of what could be happening there. I know there's U.S. legislation. That is something that could happen at another time, not related to this Bank Act, and could possibly be included in legislation other than this Bank Act.
Would you agree with that comment? Or what's happening in that area?
6:05 p.m.
President and Chief Executive Officer, Canadian Payments Association
I would agree with the comment, but I would also add that it doesn't necessarily have to be through regulations or legislation. It could also be done through what has been used more recently, in terms of voluntary codes.
We've been participating, as part of our mandate, on the debit code. One of the previous witnesses today referred to the CPA debit code. In fact, it's not a CPA debit code, it's a government code. We participated in the development of it, and we would welcome participation in the development of an electronic one as well.
You have to be very careful about making sure you recognize the different properties of the various payments so that you don't come with a sledgehammer and basically try to cover everything. If you do it through legislation on top of that, you lose a lot of flexibility. If you do it through regulation, you also lose flexibility. It's why voluntary codes have been favoured by the industry.
6:10 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
I appreciate that.
For clarification, Mr. Bouchard, did you contact the Office of the Superintendent of the Financial Institutions or did you contact the Financial Consumer Agency Canada?
It was the consumer? Because in your presentation, I couldn't tell which group it was. Thank you for that clarification--
6:10 p.m.
As an Individual
It was for the ombudsman service. He also contacted us, but it was also the translation; it wasn't--