Finance Committee on April 10th, 2008

[Dean Del Mastro, Conservative, Peterborough, ON]

What would you add to that, Ms. Urquhart, about the need for a common securities regulator?

[Diane Urquhart]

Well, I guess I would say to the provincial securities commissions that they've lost their right to govern and regulate. The cracks in asset-backed commercial paper were so clear to Standard & Poor's that there is absolutely no basis on which they can justify what took place. Consequently, it's in the interest of national economic prosperity for the federal government to proceed, as necessary, according to the demands of Canadian people, to use its constitutional powers to enter into securities regulation jointly, including in collaboration with Quebec.

Quebec is doing an excellent job and is seen to be one of the leaders in the country, and still it's deficient. Recently a fraudster was put in jail for 12 years, I believe, in the Norbourg case. It was the Quebec authority who was the first in history to get someone in jail that long for fraud. So I think we can work with the Province of Quebec.

We shouldn't let this be a stumbling block for us to move forward. We must do so. I think the federal government is going to have to show leadership, and do so in collaboration with the Province of Ontario. I think they're ready to move.

It would be my opinion, in light of the lack of confidence in Canada by international investors—because we've become a laughingstock—that any province who chooses not to join this initiative is a province that's going to get a lot less money to develop their economies. I believe the majority of the provinces would fold very quickly.

[Robert Pouliot]

May I add a point here?

[The Chair, Conservative, Rob Merrifield]

Yes, go ahead.

[Robert Pouliot]

There are now pensions funds that have reached a level of complete disbursement in Quebec and have no liquidity whatsoever.

The federal Parliament has power over OSFI and the Bank of Canada, and a special action should be prepared or made or taken in order to allow the pension funds that have reached maturity to be able to recover funds, and not leave it to the institutions, with one institution or other setting differing types of facilities. This would help those pension funds get credit in order to pay their retirees.

[Dean Del Mastro, Conservative, Peterborough, ON]

Sir, can you give me the relevance of that to a common securities regulator?

[Robert Pouliot]

Well, a common securities commission in Canada may not happen, Mr. Del Mastro, for a year, two years, or perhaps even longer, but here, within the next few weeks or few months, OSFI and the Bank of Canada could provide a special type of facility that would allow pension funds that have reached the stage of disbursement to be able to disburse and pay the pensions of their retirees. That's a very short-term action that could be taken now, and you don't need a law for that.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now, we'll move onto Mr. Pacetti.

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

Thank you, Mr. Chairman.

Thank you again to all the witnesses for appearing. This is an issue that's been boiling, and we still haven't uncovered all the things that are out there, but we'll leave that for another day.

Mr. Furino, I guess you're the closest to someone representing a corporation here. How does this happen? You said that whatever amount of money you have, whether it's $50,000 or $5 million, you talk to your investment adviser. So how does this happen? You've told the adviser that you need the money to replace furnaces, or for minor repairs, or for working capital, and then all of a sudden you're stuck with this product. There are enough people involved.

You're a treasurer of an organization, and you're dealing with an investment broker or banker. How does this happen?

[Steven Furino]

I think the short answer is that the investment adviser believed that the product was safe and liquid. It wasn't.

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

So who takes responsibility? The same thing could happen to me. I have an investment adviser, who is actually with the National Bank, and I have some money market funds, and it just happens to be that he didn't put them into National Bank products. It was just a fluke.

This question is related to what Ms. Miles was saying. I specifically tell my investment adviser that these amounts of money are going to go towards safe investments, and these are not. So who is going to be the responsible person?

Even if the people around the table, or the group that is here testifying, decide to take Prudential or Canaccord to court, by the time there is an additional settlement, who is going to pay this money?

[Steven Furino]

I think there's no shortage of blame to go around. Many of the comments suggest that it's systemic, and not my broker, not Canaccord only, or a rating agency, or regulatory authorities, or banks playing both sides of the fence, or liquidity guarantees that aren't guarantees.

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

So we're talking about a revamp of a system that really has to be looked at.

I know, Diane, that you are itching to add something.

[Steven Furino]

I think it is a systemic problem and not just—

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

I'm going to give you an even tougher question, but it's probably easy for you to answer.

I have $100 dollars and I want to put $10 in safe investments, and for sure I'm going to put another $10 or $20 in bank or financial institution stocks. So here I am, and $10 of my “safe” money is no longer safe; and my $20 that is supposed to be in blue-chip stocks is no longer safe, because my bank or financial institution stocks are going down. So what is the safety in my investment?

Meanwhile, I have another 20% in really risk investments—

[Diane Urquhart]

They're probably the safe ones.

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

They've now become my safe investments. So what do I do? How do we control this?

I can't believe that members of Parliament are supposed to be investment advisers. I understand that we are going to put some legislation forward one day, but we can't even get the provincial governments to decide. As Mr. Pouliot was saying, it may take years before there's any type of compromise on this situation.

What do you see, Diane?

[Diane Urquhart]

One of the big problems with the vote under the CCAA process is that there are courts whose function is to resolve disputes. There are other dispute resolution mechanisms, and some don't work that well, but we also haven't mentioned today the ombudsman for banking services and investments.

What has to happen is that this retail group needs to be given free access to the dispute mechanisms that are available. If their legal rights are squashed this time, they're going to be squashed every time, because what bank wouldn't want to be able to squash the rights of customers who are angry with them for selling them products that blew up or were tainted?

So this is a fundamental problem that we are facing. This is why these people want to speak here, because they need access to the dispute mechanisms. They don't want to be run over by the bus or told by the banking industry who sold them the tainted product—

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

Who is the dispute mechanism? The Financial Consumer Agency came before us to testify, and we were asking them about complaints in the financial and banking sector, and that's not their responsibility. Their responsibility is just to inform people that the banks exist.

[Diane Urquhart]

Well, there is a mechanism that works today; the problem is that these people are being denied access to it. We can come back on this, subject to another hearing on how we can fix the current dispute mechanisms, which are not working as well as they should. For the most part, all of the dispute mechanisms are controlled by the industry, and the courts are too expensive.

So we do have work to do, but we have to start by severing the control of the industry of the dispute mechanisms, and we have to have a place where people who have lost their life savings can go with impartiality and feel that, with the provision of evidence, some reasonable arbitrator or judge or dispute resolution mediator is going to be able to come to a judgment that's fair, on the basis of the evidence, and not be controlled by the industry.

[The Chair, Conservative, Rob Merrifield]

That takes us to our time.

I want to thank you for coming forward, and I want to thank the committee for their questions. You were passionate in your concern for this issue, and we're very concerned about trying to do something with it.

I believe there is a motion coming from Mr. Crête. I'll entertain it at this time.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair.

I move that the committee make non-bank asset-backed commercial paper its priority in the coming months, while of course respecting our obligations to study Bill C-50 that deals with implementing certain provisions of the budget. I so move. Since this is on the agenda, I do not have to give 48 hours notice. I hope that I can get unanimous consent from the committee on this.

[The Chair, Conservative, Rob Merrifield]

I don't sense there are any objections. I wouldn't want to enter into a lot of discussion on this at this time, if that's fine.

We will have a vote on it, unless you have something that you want to—

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I support the motion, Mr. Chair. I think it is very important for the committee to look into this matter.

[The Chair, Conservative, Rob Merrifield]

Fair enough.

I see consensus to entertain the motion.

Mr. Del Mastro.