Evidence of meeting #18 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was investors.
A recording is available from Parliament.
President and Chief Executive Officer, Canadian Finance and Leasing Association
First of all, I would underline the fact that it's not only auto loans; it's also equipment loans and leases.
Liberal
President and Chief Executive Officer, Canadian Finance and Leasing Association
Certainly time is of the essence. I've been working closely with Finance and now with the BDC on this. Yes, of course we would like to have seen things move as quickly as possible. That said, this is a rather complex area for government. It's a new area that government really has not ventured into before. That's why, in my opening remarks, I referred to it as being innovative.
Clearly, ensuring that the taxpayer interest is properly protected is an important element. I agree with you that we would like to have seen this product offered as soon as possible in this marketplace, because our members are feeling the need for credit and have customers they can't respond to, but it is a somewhat complex structure. We're trying to keep it as simple as possible.
I do feel it's important to say to this committee that the people I've been working with in the Department of Finance have been excellent in their response and in the quality of their thinking. They have been working extremely hard.
Liberal
John McCallum Liberal Markham—Unionville, ON
I'm sure they've been working very hard. I'm sure the BDC has been working very hard. The trouble is that the crisis goes on and on, and nothing much happens.
That leads me to Mr. Conway.
You mentioned the BDC. First of all, I thought you had a very good list of proposals to make credit flow, including the Canada Small Business Financing Act, early-stage enterprises, incubators, and longer-term credit facilities. I don't think the government has done any of those, except for some action on pension. It hasn't acted on the other ones you mentioned.
You mentioned BDC and EDC. Since you're in touch with all these financial executives, you might have feedback. I haven't heard any negative commentary about EDC, but I've heard a great deal of negative commentary from business people about the slowness of BDC. When the president was here before our committee, he couldn't give any estimate of how much, if any, of the new credit would flow in this calendar year. I made the point, as I made earlier, that it should flow in 2009, not in 2010, 2012, or 2013.
Through your association, do you have any information as to the speed, or lack thereof, with which BDC is acting?
Michael Boychuk Senior Vice-President and Treasurer, Bell Canada, Financial Executives International Canada
Let me respond a little bit to that.
A lot of what the BDC does is loans to smaller businesses. Part of their mandate, obviously, is to put money into start-ups and new organizations, particularly the knowledge-based businesses. It's not uncommon in times like these, in heavy recessionary times, that they retrench a little bit. It's tougher to find the opportunities. However, this is the time when you need to invest--
Liberal
John McCallum Liberal Markham—Unionville, ON
Retrench a little bit? They were given $12 billion of extra money in the budget. The purpose is to put that money out, not to retrench.
Senior Vice-President and Treasurer, Bell Canada, Financial Executives International Canada
That's exactly the point we're making. We believe they have to be doing that, and they have to be doing it on a much more rapid basis. It's not happening.
Senior Vice-President and Treasurer, Bell Canada, Financial Executives International Canada
It isn't happening. We're not seeing it.
Conservative
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Thank you, Mr. Chair.
Good morning, everyone.
My first question is for Mr. Buell. In your testimony, you made some extremely important statements on behalf of the Small Investor Protection Association. The financial crisis and the ABCP scandal, among others, are greatly affecting Canadians and Quebeckers. This is fundamental, in that all of this comes down to a matter of trust. You quoted emails received from people who put an end to their lives, and I am convinced that there are others in the same situation, who did not send such a message.
You said that the investment sector exploited the situation by offering very deficient products that also seemed attractive, and that warnings were issued with respect to the system's shortfalls. What sort of warnings are you talking about, exactly?
Founder and President, Small Investor Protection Association
Over the years, a number of people have been warning that there are problems with the regulatory system, and I had the great pleasure of accompanying Dr. Al Rosen to Ottawa in June of the year Minister Flaherty issued the income trust decision. That created great flak, but Dr. Rosen presented a report where the Accountability Research Corporation had studied the top 50 business income trusts in Canada, and already many investors had lost most of their investments in some of those trusts. To me, that was a very significant warning to the government that something was wrong, and whether Minister Flaherty made the right decision or not, something had to be done. It might have been done in a different way, but he didn't create the problem. The problem was created by industry.
We've had warnings on our website. There have been various journalists warning about faulty products like principal-protected notes. This misleads people into thinking the principal is protected, but I've heard from one of our members who called me and said, “ I've found the ideal product; my principal is guaranteed; I'm getting return of 8%.” And I said, “Ed, you'd better look into it, because it sounds too good to be true.” Three months later he called me and said, “Stan, I don't believe it. The interest rate has been cut to 4%, and when I tried to get money back, they said I could only get it back at the end of the guarantee period, 10 years out, and if I want my money now I get 70%.”
The problem is that the media in some respects does speak out, but not everybody is able to.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
As my time is limited, I will move on to another question, Mr. Buell. Your remarks, however, have clarified many things for me.
I have another question which I would like to ask Ms. Walmsley. You represent those who advise people to buy these products. You represent the Investment Counsel Association of Canada. I assume that those working for brokers will advise people to buy various products with their personal savings.
Was your association aware of any remarks or warnings? Last week, we heard from Mr. Don Drummond, vice-president of the TD Bank. He told us that it was so obvious, and so straightforward and that consequently the institution did not buy asset-backed commercial paper. Correct me if I am wrong, but how is it that an association such as yours recommended to many clients who were members of Mr. Buell's association to buy these products for the future?
President, Investment Counsel Association of Canada
Just to clarify, our association represents investment management firms, not brokers. We're asset managers who purchase on behalf of pension plans and individual clients.
In August a couple of years ago, when the first news of the asset-backed commercial paper crisis was emerging, we very quickly polled our members to determine what our membership exposure was and what we needed to do as an association to help both the management firms through the situation, but also their clients. I was happy to report that we had very little member exposure. Fewer than five of our 115 firms had direct exposure and were involved. In fact, many of our investment management firms, when they were approached with some of these products, declined investments in them and saw some of the warning signs with them.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Did you issue warnings, recommendations, saying that certain products were high-risk? Do you have any publications on this matter? Do you have any documents?
President, Investment Counsel Association of Canada
Our association specifically does not. Mr. Johnston may wish to add.
Treasurer, Board of Directors, Investment Counsel Association of Canada
If the honourable member is referring to the $32 billion or $40 billion in the asset-backed commercial paper, it really comes down to the diligence of the adviser. I think the problem was exacerbated because there were credit rating agencies that were identifying it as a very good product. A lot of the managers—
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Only the DBRS gave the paper good ratings. The DBRS gave ABCP good ratings; the others refused to rate them.
Conservative
Treasurer, Board of Directors, Investment Counsel Association of Canada
That's a fair comment, but for that particular class, the DBRS was a sort of dominant agency, because it was based in Canada, focusing on it. As my colleague indicated, at the end of the day our membership exposure was limited. Where there was the occasional investment, there were a number of reasons behind it that had a lot to do with the credit rating agencies and the lack of oversight on some of the diligence they did.
Conservative
Conservative
Ted Menzies Conservative Macleod, AB
Thank you, Mr. Chair, and thank you to our presenters.
Ms. Walmsley, you're the only one who gave a real recommendation on pensions. I want to clarify and make sure you have actually put in a submission to the finance department on pensions.
President, Investment Counsel Association of Canada
Yes, we did, and to each of the provincial expert panels we gave the same copy of our recommendations.
Conservative
Ted Menzies Conservative Macleod, AB
Good. We've heard about replacing the prudent person rule from many other groups as well. We're certainly hearing lots of concerns out there, so we appreciate the fact that you.... Talking about diversifying, you understand the investment part of it, and that's what has gotten all of these pensions in....
As a quick comment, if you would, are there any other recommendations you would like to add—realizing that we're not speaking of pensions right now?
