Finance Committee on March 8th, 2012

[The Chair, Conservative, James Rajotte]

I call this meeting to order, the 47th meeting of the Standing Committee on Finance.

Pursuant to the order of reference of Tuesday, February 14, 2012, we are considering Bill S-5, an act to amend the law governing financial institutions and to provide for related and consequential matters.

We have two panels with us here today, colleagues. In our first panel we're again very pleased to welcome back the Honourable Ted Menzies, the Minister of State for Finance.

[Some hon. members]

Hear, hear!

[The Chair, Conservative, James Rajotte]

A unanimous welcome back from the committee, Minister Menzies. Thank you so much for being with us here to present the position on Bill S-5.

I understand you have some officials at the table, who you will be introducing in your remarks. We'll have questions from all committee members after your remarks, so please begin at any time.

[Ted Menzies, Conservative, Minister of State (Finance)]

Thank you, Chair.

This is, as I say, becoming a habit, but I am glad to be back among the financial champions in the House of Commons. Thank you for allowing me the opportunity to appear once again before this committee.

Today we are talking about Bill S-5, the Financial System Review Act.

I have with me Jeremy Rudin, Jane Pearse, Eleanor Ryan, Leah Anderson, and Joe de Pencier from the Department of Finance. If you ask me any technical questions I will probably defer to them, because this is a rather technical bill, but it is nonetheless very important.

From the start I want to underline for the committee that while this legislation is important, it is mandatory, routine, and as I say, primarily technical. But it is important, in that it will ensure that we keep Canada's financial system safe and secure, a system all of our constituents depend on almost every day, be it making a bank deposit or applying for a loan to start a business.

Our financial sector plays an important role in financial stability, safeguarding savings and fuelling the growth that is essential to the success of our Canadian economy. It also represents about 7% of Canada's GDP, employing over 750,000 Canadians in good, well-paying jobs.

Before I start talking about some of the highlights of today's bill, I want to explain the background of why and how it came to be. The committee should know that every five years the government reviews all legislation governing federally regulated financial institutions. This is a long-established practice in Canada, with the last review being completed in 2007 in the 39th Parliament. Such mandatory five-year reviews are a big part of why Canada has a well-regulated financial system that is safe and secure. Indeed, earlier this year the independent Financial Stability Board praised this aspect of our system:

...review of all legislation to ensure that it is current, contributes to stability and growth of the financial sector and, by extension, allows Canada to remain a global leader in financial services.

I'll note that the present five-year review process formally began in September of 2010, when our government launched a broad public consultation process. During that consultation we heard from a wide range of Canadians on ways to help further strengthen Canada's financial system.

What's more, as we know, Bill S-5 has already been reviewed in the Senate and received extensive study by the Senate Standing Committee on Banking, Trade, and Commerce. As we know, the senators know a lot about money, so they would have scrutinized this very closely.

The committee engaged in a timely review of the bill, hearing from groups ranging from Credit Union Central of Canada, the Canadian Life and Health Insurance Association Inc., the Financial Consumer Agency of Canada, the Office of the Superintendent of Financial Institutions, as well as others. While noting Bill S-5's technical nature, the witnesses were very supportive of the bill overall. For instance, the Canadian Life and Health Insurance Association Inc. noted that “Bill S-5 represents a welcome fine tuning of the various financial institution statutes”.

Before highlighting some of the items in today's bill, let me mention that due to the legislated sunset date, it is essential that it be renewed by April 20, 2012 to allow Canada's financial institutions to continue to function. No pressure, Chair, but keep that in mind.

I will now take this opportunity to outline some of the measures contained in Bill S-5. Once more, while the majority of the bill is purely technical, its passage is nevertheless essential to guarantee that Canada's financial system remains stable and secure. That's why broadly, the bill will make changes to, first of all, update existing legislation to promote financial stability and to ensure that Canada's financial institutions continue to operate in a competitive, efficient, and stable environment; fine-tune the consumer protection framework to better protect Canadian consumers; and improve efficiency by reducing red tape and regulatory burden on those financial institutions.

More specifically, key measures contained in this act include reinstating the required approval of the Minister of Finance for select, extremely large foreign acquisitions by Canadian financial institutions; reducing the administrative red-tape burden for federally regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements; promoting competition and innovation by enabling cooperative credit associations to provide technology services to a broader market; more than doubling the maximum fine that the Financial Consumer Agency of Canada can impose on financial institutions that violate consumer provisions, increasing that from $200,000 to $500,000; and also guaranteeing that all Canadians, especially those who are most vulnerable, have the right to cash any government cheque under $1,500 free of charge at any bank in Canada.

When we saw the failure of some of the world's most well-known banks, the recent global economic turbulence has made clear the importance of keeping Canada's financial systems safe and secure through the passage of the Financial System Review Act. Canadians recognize how much we have benefited from our prudent regulations and sound financial oversight in recent years. In fact, for the fourth year in a row Canada has been ranked number one by the World Economic Forum for having the soundest banks in the world.

Without a doubt, Canada's safe and secure financial system has served as a model for countries and is envied around the world. In fact, U.K. Prime Minister David Cameron recently praised our system when he said:

In the last few years, Canada has got every major decision right. Look at the facts. Not a single Canadian bank fell or faltered during the global banking crisis.... Your economic leadership has helped the Canadian economy to weather the global storms far better than many of your international competitors.

As well, the prominent Economist magazine made this proclamation:

Canada has had an easier time than most during the recent global recession, in part because of a conservative and well-regulated banking system.

Likewise, a recent report from the United States Congressional Research Service underlined how well our financial system is regarded and examined as a model for others to build on. I'm quoting directly from that report:

...Canada’s supervisory system and regulatory structure have proven less susceptible to the bank failures that have loomed in the United States and Europe and may offer insight for U.S. policymakers.

In conclusion, let me say that our government believes that modern and effective regulation is critical for an innovative and prosperous economy. What's more, we recognize that we must keep Canada's financial system secure so that it continues to be a fundamental source of strength for our economy. The measures contained in the Financial System Review Act will provide a framework that will benefit all members of the financial services sector, and also all Canadians.

The well-established practice of regular five-year reviews of the regulatory framework for financial institutions is a unique practice that sets Canada apart. It is a positive practice that has proven vital to the stability of this sector.

All Canadians know the importance of continually examining how we can better ensure the safety and soundness of our financial system for the benefit of all Canadians, and today's legislation does just that.

I encourage all members to support this important legislation.

On that note, I'll wrap up and would welcome any questions.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Minister Menzies, for your opening statement.

We'll have questions from our members. We'll start with Mr. Julian for a five-minute round, please.

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

Thanks very much Mr. Chair.

Thank you for coming, Mr. Menzies. It's always good to see you here.

As you know, the NDP has been a strong supporter of our robust regulatory framework for the banking sector. We've been certainly supportive at all times, often in opposition to the governments in power, to make sure we keep that regulatory framework in place.

What I'd like you to do to start off, if you could today, is just lead us through what the actual process of consultation was on the Financial System Review Act. When the period of consultation opened, how many submissions did you actually receive? To what extent was the review actually publicized or advertised? And to what extent did that go into forming the bill that is before us now? Of course, there some areas that are missing that we'll be identifying. I'd really like you to take us through to what extent there was a full consultation on this review.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Julian.

The review was initiated on September 20, 2010. As for the actual details, I'm not exactly sure what all the details were, but I may turn to Mr. Rudin to give you the details of how that process was carried out, if I could.

[Jeremy Rudin, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance]

Sure, I'd be glad to.

The Minister of Finance, Minister Flaherty, launched the review by putting a press release on the Department of Finance website inviting all interested Canadians to make a submission, noting that this was part of the regular process of updating the financial institution statutes. He also took the opportunity to point out that a number of important changes had been made in the legislation governing the financial system as a consequence of the turbulence in financial markets and the lessons we had learned domestically, and more importantly, I think, from observing what was going on in other countries. He anticipated therefore that the review would be principally focused on technical issues, that the government wasn't contemplating major policy changes but was certainly prepared to contemplate a fine-tuning exercise.

Everyone was invited to make their submissions electronically, and a number of submissions came in, on the order of 30. Then we looked at all of those within the Department of Finance. In some cases we went back to the people who had submitted the suggestion to get more information, to get more background, to understand better where they were coming from. We also consulted not only within the Department of Finance but also with the relevant federal agencies, whether it be the Office of the Superintendent of Financial Institutions, the Financial Consumer Agency, or the Canada Deposit Insurance Corporation. Then subsequent to that, the bill was tabled.

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

Thank you for that, Mr. Rudin and Mr. Menzies.

What I think would be useful for this committee to have is a comparison—and I know that you won't be able to give us testimony today on that—of how this compares with previous reviews: so the process, the number of submissions, and the number of public as opposed to anonymous submissions, compared to the previous review. I think that would be helpful for us.

I'll move on, because time is short. I'd like to know, in terms of the Canadian Payments Association, the degree of consultation that was undertaken with them, and the extent to which the government was defining a technical issue around payments. My understanding is they do not believe that the changes that are foreseen in this review act are technical in nature.

[Ted Menzies, Conservative, Macleod, AB]

To begin with, I just want to clarify your previous comment. I don't think any of the submissions were anonymous. I don't think we'd put a lot of relevance on an anonymous submission on something this important. I'm sure everyone signed their submission to suggest what they'd like to see in the Bank Act.

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

Not anonymous.

[Ted Menzies, Conservative, Macleod, AB]

In answer to your question, there certainly were some questions from the payments association. Fortunately, those concerns were allayed throughout the Senate process. In fact, they wrote a letter to Mr. Rudin, and I will quote from that letter:

While CPA welcomed the comments from the committee, we have no issue with the substance of the provision and are comfortable with moving forward with the amendment as it was originally proposed.

So their concerns were addressed and they're comfortable with that now, but thank you for raising it.

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

Would you be able to table that with the committee?

[Ted Menzies, Conservative, Macleod, AB]

I don't know if I have it in both official languages.

[The Chair, Conservative, James Rajotte]

If you provide it, we can certainly translate it.

[Ted Menzies, Conservative, Macleod, AB]

Yes, we can certainly provide it. Sorry, I just have it in English. My apologies. I should have known better, Peter.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Julian.

We'll go to Ms. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

I want to take a moment—forgive me, Minister Menzies, but I have to take a moment—to wish all of the women in the room a happy International Women's Day.

I must note how impressed I am to see, Minister Menzies, the balance of women versus men in high-ranking public service sitting with you at the table. I want to congratulate them. There are three to two here, and I'm so pleased to see our women doing so well in public service life.

In any event, Minister Menzies, I'm glad to see you here, because this is, as you said, a very important piece of legislation. It is a review that's mandatory, and there is a very important date coming for sunset. You mentioned as you provided your opening statement that the bill includes technical and administrative amendments that you classified as housekeeping, but you also acknowledge that some of them are very substantive measures that address current global and domestic trends.

Now, the financial crisis highlighted the importance of evaluating the overall size of financial institutions, their global linkages, and the impact these factors have on financial stability and the best interests of Canada's banking system.

As a partial response to lessons learned, today's legislation, as we know, proposes to reinstate an existing ministerial approval for select foreign acquisitions of financial institutions. I happen to have with me a quote from the Canadian Bankers Association with regard to that section. Here's what they said:

We fully support that decision. That power should be back with the finance minister to, in our view, give him a full suite of tools as part of the oversight of the financial system in Canada.

I would ask you, Minister Menzies, to tell us your thoughts with regard to the importance of this provision.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Ms. Glover.

My apologies to all the women in the room; I should have noticed that myself and highlighted it, and of course that we have two parliamentary secretaries, both women, who sit on this committee, and that on a regular basis we depend highly on the women in the finance department. Our associate deputy minister is a woman, and many of our high-ranking officials in the Department of Finance are smarter than some of our guys, but we won't tell our guys that. Anyway, thank you.

We want to highlight some of the technical things. Prior to 1992 all banks were prohibited from owning any foreign subsidiary. In 1992 ministerial approval was granted to have oversight over that matter, but in 2001 the ministerial approval was removed and it was simply the Office of the Superintendent of Financial Institutions.

What we're doing is to make sure that we're bringing strong oversight back by providing oversight by the Minister of Finance. OSFI still looks at it to make sure that the transaction qualifies, but the Minister of Finance has the final say, and I would agree with Terry Campbell and the CBA that this is the proper oversight to have in this situation.

[Shelly Glover, Conservative, Saint Boniface, MB]

I thank you for that explanation.

I want to thank Mr. Julian for admitting that the NDP take this very seriously and want to see our banking system and our oversight systems remain as strong as they are, because we are seen, frankly, across the world as having one of the strongest systems. I'm sure that Mr. Julian will help us to get through this bill quickly in order to get to that sunset date without having any problems.

I would ask what prompted the discussion about going back to what was changed by the Liberal government.

[The Chair, Conservative, James Rajotte]

Just give us a brief response, Minister, of about 30 seconds.

[Ted Menzies, Conservative, Macleod, AB]

There were certainly concerns. If you want the broad picture, it is concerns over how we make sure that our financial institutions remain in the top class, retaining basically a triple-A rating. Canada is triple-A, but so are our banks. It's very important that we keep that strength.

The most important thing to us is making sure that we protect ordinary Canadians, that their savings are protected, that there's credit available to them, that we have strong and stable banks. When Canadians need to borrow money, we have to have strong institutions for them. It is overall oversight, the final oversight, that is in the right place in the hands of the finance minister.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Glover.

We'll go to Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Chair.

And thank you, Minister and the public servants, for joining us today.

Minister, you cited the international recognition that Canada's banking regulatory framework has received, from Prime Minister Cameron among others who have cited it. What regulatory decisions would you suggest resulted in this strong regulatory framework?