Finance Committee on March 8th, 2012

[Ted Menzies, Conservative, Macleod, AB]

Disclosure is so important; people need to know this. It's part of the larger picture of financial literacy as well. Those unsolicited credit card cheques are something that many people don't understand.

There is moving to protect consumers on pre-paid cards as well. I mentioned earlier that we're putting in place a financial literacy leader to try to explain some of these issues that people can be caught by. There's now a requirement that banks have a calculator on their website so that you can calculate what your prepayment charge would be on a mortgage. It's simple information that people don't know. That was part of the announcement this weekend, making sure that pre-payment penalties were made clear to people before they took on a mortgage, and the fact that a toll-free number is now required, which mortgage holders can call.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

I think this is part and parcel of what was passed the other day with our own chairman's motion in the House of Commons, which is that financial literacy among Canadians and promoting it has been one of our government's main mandates.

Now, is there anything else? Maybe your officials could answer this, but are there any other transient consumer protection provisions that I missed in this? I know that some are more enlightening than others, but are there some that we missed?

[The Chair, Conservative, James Rajotte]

Give just a very brief response, please.

[Jeremy Rudin]

No, I've think you've done a very good job of identifying the most important ones.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Jean.

Mr. Giguère, you have four minutes.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

The problem with this bill is not so much what is in it as what is not. In the past, we have seen new financial products appear, called commercial paper, which destabilized the financial sector at an incredible rate. This was less true in Canada than in the U.S., but many Canadian pension plans lost a great deal because of it. Canadian pension plans lost a great deal of money, money that we now need.

We cannot have much power of regulation with respect to what we do not know. Many financial products have arrived that we know little about, and the Superintendent of Financial Institutions does not have a right of veto over such new products. They appear, if one may say so, to be completely unregulated because they are too new, because they are unknown.

Could you please tell us which measures could be added to this bill in this respect?

[Ted Menzies, Conservative, Macleod, AB]

Well, I guess I would frankly be very concerned about building regulations for something we don't know about, and I mean that in all seriousness. One of the major complaints I get from my constituents is about the plethora of regulations in whatever field one is dealing with.

If something comes up, that's why we have an Office of the Superintendent of Financial Institutions; it's to provide the oversight. When consumers have an issue, we have OSFI in place or some other ombudsperson in place for customers of financial institutions, if they have a concern. But the oversight of the financial institutions themselves—and it's very good oversight, recognized around the world for its strength....

Mr. Mai, you referred to the superintendent as a he. To my lady friends over here I'll say that it happens to be a she, and she's a very qualified young lady, the head of the Office of the Superintendent of Financial Institutions.

They provide oversight for what you may say are the unknown or the untried. To try to regulate something that hasn't been invented yet.... I don't think I want to be the author of that.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

However, one of the comments made in France by the European Central Bank was that these new financial products should still require prior approval. Clearly, we did not follow that international example.

The second problem is tax evasion. Over the last few years, despite vigorous interventions by the Minister of Finance and Canada Revenue Agency, we have noticed the unfortunate existence of foreign accounts in tax havens. Through Canadian banks, foreign accounts were opened, which can open the door to tax evasion.

In that respect, we do not really see any mandatory tightening of practices by financial institutions. Recently, we did see a few unfortunate examples of abusive fiscal planning.

[The Chair, Conservative, James Rajotte]

Please ask your question.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Could you please tell us what you plan to do to correct this problem?

[The Chair, Conservative, James Rajotte]

Minister, could we have just a brief response, please?

[Ted Menzies, Conservative, Macleod, AB]

Yes. Thank you.

I share your concern about tax evasion. I might remind you that we have put forward in the last two budgets a number of policies that cut down on tax evasion and on tax havens. What we're regulating here are the banks that we have here in Canada. In regard to I think what you're suggesting, I would suggest that what you're talking about doesn't happen in Canadian banks. It would be foreign banks where the tax havens....

We're protecting consumers of Canadian financial products and we're making sure that the regulations in Canadian banks are in place. We've put forward many policies that actually protect us and that make sure we're protecting against tax havens. I would encourage the NDP to vote with us next time when we put the next ones forward.

[The Chair, Conservative, James Rajotte]

Thank you.

I want to thank you, Minister....

Do you have a point of order, Mr. Mai?

[Hoang Mai, NDP, Brossard—La Prairie, QC]

On this International Woman's Day, clearly, I was not referring to the individual, but rather the position. It is simply a question of the language used: in the text, one reads “the superintendent”.

However, I greatly appreciate your clarification with respect to the importance of women in this profession.

[Ted Menzies, Conservative, Macleod, AB]

Yes, I certainly wasn't trying to be critical. I was just trying to cover up for my error in not recognizing women in leadership roles at the beginning of this.

[Voices]

Oh, oh!

[The Chair, Conservative, James Rajotte]

That technically is not a point of order, but it's a helpful point of clarification that is not in the Standing Orders.

Minister, I want to thank you for being with us here today. I want to thank your officials. I understand that your officials will be back for the clause-by-clause on March 15.

We will see you then.

At this time, colleagues, I will suspend for a couple of minutes and we'll bring our guests forward for the next panel.

[The Chair, Conservative, James Rajotte]

I call the meeting back to order.

Colleagues, we have an hour with four organizations, so it will be very tight: the Canadian Bankers Association, the Canadian Life and Health Insurance Association, the Financial Consumer Agency of Canada, and the Office of the Superintendent of Financial Institutions.

I want to welcome all of you to the committee on this topic, Bill S-5. You have up to five minutes for an opening statement. I would strongly recommend, though, that you shorten it if at all possible to allow members time to ask questions, because I know they are very interested in this bill.

We'll start with Mr. Campbell, please, from the CBA.

[Terry Campbell, President and Chief Executive Officer, Canadian Bankers Association]

Thank you, Mr. Chair.

We are pleased to provide the banking industry's comments on the Financial System Review Act.

We believe strongly in the importance of insuring that the legislative and regulatory framework is reviewed regularly, and for that reason, we were pleased to see that the bill proposed retaining the sunset clause for financial services legislation at five years.

I'd like to begin with a few points about the banking sector in Canada, particularly in light of what is still an uncertain global economy. As we all learned during the global financial crisis of three years ago, Canada is not immune to the fallout from the problems that originate elsewhere. However, as we know and as was talked about at the previous panel, Canada's banks did not require taxpayer-funded bailouts, nor do we have any bank failures. In fact, during that period our banks continued to lend to individuals and to businesses, while many other financial providers either pulled out or pulled back from the market.

As was the case then, our banks today remain well-managed and well-capitalized institutions that continue to participate in Canada's economic recovery and growth. For example, Canada's banks provided $10.3 billion in dividend income to millions of Canadians, including through pension and retirement funds, and in many cases directly to retirees.

Banks also employ 267,000 Canadians in communities across Canada, and they take a leading role in support for those communities in arts, sports, health, education, philanthropy, and so on. The banking sector also helps the broader economy grow, contributing some 3.4% to Canada's gross domestic product. They're able to do this because Canada's banks have remained profitable.

Turning to Bill S-5 itself, as I think Minister Menzies said, it was against the backdrop of the global financial crisis that the finance minister introduced the review of the Bank Act in 2010. The finance minister indicated that given the very large volume of new international regulation arising from the crisis, the focus of the 2012 review should be on fine-tuning the domestic legislative framework. We agree with that approach, especially since the extensive array of global regulation is still being implemented.

There's one item in the bill I would like to specifically comment on, and that's the Bank Act special security regime. This type of security interest has long been a significant aspect of the bank regulatory regime and has played an important role in our ability to support the economy, particularly in lending to agriculture and forestry. Unfortunately, some recent court cases introduced some uncertainty into the Bank Act security regime, some uncertainty that needed to be fixed.

In Bill S-5, the government has stepped up to the plate and is proposing what we think are very needed clarifications. While we still need to make sure that what is proposed is fully workable, we're very pleased to see that the government is open to clarifying this important measure.

Let me conclude by just stepping back from the specifics of Bill S-5 for a moment to take into account the broader context and the implications of the international regulatory agenda. As you may know, and I've been on record on this for quite some time, we fully agree on the merits of a strong supervisory system as part of Canada's excellent standing in the world. At the same time, however, policy-makers and regulators must also be continually mindful that the new global rules arising from the crisis represent the biggest regulatory implementation exercise that our banks have ever gone through. This exercise is stretching systems and resources to the limit and beyond, and it's a real challenge, particularly for smaller institutions.

We must all, the whole community involved, take care to ensure that the sheer volume and complexity of the new rules does not become a regulatory risk in itself.

Let me conclude there. I would be very pleased, Mr. Chairman, to take any questions later on.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now hear from the Canadian Life and Health Insurance Association.

[Frank Swedlove, President, Canadian Life and Health Insurance Association Inc.]

Thank you, Mr. Chairman.

I'm Frank Swedlove, the president of the Canadian Life and Health Insurance Association. I have with me today Frank Zinatelli, who is the CLHIA's general counsel.

The Canadian Life and Health Insurance Association accounts for 99% of the life and health insurance in force in Canada.

The Canadian life and health insurance industry provides products such as individual and group life insurance, disability insurance, supplementary health insurance, and individual and group annuities including RRSPs, RRIFs, TFSAs, and pension plans.

Overall, the industry protects more than 26 million Canadians and over 45 million people internationally.

Mr. Chairman, we welcome the opportunity to appear before the committee today as you review this important bill. The industry is very supportive of the bill and urges that it be passed in a timely manner.

Following up on the Minister of Finance's September 2010 request for input on the scheduled review of legislation governing federally regulated financial institutions, for us—and I've already been quoted on this by the minister today—Bill S-5 represents a welcome fine-tuning of the various financial institutions' statutes. The bill contains provisions to promote financial stability, to fine-tune a consumer protection framework, to reduce administrative burden, and add regulatory flexibility.

With respect to the first of these objectives, we are pleased to see the amendment to the Winding-up and Restructuring Act, which changes the priority status of segregated fund policies in insolvency situations and will facilitate timely transfers of policies.

As for consumer protection, the bill improves the Financial Consumer Agency of Canada Act and gives the government increased regulatory powers in this area.

As for the third objective, which is improving the efficiency of the legislative and regulatory framework, the life and health insurance industry particularly supports certain technical but useful proposals.

For example, amendments would be made to the Insurance Companies Act as follows: to reduce administrative burden from fairly regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements; to allow a segregated fund to invest in an insurance company through a mutual fund that the insurance company controls, provided the shares of the company are part of a recognized market index; to provide federal financial institutions with enhanced flexibility to issue shares to foreign institutions owned by foreign governments; and future adjustments on the limits on transfers to shareholders from participating policy accounts will be facilitated by adding regulatory flexibility.

In conclusion, Mr. Chairman, the industry strongly supports the provisions of Bill S-5 that are relevant to the life and health insurance industry, and it is willing to assist in whatever way it can in ensuring the bill's timely passage.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll hear now from the Financial Consumer Agency of Canada.

[Ursula Menke, Commissioner, Financial Consumer Agency of Canada]

Good afternoon. Thank you very much for inviting me here.

My opening remarks will be short and will focus on the impact of Bill S-5 on FCAC.

FCAC welcomes the changes the government is proposing to make to the Financial Consumer Agency of Canada Act. The changes are largely technical amendments or clarifications to existing provisions.

Among the changes which would have an impact on our activities are the cashing of cheques. The proposed change would allow us to streamline the service we offer consumers with respect to cashing government cheques, whether or not they are clients of a bank. This would confirm that Canadians, including a banks' clients, could cash government cheques of under $1,500 without paying fees, in any bank in Canada.

Among the changes that will be impacting our agency's activities, there is also increasing the maximum penalty for a violation of a consumer provision. The amendment will increase to $500,000 the FCAC's maximum administrative monetary penalty, bringing it in line with other federal regulators such as the Office of the Superintendent of Financial Institutions and the Financial Transactions Reports Analysis Centre of Canada. The bill also provides that the commissioner, officers, and employees acting under their direction are not compellable witnesses in any civil proceedings on matters relating to their duties or functions.

The other amendments included in the bill are minor technical elements. They will have no significant impact on the work we do.

This ends my brief comments, and I look forward to any questions you may have for me.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now hear from the Office of the Superintendent of Financial Institutions.

[Philipe Sarrazin, Managing Director, Legislation and Policy Initiatives, Office of the Superintendent of Financial Institutions]

Thank you, Mr. Chair.

Good afternoon, members.

My name is Philipe Sarrazin, I am Director General of the Legislation and Strategic Initiatives Division at OSFI, the Office of the Superintendent of Financial Institutions. Among other things, my team is responsible for helping develop statutes, regulations and guidelines with respect to financial institutions. I therefore hope to be able to answer from OSFI's perspective any questions you may have about the bill your committee is presently studying.

The five-year review of financial statutes is an opportunity to evaluate the goal and efficiencies of federal statutes that govern financial institutions in Canada. Furthermore, it allows all the stakeholders, including political, financial and regulatory authorities, to re-examine previous legislative changes and continue to clarify its laws. The legislative review process is one of the elements that explain why Canada survived the global financial crisis relatively well.

Perhaps I should explain briefly OSFI's existing legislative mandate. A key element is to advance and administer a regulatory framework that promotes the adoption of policies and procedures designed to control and manage risk. This provides us the authority to refine our own guidance for federally regulated financial institutions, guidance that is sensitive to developing risks and promotes industry best practices.

The superintendent, the Minister of Finance, and others frequently speak about the importance of clear and focused mandates. OSFI's mandate is clear and focused, and we do have the flexibility to respond to developing risks. The elements contained in this bill are consistent with OSFI's mandate, role, or powers. In general, the bill provides more clarity and consistency across financial legislation and does not contain fundamental changes to the federal financial legislative framework.

In summary, from OSFI's perspective the federal financial system legislation in Canada is clear, effective, and enforceable. The bill before the committee today contains further technical refinements to an already strong legislative framework.

I am pleased to have participated in the review of this bill. I will be pleased to answer your questions.