Finance Committee on May 16th, 2012

[Jane Pearse]

I can't speak to individual plans, but there is a provision that allows for pension plans.

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

Just to be clear for the committee, this only applies to foreign sovereign wealth funds or pension funds, this change—

[Jane Pearse]

Well, just to be clear, it doesn't only apply to them. It is written to generally provide—

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

But the only groups really affected by the change are these groups.

[Jane Pearse]

There may be other pools of capital in provincial governments that are not specifically pension funds that could take advantage of this.

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

How do you quantify the difference between strategic and commercial interests or objectives, in terms of a sovereign wealth fund? There may be an argument to be made that there's actually a strategic interest in investing in Canadian banks and investing in the financial service sector, with the prudential strength of our banks as an example. It may be more than just a commercial objective.

How do you quantify that? How do you discern that?

[Jane Pearse]

There are several criteria that are currently outlined in the legislation that the Minister of Finance will use when he assesses, as part of the assessment of these sovereign wealth funds. For example, the resources of the pool of capital, its business plan, its experience, its fit and proper.... The minister will use a series of existing tests in the process of proving any particular pool of capital for investment in a Canadian financial institution.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. McLeod.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

I understand that many other countries also allow public sector investment pools to invest in financial institutions, whereas we have only provided limited access. Can you speak to that?

[Jane Pearse]

Yes. As we saw through the crisis, a number of countries had fairly significant investments in their financial institutions by sovereign wealth funds and other sources of government funding. So most other countries that we have been able to assess allow some level, if not unlimited investment by public pools of capital.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

Certainly these funds are allowed to invest in other sectors of Canada's economy and there are different checks and balances in place, depending, of course, on where the investment is. Is that accurate, would you say?

Really, the banks have been at a disadvantage in terms of some other areas.

[Jane Pearse]

Right. The intent of this change is to level the playing field between Canada and other countries, so that our banks or financial institutions have access to the same types of capital as other global financial institutions.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Of course other sectors within Canada already have this latitude for their investments in there, whether it be the natural resource sector or the technology sector.

[Jane Pearse]

Yes, I understand that there are limitations in the Investment Canada Act, and I believe in the telecommunication sector there are some limitations, but I think it's right to say that, broadly speaking, most other sectors allow investments by public pools of capital.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. McLeod.

Monsieur Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

The briefing notes provided to us by the Library of Parliament indicate that, “eligible agents would be allowed to use the voting rights attached to any share purchased in a financial institution.”

I can understand why, in the context of what is being presented to us, that the eligible agents could use their vote within the imposed guidelines on a foreign property by the Banking Act, for example.

My question is the following. Why are there two different rules for the eligible agents and for the other government organizations, which could also invest but not use their right to vote?

[Annie Hardy, Chief, Financial Institutions Division, Structural Issues, Financial Sector Policy Branch, Department of Finance]

Indeed, the eligible agents have the right to vote here given that they have the right to hold shares. This privilege comes with a right to vote. Likewise, other agencies that would have the right to hold shares would have exactly the same privilege to hold a right to vote. This is consistent with other principles of the legislation.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Okay.

[The Chair, Conservative, James Rajotte]

Okay.

I have Mr. Mai and Mr. Marston on the list.

Mr. Mai, go ahead.

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

Thank you, Mr. Chair.

It was mentioned that sovereign wealth funds can acquire Canadian banks. There is therefore some openness. Are there limits on the number of shares that can be acquired? Does this mean that a foreign agency could acquire a Canadian bank tomorrow morning?

[Jane Pearse]

Not unless the bill passes tonight.

There are existing limits for small, medium, and large financial institutions in Canada. For a small financial institution, any investor or owner can own up to 100% of that institution. Medium-sized institutions, anything over $2 billion in assets, have to be 35% widely held. In other words, any individual owner can only own a maximum of 65% of that institution. The intent there is to move the institution toward greater disclosure of their financial statements and business plans. Currently, any institution above $8 billion is required to be widely held. No individual owner can have more than 10%, or 20% with the approval of the Minister of Finance, of voting common shares. That regime does not change with these amendments.

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

I understand. Thank you.

[The Chair, Conservative, James Rajotte]

Mr. Marston, go ahead.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

The good news is that Mr. Caron asked one of my questions, so that will cut it down a bit.

In terms of your presentation, and talking about the ministerial tests that they applied, I read here that part of his consideration will be the financial resources and the business record of the purchaser. If I understand this correctly, the purchaser will put up a certain amount of cash value to buy equity in a firm. You would think that there would be something that said what the status of the place is they're buying into, as part of that test, you know, the viability of a given bank, just for an example.

On that side of the equation, is there any ministerial test they would look at? I'm thinking of let's say a privately held pension fund that wants to buy into a bank. Our banks are in good shape—we have a good reputation for that—but it seems to me that they're looking at the purchaser, as opposed to where they're putting the investment. Is there a counter to that anywhere?

[Jane Pearse]

All of our federal financial institutions are supervised by the Superintendent of Financial Institutions. From that perspective, they're under review or oversight by the government.

Each investor in a financial institution is responsible for assessing the solvency or the capability of that individual firm to continue with its business plan and assess the ability of that firm to make a return on income or a return on investment that is consistent with that investor's requirements.

The approval by the Minister of Finance is looking more specifically at the criteria or the characteristic of the investor into the financial sector.