Finance Committee on Nov. 1st, 2012

[Annie Hardy]

We didn't change the framework for the ones that were currently allowed before Bill C-38. For those ones there are exactly the same rules.

What we did is we looked at this new class of investors. We looked at whether we needed to modify certain clauses for them to make it a little more.... For instance, there are certain provisions in the Bank Act right now whereby when you've already received an approval from the minister, if you increase your share number by 0.1%, you don't need to come back for another approval. It's really a minor additional share you're getting.

We said for those types of investors we ask them to come back. We're saying, “For you, we prefer that you come back because we really want to see every share issuance.” That's an example. We didn't change the status for the previous investor. We just clarified it for those ones where we say, “We want to see every share issuance. So this little technical exemption doesn't apply to you.”

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Ms. Nash.

If you want to, Mr. Cuzner, go ahead.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

There's a question on the booklet. Does the approval process for public sector investment pools differ from the approval process for other types of investors in federally regulated financial institutions, and if so, why?

[Jane Pearse, Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance]

There are a number of different types of investors that we see that are contemplated within the Bank Act, so depending on the type of owner, the type of application, you can see there are different processes to go down.

What Annie is indicating is that we want these eligible pools to be subjected to as robust a regime as existing investors.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

You said, if there was that much growth. Is there a threshold? What is the threshold?

[Annie Hardy]

Currently for investors, the minister approves share ownership above 10%.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

That's 10%.

[Annie Hardy]

Yes, for those investors we want to approve every share. We have criteria. Basically it is that government and agents are prohibited from owning shares in financial institutions, with limited exceptions, so we open the door a little bit for these types of investors, which are public sector investment pools. We say that if they meet certain criteria, the minister will consider them for approval. However, for those types of investors we're saying we want to see every share issuance, so every time they want to purchase, the minister will see it, as opposed to other investors. It has to be a “significant interest” as we call it in the legislation, so it's 10% of the class of shares, but for those ones, we're more restrictive.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

The minister will have to sign off on that with the recommendation from where?

[Jane Pearse]

That's from both the Office of the Superintendent of Financial Institutions and the Department of Finance.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

That's from both.

[Annie Hardy]

Yes.

[The Chair, Conservative, James Rajotte]

Mr. Caron.

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

I have a brief question.

How many such pooled investment funds are there in the public sector?

[Annie Hardy]

I do not have the exact number with me, but I know that there are several pooled funds. They exist in Asia and Australia. I think that New Zealand has one. They exist here and there around the world. But I cannot give you the exact number.

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

Fine, thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Mai, you have the floor.

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

Thank you again for your presentation.

I would like to have a better understanding of the approval process. How does it work? One goes to the Office of the Superintendant of Financial Institutions, and then the Department of Finance examines the request and has a certain length of time in which to respond. Is that right? Can you review the process for me briefly, please?

[Annie Hardy]

If an applicant wishes to invest in a financial institution, they should begin with the Office of the Superintendant of Financial Institutions. The superintendant then reviews the application to ensure it complies with the law and that the minister will have the information required to give a decision. Then the superintendant makes a recommendation on a prudential basis, that is, he determines whether the applicant may represent prudential risks for the financial institution. Then, when the superintendant is of the opinion that the application meets all the criteria and that it contains the necessary information, he submits it to the Minister of Finance, who gives or withholds his approval.

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

Right.

Could you talk about the reasons why the door was opened to this sort of investment? What concerns or needs does it actually meet?

[Annie Hardy]

The reason for this change was to enable financial institutions to have access to a wider range of investors. In other countries, investors are allowed to invest in financial institutions. We wanted to make sure that our financial institutions were going to be competitive in the search for capital and that they were going to have access to the same pool of potential investors, taking into account that the minister wished to have the right to review such investors.

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

In the approval process, the minister and the OSFI must consider certain criteria. Can you talk to us quickly about these criteria in general?

[Annie Hardy]

Yes. At present there are three criteria that the law...

With your permission, I am going to consult my sheet.

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

Are these new criteria that have been added or what was there before?