Thank you Mr. Chair and honourable members of the committee for this opportunity to share with you our thoughts on Part V of Bill C-31.
As you know, Part V implements an intergovernmental agreement on FATCA, or the Foreign Account Tax Compliance Act.
Before addressing our views on this agreement allow me to begin by making a few preliminary remarks regarding the role of my organization, Canadian Central and, more generally, the credit union system in Canada.
Canadian Central is a national trade association for its owners, the provincial credit union centrals. Through them we provide services to about 330 affiliated credit unions across Canada. These credit unions currently operate in more than 1,700 branches, serve 5.3 million members, hold $160 billion in assets and employ about 27,000 people.
Credit unions in Canada come in all shapes and sizes, as you probably know. Our smallest credit unions such as iNova Credit Union in Halifax, Nova Scotia has less than $30 million in assets and only 10 employees. Our biggest credit unions, such as Vancity in British Columbia, has just under $20 billion assets and employs thousands of people.
But even our biggest credit unions are small next to the country's biggest banks which are at least 20 times bigger than Vancity, for example. This disparity means that new regulations like FATCA can pose a real challenge to all credit unions big and small alike. While the government is to be congratulated on signing an agreement that mitigates some of the regulatory burden of FATCA, we have some concerns.
Our major concern at this point is that the unavoidable regulatory burden imposed by FATCA may, in the near future, be compounded by the OECD's efforts to create a single, unified standard for automatic exchange of financial account information. Specifically, we worry that credit unions will end up with two different tax compliance regimes. We'll have an intergovernmental agreement on FATCA that includes some exemptions for smaller financial institutions like credit unions and we'll have the OECD requirements which, to date, do not contemplate any such exemptions and, though modelled on FATCA, appear to require significantly greater reporting. For that reason we're encouraging the federal government to hold strong to the view expressed in a recent declaration which it signed, that the OECD's multilateral approach “not impose undue business and administrative costs”.
For us, that means including small institution exemption thresholds, harmonizing the OECD rules with FATCA, and not having to file the same information—or worse yet, different information—with two different organizations.
The second issue we want to discuss has to do with regulatory burden more generally. Last year we conducted a survey of affiliated credit unions to gauge the impact of regulatory burden on the system. We found that small credit unions, those with fewer than 23 employees, like iNova Credit Union, for example, devoted fully 21% of their staff time to dealing with regulatory matters, whereas bigger credit unions, like Vancity with more than 100 employees or thousands of employees, only averaged about 4% of their full-time staff on compliance issues.
These results show that regulatory burden, like that imposed by FATCA, disproportionately harms smaller financial institutions and hurt their ability to compete, even with some of the exemptions and thresholds embedded in the intergovernmental agreement.
Our survey also found that the number one regulatory burden for credit unions comes from federal rules around anti-money laundering and terrorist financing. To date, the federal government has resisted applying its red tape reduction strategy to these regulations because apparently the rules do not affect small businesses. The fact is, however, that credit unions are the small businesses in the financial service sector and we are affected.
So, we're asking that the federal government revisit these rules to help offset the FATCA regulatory compliance burden faced by credit unions. We believe this request is consistent with the federal government's one-for-one regulatory burden initiative which is designed to offset new regulations which the elimination of older ones.
To conclude, we wish to thank the committee for the opportunity to participate in its review of Bill C-31, and Part V in particular.
Our general view is that the federal government has made the best of a bad situation in negotiating its intergovernmental agreement on FATCA. We are asking that it continue to be sensitive to the needs of smaller financial institutions in the negotiations with its OECD partners, and that it more diligently apply its red tape reduction approach to the anti-money laundering and terrorist financing rules.
I look forward to your questions.