Finance Committee on March 28th, 2018

[Sabrina Kellenberger]

No, I think that's exactly it. We're seeing more and more of the service groups developing as regulatory compliance demands increase.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

The last thing we want to do is have layering in effect, without getting any sort of output for it.

[Marc-André Pigeon]

Perhaps I could add, Mr. Chair, the other reaction that often happens, and our survey from 2011 found this. It compels mergers; it drives the credit unions together to get those efficiencies that bigger institutions have. That's not always the best outcome for Canadians. That local service gets a bit challenged when you're bigger and more widely spread.

[The Chair, Liberal, Wayne Easter]

Thank you for that.

We have two more questioners, Mr. Albas and Mr. Fergus.

Before I turn to Mr. Albas, in the Bankers Association paper, you do outline, on page 4, a number of advanced technologies, including blockchain. We had meetings yesterday with representatives on blockchain. It is a five-year review that we're doing and things in technology happen fast. I'm sitting here wondering how we can make some recommendations along those areas for advanced technology without upsetting the apple cart, if I could put it this way.

Are you suggesting that FINTRAC needs to look at these advanced technologies in terms of how it does business going forward and over time, including blockchain?

[Stuart Davis]

I'd respond to that by saying, first of all, the proposed revisions to include the digital currency dealers within Bill C-31 are of particular importance to this industry. But moving too quickly to regulate an industry, where the technology is evolving quickly, could prove problematic or disadvantage Canada in terms of its competitiveness.

What I would suggest, though, is the importance of KYC in terms of onboarding to the blockchain ramp and offboarding of the blockchain ramp, especially involving those aspects of digital currencies. This is an important consideration. I think the inclusion of virtual currency dealers in proposed Bill C-31 does bring that standard of KYC to a very important topic.

[Sandy Stephens]

I would add that what I think we're advocating for with the technology is a technology-neutral approach to legislation. Right now it's a three-year credit bureau...or photo ID. You don't need to have prescriptive legislative requirements. You could have a principles-based flexibility that allows for technology to evolve. Obviously, people will have to determine if that technology is secure enough. I think it's more about how you write the legislation in order to allow for that evolution. To your point, every five years it has to be changed—so a little more evergreen.

[The Chair, Liberal, Wayne Easter]

Thank you for that.

Mr. Albas.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I think OSFI has a regulatory sandbox project that maybe could be expanded to have small projects where you could try some of these new technologies. Maybe that might not be appropriate for some of the larger banks, but I do know they do it for smaller organizations looking to try new things, and perhaps that might be an avenue for some of those things.

There's been a little bit of talk about clearing houses for information where perhaps you could have beneficial ownership as well as other information being fed in. To tell you the truth, as great as that sounds, I'm extremely reluctant when you see that you have credit bureaus being hacked. You see Facebook structuring itself in such a way that, again, there are breaches or potential breaches. Anytime you have something that's large and big, and inevitably if it's run by government, oftentimes when the budget comes round and people look to save, they don't necessarily update it or continue to keep things strong and that could leave it open to all sorts of things.

Then we also have existing registries, like in B.C. we have the land title registry, which works very well and has always been paid for by those who use it. Again, there would be transition costs and amalgamation costs. There are challenges when you amalgamate certain centres to a central authority; and there are those vulnerabilities. While I like the idea and perhaps we could use things like blockchain, how would you address some of those concerns?

I'd like to start with the bankers.

[Stuart Davis]

There are always the aspects of risk with any public registry or repository, but protecting information is instrumental by isolating those who have access to it and providing the right security credentials around it. It is an aspect of build, of any new form of technology, and security can be incorporated into those measures.

The real question to ask, as well, is to what degree is the information sensitive and needs to be protected. There is some information that might be beneficial to have publicly available in this regard and that consideration needs to be undertaken as well. I think there are aspects of public registries in other jurisdictions that have both public and private aspects.

As a banking institution, we use public registries today or private registries through the correspondent banking network, and it has been quite useful to banks to use that.

[Marc-André Pigeon]

I might just say that we put forward this idea in the spirit of looking for ways to minimize, again, and get that balance right. That's largely how we've approached this. I think there are a lot of things that need to be thought through, including the issues you've raised. I think we would take your concerns very seriously, of course, in that.

Sabrina, is there anything you'd like to add?

[Sabrina Kellenberger]

I think without a doubt any time you have a large database of potentially interesting information to anybody, it's going to pose a security challenge. I think that needs to be weighed, though, against the cost of having everybody repeat this exercise individually. Given the fact that you're now storing the same information, but in a whole bunch of different databases and that security issue still exists, I agree completely that you can mitigate some of those risk issues by controlling who gets access.

Personally, I'm not in favour of a completely public registry of any kind. I think there should be a stringent protocol around who gets access and for what reason.

[The Chair, Liberal, Wayne Easter]

Okay. We'll have to leave it there.

For the last block of questions, Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Professor Lareau.

I, too, read Bill C-25, and you would appear to be right. The bill would add new subsection 29.1(1), which seems to confirm what you're saying.

Are you saying the committee should recommend that existing bearer shares be converted without the holder's prior consent?

[Prof. André Lareau]

I think a grace period might be appropriate.

I will read you a quote from a Canadian Tax Foundation article that came out a few days ago. Talking about the situation in the Netherlands, the author said this:

[Netherlands] announced that bearer shares would have to be traded through a bank or investment firm, thereby removing their holders' anonymity and eliminating the incentive to use the shares for fraudulent purposes. Furthermore, shareholders were given a two-year period to register their shares with an intermediary designated by the corporation.

And further:

At the expiry of the two-year period, the shares will be cancelled and corporations will have to pay the value of the cancelled shares into a deposit fund monitored by the Ministry of Finance. Therefore, shareholders who want to redeem the value of their shares will have to report to the Ministry of Finance.

Having such a grace period would be a good idea to ease the transition.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much.

My last question is for the Canadian Bankers Association representatives.

You heard the concerns expressed by RCMP and FINTRAC officials about block chain technology. Their view was that it would be tough to regulate those kinds of transactions.

What do you think?

[Stuart Davis]

Blockchain technology takes a variety of shapes and forms. Recall that first it is typically a decentralized mechanism that exists not just within the bounds of Canada, but perhaps globally. In other iterations, you may have a more constrained or private blockchain network that can be fully centralized and controlled. Depending on the aspects and use cases that are of particular consideration, the risks, the ability to monitor them, the level of encryption, ans the level of obfuscation in a particular blockchain vary widely. We're seeing continued innovation and change in this space.

There is not a one-size-fits-all approach to this level of technology, and it needs a new way of thinking.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

As somebody mentioned, we are using the Finance discussion paper as the foundation for our discussions here. The committee will be hopefully closing off our hearings by June and will report some time in the fall. I suggest that if you have other ideas, you forward them to our clerk. If you're providing a response to the discussion paper to the Department of Finance, it might be useful for us to see that discussion as well.

With that, thank you for your presentations.

We will see committee members, we know not where. Will it be London, or will it be Ottawa? It's up to you.

[An hon. member]

London, Ontario?

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Down and out in Paris?

[The Chair, Liberal, Wayne Easter]

Thank you.

The meeting is adjourned.