Evidence of meeting #154 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bank.
A video is available from Parliament.
8:30 p.m.
Liberal
8:30 p.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
I will be brief.
There is a lot of support for the unified family court.
First, can you tell me the lag time between the coming into force of these provisions in 2019, and the hiring of judges?
Second, can you anticipate this lag time? Could we work together in advance so that the judges are in place as soon as possible?
8:30 p.m.
Senior Counsel, Judicial Affairs, Courts and Tribunal Policy, Department of Justice
The authorization for the appointments will be effective as of April 1, 2019. It will be possible for appointments to be made any time after that date. Of course, there are steps that need to be taken in advance, because the judges who are appointed to the unified family courts will have to apply through the superior court's regular appointments process. They could be family law lawyers who wish to apply for the unified family court. They may also be judges who are in the provincial family courts who may wish to express their interest in that court. There will be efforts made to ensure that the family law practitioners and judges are aware that these opportunities and new positions will be coming available in the locations where the unified family courts will be established, so if they are interested in making their application, they can do so.
As well, there will be the whole process where the judicial advisory committees that assess the applications will have an opportunity to do so, and make recommendations with respect to those candidates. We are not in a position to say specifically when each new position will be filled.
8:35 p.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
My question was trying to anticipate what you would estimate would be the length of delay between the positions coming into force and them actually being filled.
8:35 p.m.
Senior Counsel, Judicial Affairs, Courts and Tribunal Policy, Department of Justice
I'm not sure that I can say. I understand you heard this afternoon that everyone is very excited to have these new courts established and operationalized. I think everyone who's involved—the potential candidates, the judicial advisory committees, and of course, the Minister of Justice and the Governor in Council who makes the appointments—will be making best efforts to fill the vacancies as quickly as possible when they're authorized.
8:35 p.m.
Liberal
The Chair Liberal Wayne Easter
It's a good point for you to bring in up in caucus, Greg. Tell the minister to get this done, and fast.
Thank you both.
Next is division 16, “Financial Sector Legislative Renewal”. We heard a fair bit about this this afternoon as well.
From finance, we have several people: Mr. Brazeau, senior director, framework policy; Mr. Dussault, senior director, framework policy—
8:35 p.m.
Liberal
8:35 p.m.
Liberal
The Chair Liberal Wayne Easter
Yes, we are. We're going to try and finish.
We have Ms. Tolsma, senior economist, sector policy analysis; Mr. Weil, senior project leader; and Mr. Sample, acting director general, capital markets division, who I believe we met with before.
The floor is yours, Mr. Dussault.
8:35 p.m.
Manuel Dussault Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
Thank you, Mr. Chair.
Part 6, division 16 of the bill, entitled “Financial Sector Legislative Renewal”, proposes amendments as part of the financial sector legislative review prior to the statutory sunset date of March 29, 2019. The periodic sunset of financial sector legislation is designed to ensure that the financial sector framework is reviewed regularly and that it remains effective and technically sound.
The Department of Finance began the financial sector legislative review in 2016. Over the course of 2016 and 2017, the department led comprehensive public consultations with stakeholders in order to understand their priorities and perspectives. Through these consultations, we heard that the financial sector framework is functioning well and that the foundational elements of the framework continue to be supported. These elements include strong and clear mandates for financial sector regulatory agencies and a principles-based approach to regulation. They also include a separation between banking and insurance activities, which we are not proposing to reform.
Stakeholders also told us that certain targeted updates would help Canada's financial sector keep pace with global developments and the changing needs of businesses and consumers. To that end, amendments are being proposed in four priority areas.
The bill proposes four priority reforms as part of the financial sector review.
First, proposed amendments will provide greater flexibility for financial institutions to undertake and leverage fintech activities.
Second, proposed amendments will provide prudentially regulated deposit-taking institutions, such as credit unions, the flexibility to use generic bank terms, subject to certain disclosures.
Third, proposed amendments will allow life and health insurers to make long-term and predictable investments in infrastructure.
Last of all, proposed amendments will renew the sunset date for legislation governing federal financial institutions for five years from the date on which the Budget Implementation Act receives royal assent.
I will take a moment to explain the changes with respect to infrastructure.
Part 6, division 16 proposes amendments to the Insurance Companies Act to permit life and health insurance companies to make long-term investments in infrastructure to help them obtain predictable returns. These new investment powers would also be granted to fraternal benefit societies and insurance holding companies.
Through our consultations, we heard that life and health insurers are seeking greater flexibility to invest in infrastructure assets that would support their asset-liability matching needs. Life and health insurers are attracted to infrastructure as an investment class because, generally, it gives long-term, stable, predictable returns. These characteristics make infrastructure a suitable type of investment for insurers to match against the liabilities they take on.
As part of a general restriction on commercial investment under the Insurance Companies Act, the current legislation does not permit life and health insurers to make such investments. By enabling insurers to invest in infrastructure assets, the proposed amendments will support the industry asset-liability matching needs, which will make insurers more financially resilient.
The proposed amendments will also have the added benefits of unlocking a new source of infrastructure financing that can support Canadian communities.
My colleague, Mr. Brazeau, will speak to the proposed amendments in the area of financial technology and bank terms.
May 8th, 2018 / 8:40 p.m.
Julien Brazeau Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
Thank you, Mr. Chair.
Part 6, division 16 of the budget implementation act amends a number of acts governing federal financial institutions, in order to adapt the legislative framework in response to the emergence of financial technology or fintech.
Fintech refers to both the innovative delivery of financial services through technology and a technology-focused firm that offers financial services or related products.
The further development of fintech can make the financial sector more efficient and useful for Canadians, as it has with such previous innovations as online banking and email money transfers.
In our consultations, stakeholders pointed out that the shifting expectations of customers with respect to products, services, and service channels put pressure on their business model.
I'd like to underline that a vast majority of stakeholders across the financial sector, from financial institutions, such as banks and insurers, to small and large fintechs, emphasize that adapting the federal framework was a core priority for their businesses and the financial services industry in Canada.
The statutes covering financial institutions are one of the more direct levers that the federal government has to foster innovation through setting a regulatory framework that is technology-neutral and less prescriptive in its approach.
Generally speaking, the framework governing the financial sector currently limits investments by federally regulated financial institutions, such as banks or insurers, to financial services. The difficulty concerns mixed business plans to provide financial and non-financial services through technological interfaces, because our laws currently do not provide for this model.
Take the example of a business called Square.
Square is a financial and merchant services aggregator and a mobile payment provider. While Square is clearly focused on the delivery of financial services, it is also harnessing its technology for food delivery services, as well as real-time GPS tracking.
Under the current legislation, a bank would not be permitted to invest in Square, owing to the fact that Square's business model includes both financial services and business lines that are not financial in nature.
The proposed amendments would extend the scope of activities related to financial services in which federal financial institutions may engage, to be consistent with an evolving market environment. This includes the ability of federal financial institutions to undertake, invest in, and refer to financial technology services. The proposed amendments would also provide the ability of federally regulated financial institutions to offer identification, authentication, and verification services.
While the proposed amendments provide greater flexibility for innovation, I remind the committee that this flexibility is bounded in the context of a world-leading regulatory system known for its prudence and balanced approach. Federal financial institutions are required to meet a comprehensive set of legislative and regulatory requirements and are subject to ongoing monitoring by federal financial sector agencies such as the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada.
I would also highlight what the proposed legislation does not do. It does not change the government's long-standing policy framework wherein banks are limited in undertaking the business of insurance. While these amendments may have added, expanded, or clarified certain powers of banks, they do not override the existing blanket prohibition in the Bank Act, which prevents banks from undertaking the business of insurance unless explicitly permitted. The insurance business regulations also explicitly prohibit a bank from indirectly providing an insurance company, agent, or broker with any information respecting a customer of the bank in Canada. This prohibition on banks indirectly providing information would prevent banks from using their relationship with a third-party fintech to provide information to insurers.
Secondly, I would underline that this legislation must also be read in the context of Canada's existing federal and provincial privacy frameworks. Federally regulated financial institutions are, and remain, subject to the Personal Information Protection and Electronics Documents Act, PIPEDA, which sets out rules for all private sector organizations regarding the collection, use, and disclosure of personal information, including the requirement to obtain consumer consent. The proposed amendments for the committee have been developed against this overall policy framework that has served Canadians well, with well-trusted financial institutions and strong regulators.
I will now briefly outline the proposed amendments in the area of bank terminology. Part 6, division 16 of the budget implementation act amends the Bank Act in order to provide prudentially regulated financial institutions such as credit unions with the ability to use the terms “bank”, “banker”, and “banking”, subject to disclosure requirements. As you may know, the Bank Act currently limits the use of the words “bank”, “banker”, and “banking” to banks only. These terminology rules exist so that consumers know when they are dealing with a bank and when they are not. These rules also exist so that consumers understand which jurisdiction is responsible for the regulation of a given institution, including any applicable deposit insurance protections. The distinction is especially important in times of financial distress.
Through our consultations, we heard that the credit union industry is seeking greater flexibility to use the terms “bank”, “banker”, and “banking”. Such flexibility would help them better compete with banks to offer financial services to Canadians. The government recognizes that the credit union system is an important part of the Canadian economy and contributes to competition in financial services. As such, the proposed amendments would allow credit unions and other prudentially regulated deposit-taking institutions, such as trust and loan companies, the flexibility to use the terms “bank”, “banker”, and “banking” to describe their services. The proposed flexibility would be subject to certain disclosures regarding institutional identity and the applicable deposit insurance regime. As an example, provided that the required disclosures were made, a credit union would be permitted to refer to online “banking” services on its website or invite prospective clients to “bank” with them in their advertising materials.
Consistent with the current rules and international best practices, only banks would be able to use bank terminology in names and identifying marks. Other non-bank financial institutions, such as fintechs and payday loan companies, would continue to be restricted from using bank terms in all circumstances. The government is also proposing amendments to the Bank Act and the Office of the Superintendent of Financial Institutions Act that would provide the superintendent of financial institutions with better calibrated and more flexible tools to enforce the rules around bank terminology.
Lastly, technical amendments are also proposed that would clarify certain provisions relating to the use of bank terms.
Thank you.
8:45 p.m.
Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
In closing, the last amendments proposed in division 16 of part 6 concern the sunset date in legislation governing financial institutions. It is proposed that the sunset provisions in certain laws governing federal financial institutions be renewed to five years after the day on which the budget implementation bill receives royal assent.
These amendments would ensure that the financial sector regulatory framework continues to be reviewed regularly and that it remains effective and technically sound. The proposed amendments apply to the Bank Act, the Insurance Companies Act, and the Trust and Loan Companies Act.
Thank you for your attention. We would be pleased to answer any questions.
8:45 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you very much for the overview.
I have just one question, on the sunset provisions. Will those in any way impact the Bank Act review?
8:45 p.m.
Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
This is the conclusion of the first part of the review of the Bank Act. We're renewing the sunset date for five years from the coming into force of the legislation, so for another five years. That will allow the government and the department to do another review. That's what we're proposing.
8:45 p.m.
Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
It depends on when the legislation comes into force, when it receives royal assent. It would be five years after that.
8:50 p.m.
Liberal
8:50 p.m.
Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
The amendments we're proposing now are part of the 2019 Bank Act review. This is the priority of amendments arising from that review. The focus is on fintech infrastructure, and on bank name use.
8:50 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
My question concerns financial technology.
You talked about one of the criticisms that we heard. You may have anticipated questions about the separation of banks and insurance companies.
You say that it is impossible for a bank to communicate a customer's information to a financial technology company, which would then offer insurance based on the information received. You say that this is prohibited even though the bill frequently mentions “collecting, manipulating, and transmitting information” as well as “ developing, manufacturing, and selling technology”.
Where can we find this prohibition?
Was this part of the Act amended to to take into account financial technology?
8:50 p.m.
Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
Amendments to Part 8 of the Bank Act are subject to sections 416 concerning the prohibition against banks undertaking insurance business. This prohibition applies to all sections in part 8. Thus, any new flexibility provided for by the bill remains subject to section 416.
8:50 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Okay. I think that this will be reassuring for some people watching.
With respect to the terms “bank” and “banking”, the reporting and communication requirements for any corporation using the terms “bank”, “banker”, or “banking” without authorization, with the exception of a bank, require that they indicate what they do and that they are not a bank.
The bill seems to indicate that most of these rules will be defined by the regulations. Is that correct?
8:50 p.m.
Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
Yes, that is the case.
The bill sets out the “what”, or what information must be disclosed, namely the insurance plan and the status. An entity must indicate whether it is a bank or a co-operative.
The “how” and the “where” of disclosure will be set out in the regulations and will be discussed with the industry.
8:50 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
The industry seems to want to develop a voluntary code of conduct. I do not know how that could be incorporated. Perhaps the regulations will reflect what the industry has already defined as acceptable when it comes to communicating the real nature of the business.
