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.
8:55 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
All the special regulations that I spoke of before, that is for the debt side. These are now the proposed rules for the equity side. Is that correct?
8:55 p.m.
Senior Project Leader, Financial Sector Policy Branch, Department of Finance
That's right, for infrastructure specifically. There are existing regulations for real property.
8:55 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
I believe it's a 6% holdback, or capitalization, that needs to happen for debt. Is that also going to be for the equity side? I believe it's what you said to Mr. Sorbara.
9 p.m.
Senior Project Leader, Financial Sector Policy Branch, Department of Finance
If we're dealing with the sort of prudential regulatory capital side of the house, the rules, this legislative amendment wouldn't contemplate changes to the life insurance capital adequacy test, or LICAT, that life insurers are subject to. As Mr. Dussault mentioned, that's sort of OSFI's purview to manage independently.
That said, we work with OSFI regularly, so no change is being contemplated to the amount of regulatory capital that a life and health insurer would have to hold against a given investment.
9 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
What industry would argue is that pension plans within Canada or sovereign funds from outside of Canada don't need to hold that kind of capital back, and can obviously bid higher for some of these assets. That being said, it's a different argument for a different day, because it's not part of the BIA, but I appreciate your answers on this.
I'd like to quickly go back to the fintech side. I'm basing this on our analysts' report which says:
respectively, to permit financial institutions to act - subject to the terms, conditions and restrictions set out in regulations - as an agent for any person involved in the provision of financial services.
What they're saying is that if I have a depositor, I'm going to act as an agent to help them receive financial assistance, whether it be an app-based service, etc., so that we're just authorizing the bank to be able to digitize the information on behalf of their depositors.
Is that what's contemplated here?
9 p.m.
Saskia Tolsma Senior Economist, Sectoral Policy Analysis, Economic Development and Corporate Finance, Department of Finance
These are existing provisions already in the Bank Act that allow for financial institutions to act as agents with respect to financial services. These amendments clarify and modernize the fact that this agency relationship can happen without a financial institution having had to take a direct investment in a company.
Currently, the feedback we received from stakeholders is that it's not clear whether a financial institution will actually have to hold an investment in a company in order to act as an agent on their behalf, and we have clarified that it would not have to hold an investment in that company.
9 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Are there any rules, because, for example, clause 322 adds section 522.081 to the Bank Act to allow the Governor in Council to make regulations indicating when a foreign bank, or entity associated with a foreign bank, can acquire or hold control of, or acquire or hold a substantial investment in a Canadian entity that engages in financial services activities.
Is this a way to circumvent the Investment Canada Act where there are certain provisions that relate to foreign entities purchasing Canadian companies?
9 p.m.
Senior Economist, Sectoral Policy Analysis, Economic Development and Corporate Finance, Department of Finance
No. The fintech-related amendments, again, apply to the existing framework. They don't set aside any of the existing other legislation.
What they do is establish for foreign banks operating in Canada the same type of flexibility that we're offering other financial institutions operating in the domestic space.
9 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Would they still be subject to all Canadian privacy laws, PIPEDA, etc.?
9 p.m.
Senior Economist, Sectoral Policy Analysis, Economic Development and Corporate Finance, Department of Finance
Correct.
9 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
That's helpful to know.
Last, I want to go to the banking terminology.
This is something that I know puts some people off, or at least it did with the Minister of Finance, but it is realistically.... Section 983 of the Bank Act restricts entities that are not banks from using the words “bank, banker” or “banking”. When we have food banks or blood banks, I know clearly that most of us would say that consumers are likely to have the common sense to not relate to them, but technically, if OSFI interpreted that someone was using it.... Is this specifically in the Bank Act where it's only related to those in the financial institutions space?
9 p.m.
Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
That's precisely it.
9 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
I just want to make sure we're not capturing legitimate activity in a way that doesn't make sense to Canadians, so I appreciate the common sense of hearing that.
With regard to ATB and some trust companies, again, I'm not as familiar with the trust companies that do take deposits. I assume there has been a proper consultation with them. I know ATB is very supportive of this legislation.
I just wanted to make sure of that.
That's it, Mr. Chair.
9:05 p.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
We are getting correspondence from constituents suggesting that provisions in the budget bill would give banks the ability to share private information with insurance companies.
How do you address that concern?
9:05 p.m.
Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
We've certainly heard those calls as well. I think some context on this section would be useful.
The existing provisions in terms of information technology activities date back to 2001. The proposed amendments don't seek to change those existing provisions. They are looking at making the provisions more technology neutral.
The provisions continue to be subject to federal and provincial privacy legislation, including PIPEDA, which would require that consumers consent to the sharing of any information a bank would want to share.
Those privacy acts and regulations continue to apply in the context of these new provisions as well.
9:05 p.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
Back to the issue of insurance companies investing in infrastructure, how do financial regulations ensure insurance companies have liquidity to pay out unexpectedly high claims if a large part of their float is invested in hard, non-liquid assets like toll roads and other infrastructure?
9:05 p.m.
Senior Project Leader, Financial Sector Policy Branch, Department of Finance
That is first and foremost the role of the Office of the Superintendent of Financial Institutions. Its mandate is to protect not just depositors and creditors but policyholders on the insurance side as well. One of the key ways in which it does that is by ensuring that federally regulated life and health insurers hold enough regulatory capital against the investments they make, and that the amount of capital held is commensurate with the risk profile of the given investment, the credit risk, the regulatory risk, the operational risk, such that there would be an adequate amount of capital available to that institution to weather an unexpected event.
That being said, I don't work for the superintendent's office. I'm sure it could give you a far more detailed account of how it goes about that, but that is first and foremost the safety net that exists to ensure policyholders can be confident that their life and health insurance companies are investing soundly.
9:05 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Back to fintech.
Mr. Poilievre's question had to do with the Personal Information Protection and Electronic Documents Act, which could apply to the transfer or sharing of client information between two companies. However, in the case where the financial technology is the property of the bank, where the bank purchased insurance-related financial technology, do the privacy regulations still apply?
It is the same entity. If I do business with one company, it can share the information within the same organization. Would that not compromise the barrier that exists between insurance companies, insurance-related financial technology, and the banks that could acquire such companies?
9:05 p.m.
Senior Economist, Sectoral Policy Analysis, Economic Development and Corporate Finance, Department of Finance
With respect to your question on insurance, the insurance business regulations continue to apply. They provide that a bank shall not provide directly or indirectly an insurance company, agent, or broker with any information respecting a customer of a bank in Canada.
These restrictions would apply to investments or partnerships a bank may undertake with third parties such as fintechs. The indirect provision will continue to apply.
With respect to the question on PIPEDA, the existing framework respecting the transfer, sharing, collection, or dissemination of client information would always be subject to consent, subject to the existing privacy frameworks.
9:05 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
So a bank cannot own an insurance company, a fintech, and it would be called a partnership with a fintech?
9:05 p.m.
Senior Economist, Sectoral Policy Analysis, Economic Development and Corporate Finance, Department of Finance
If it's a partnership with a fintech, it could not indirectly provide customer-related information that would be used for insurance purposes.
9:05 p.m.
Liberal
The Chair Liberal Wayne Easter
With that, we will thank the five witnesses for their presentations.
Other than division 19, I don't see a lot of controversy in the next four. Are you still willing to push ahead, and try to finish this?