Finance Committee on June 18th, 2019

[Leah Anderson]

I think that as it's an item not directly linked to the main estimates, I would suggest that we ask OSFI to follow up by providing you with more information on that, on the rationale.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Sure. If OSFI can provide it to the committee through the clerk, that would be great.

Moving on from there, on OSFI again, again this is program expenditures, so it's everything that OSFI does. I just see it as we're being asked to pass the budget for salaries and the program operations of this regulator.

On B-20—and it's not going to be a surprise to any member on this committee that I'm going to bring up B-20, because I think it's one of the major policy tools that has come out—is there a reason for a discrepancy between the reasons OSFI has given for the strictness with which B-20 is being applied since its implementation? One given is the stability of the banking system, and that's fine. That's OSFI's mandate. Then there are the political press releases that have gone out that say it's about reducing consumer indebtedness. There's been a discrepancy between the two, and it's a discrepancy I've seen between the Department of Finance, the regulator, and the political leadership.

You can't comment on the political leadership, but is there a discrepancy on why OSFI is offside?

[Michele Bridges]

Again, this would not be an item that would appear in the main estimates. It would be something on which I could come back to the committee with responses from the department, but these are not items that end up reflected in our main estimates.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I would disagree with you, because program expenditures, the entire operations of OSFI, depend on our passing these estimates for different programs that you have, so how can you not have answers for those questions?

I'm being asked to approve it as a parliamentarian and then confirm that I'm okay with the policy direction, the administration of the money and how it will be spent and when it will be spent, but what is the money that is being sought supposed to achieve? It's integral to the estimates process.

[Leah Anderson]

I can offer a comment on the difference between the stress tests. There's a stress test that is applicable for mortgages in the insured space. That has been in place for a number of years.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Since 2016.

[Leah Anderson]

It really is to ensure that when economic circumstances change, homebuyers can still afford the homes they are in. It's another type of a buffer to support household affordability and prudence in both the lending decisions and the buying decisions of households.

B-20 is a stress test applied in the uninsured space, and it is strictly under the purview of the superintendent of financial institutions, whose focus entirely is on the prudential supervision of financial institutions. The calibration of that test is such that it would prudently affect the lending standards of the financial institutions that are under the superintendent's purview.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

In OSFI's opinion, has the B-20 stress test achieved what OSFI wanted to achieve in the marketplace?

[Michele Bridges]

I would need to go back to my organization and pose that question to the regulation leaders. My role is chief financial officer for the organization, and I wouldn't be able to speak to these matters.

[Marc Desautels, Chief Financial Officer, Office of the Superintendent of Financial Institutions]

I can jump in a little. In regard to B-20 and the intended impact and the consequences of the guideline, we did publish something on our website last week, if I'm not mistaken. That highlighted results and observations following our monitoring subsequent to the implementation of the revised guideline.

As indicated in that release, we think we have achieved the intended consequences so far, but we will keep monitoring the situation. Hopefully there is some information that the committee members can find useful in what was released last week.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I have it here with me, so I'm glad you mentioned it. One thing I noticed is that three charts are being used. There really should have been a fourth chart, because there has been an increase in the largest markets—the greater Toronto area, the greater Vancouver area—in terms of B-lending. A lot of people have moved into the B-lending market, which is outside the purview of OSFI. I would have thought that in looking at the systemic risks to the financial system and the banking system, a sudden prolonged move—and it's significant, because in the GTA it is 6%—would be of concern to OSFI.

I notice there is no mention of that in what was posted on the website in the residential mortgage underwriting practices and procedures guidelines. It was updated with these three charts here, which have the revised B-20 cited in them. I'd like to know why that wasn't mentioned here either as an area to look at further or as an area of concern, as an unforseen consequence of the way B-20 was revised.

[Marc Desautels]

I can speak to that in very broad terms.

We try to monitor what is flowing outside the regulated space. It is difficult to get very accurate data, but we continue to monitor it in looking at the broader systemic impacts. There has obviously been a little or some migration to that space, but as I said, it's very difficult to quantify in a very precise fashion.

That said, we continue to monitor and try to assess those types of impacts and consequences as best we can.

[The Chair, Liberal, Wayne Easter]

With that we're considerably over time, but you were on a line of questioning and I didn't think it was fair to cut you off.

Mr. Dusseault is next.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

I'll ask another question, which may increase the number of witnesses at the table.

I must first say that I'm very disappointed that the Minister of Finance isn't here today and that he doesn't deign to come to the committee to defend his department's main estimates. The Minister of National Revenue also wasn't here last week.

I want to ask about a widely discussed topic in British Columbia, namely, money laundering in casinos and in the real estate market. The British Columbia government has launched a public inquiry, which shows the significance of the issue in that province. Many people, including the government, are concerned about the issue.

In the main estimates, the Department of Finance is requesting $819,555 under vote 20 to strengthen the anti-money laundering and anti-terrorist financing regime. I want to know more about that amount and whether the Department of Finance's only solution is to spend $819,555.

[The Chair, Liberal, Wayne Easter]

I believe Ms. Hemmings is ready to respond.

[Lynn Hemmings, Acting Director General, Financial Systems Division, Financial Sector Policy Branch, Department of Finance]

There have been a number of reviews of Canada's anti-money laundering and anti-terrorist financing regime. We had the FINA committee looking at our regime. They made some recommendations. Peter German has issued two reports identifying a number of gaps in the regime, gaps in terms of coverage—the unregulated mortgage lending sector, for example.

We just brought in virtual currency, so there are some gaps in the regime in terms of who is caught and who has to file reports with FINTRAC. We're improving investigations and prosecutions as well, and improving outreach to various sectors.

This $800,000 supports the policy work that needs to be done to support these new initiatives and to respond to the reports.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

As part of the development of a new policy, some reporting entities could be added to the system to fill in the gaps.

[Lynn Hemmings]

In terms of the gaps, there have been various gaps identified, such as dealers of luxury goods. We've seen in B.C. that there are luxury vehicles that are potentially being purchased by organized crime. While we catch real estate agents, we do not catch at this time the unregulated mortgage sector, and there is a fair bit of lending going on in that area. Those are two examples of the gaps.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

One identified gap concerns the oversight, mandate and resources given to the RCMP, particularly in British Columbia. I know that you're representing the Department of Finance, but I think that this matter is part of the discussion. That's why I want to point out that hardly anyone was conducting audits or investigations that would lead to charges in this area.

Has this issue also been addressed by the Department of Finance and, ultimately, by the RCMP?

[Lynn Hemmings]

As part of budget 2019, $68.9 million was allotted over five years to strengthen federal policing capacity within the RCMP. Last week there was a finance ministers meeting in Vancouver, and an additional $10 million was announced for the RCMP to build data capacity and analytical capacity of that big data to assist in investigations into money laundering.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Was the $10 million included in the 2019-20 main estimates, or will it be requested in a subsequent budget?

[Lynn Hemmings]

It was an off-cycle funding request, so it's not part of this budget. It was announced last week.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

FINTRAC plays an important role in this issue. We're asking for $3.6 million for a new FINTRAC initiative.

Can you elaborate on this initiative and on the $3.6 million requested for FINTRAC in the main estimates?

[Lynn Hemmings]

There are a number of measures that were announced in the budget for FINTRAC, one of which is to improve outreach to the casino sector and the real estate sector, with a focus on B.C.

In addition, we have added two new disclosure recipients, one being the Competition Bureau to address issues around fraud and seniors fraud, for example, and Revenu Québec for tax investigations.

[The Chair, Liberal, Wayne Easter]

Mr. Veilleux may be able to add more to that too, Pierre.

Go ahead, Mr. Veilleux. You're in FINTRAC.