Mr. Speaker, it is a pleasure to participate in the debate today on Bill C-100. I am pleased to have the opportunity to express my support for this legislation which will enhance the safety and soundness of the Canadian financial system.
I would like to focus on the issue of early intervention when an institution is experiencing financial difficulties. It is an area where Bill C-100 establishes a dramatic shift or enhancement in the philosophy of financial institution regulation. It is a reform that I believe all consumers should applaud.
As the hon. secretary of state pointed out earlier, the logical underpinning for early intervention in problem situations begins with the principle that ownership of a financial institution is a privilege, not a right. This reflects the absolute vital role in terms of economics and public confidence that such institutions play in an open market economy.
The legislation before us takes this principle to a natural and essential conclusion. It recognizes that when a financial institution is experiencing difficulty, the owners do not have the right to continue business until the bitter end. In other words, the obligations of management include a duty to depositors, policyholders, creditors, as well as shareholders. This means that an institution's owners do not have a natural authority to carry on in the hope of some miraculous turnaround, until capital is depleted or they cannot pay liabilities as they come due.
Bill C-100 translates this view into concrete measures. It makes clear that if early intervention in and resolution of institutions experiencing difficulty need to occur it can occur. This is specifically recognized in a new mandate for the Office of the Superintendent of Financial Institutions. This mandate is given bottom line reality to changes in the statutes to permit this institution to obtain a winding-up order for problem firms earlier than this is warranted.
I should point out that this new mandate represents an important clarification of the mission statement of OSFI. Prior to Bill C-100, this institution was guided very informally by the objectives to maintain public confidence in the Canadian financial system.
However the bill provides the regulator with a detailed, legislative mandate which recognizes OSFI should contribute to public confidence. It will do so by recognizing the interests of depositors, policyholders and creditors of Canadian financial institutions.
Prescribing such a mandate more formally in legislation is an important step. This will give the regulator greater accountability for its actions. It also lets institutions and other stakeholders know that the regulator will deal with them in an expeditious manner should problems arise.
Greater transparency with respect to the role of the regulator provides all financial institutions, healthy or troubled, with a greater incentive to monitor their affairs more prudently.
I firmly believe the very fact that the early intervention is a clear and concrete part of the OSFI mandate is in itself an incentive for better management.
Bill C-100's mandate for this institution extends beyond simply requiring the regulator to take immediate action with institutions experiencing financial difficulty. OSFI has a broader responsibility to promote the adoption by senior management of financial institutions of sound policies and procedures to control their risks. After all, financial institutions must bear a greater responsibility to their stakeholders for managing their exposure to risk adequately. This is consistent with the principle that ownership of financial institutions is a privilege and not a right.
Supervisory systems must be designed in such a way to create an incentive for corrective action by financial institutions themselves to set right and salvage firms where possible.
However, earlier resolution alone cannot ensure that a troubled financial institution will not fail. In an open market environment, especially in today's increasingly competitive global arena, firms may fail. Therefore it is extremely important, when closure of a financial institution is imminent, the supervisory system be prepared to shut down an institution in a manner that protects the interests of all stakeholders.
In this regard, Bill C-100 provides the regulator with sufficient scope to close down a troubled institution before the value of the firm has been fully depleted.
The legislation includes amendments to the winding-up and restructuring act which provides OSFI with additional grounds for obtaining a wind-up order for a financial institution. The act is also being amended to provide more flexibility to restructure, under court supervision, the affairs of insurance companies in liquidation. This should provide protection for stakeholders if closing down is required. The liquidator will have greater scope to enhance value within the estate and improve recovery on assets deposed of by the liquidator to the benefit of all policyholders.
Again, the interests of financial consumers stand to be recognized under Bill C-100 revised closure policy. I believe this legislation acts on the aspects of good regulation and good management, fairness and openness.
In other words, there is a fundamental need for transparency of the supervisory system. If we are to encourage the most positive attitudes and behaviour within institutions, it is essential that they understand the steps that the authorities can take if the financial situation deteriorates. We must be prepared to deal with situations where firms make mistakes and face difficulty.
We must have a more transparent system in place so that messages to the company management are clear. That is why the secretary of state is proposing a guide to intervention that clarifies the actions that can be expected, a guide that clarifies the role of OSFI and the CDIC, the Canadian Deposit Insurance Corporation.
This guide sets out four stages of intervention. Each stage makes clear to institutions what type of regulatory action will be taken. It includes a number of fairly technical supervisory measures that may be measured and used by OSFI in recognizing the interests of stakeholders.
It also spells out actions by CDIC in fulfilling its legislated objectives to control risk to the deposit insurance fund and minimize its exposure to loss.
These regulatory actions range from the initial stage one situation, where the regulator takes a number of small steps when the institution is experiencing difficulty. At this stage, OSFI could require the external auditor to expand its work. If the company continues to decline, there are two other stages of more direct action that can be taken by the regulator, where a more hands-on approach is taken. By stage four, firm action is required because insolvency is imminent.
The institution approaching this stage will have warning that unless it improves its situation it will be shut down. Bill C-100 provides that in such a scenario, OSFI could seek a winding-up order while the institution still has positive capital.
This is clearly to the benefit of the depositors, the policyholders, the creditors and other stakeholders. It is consistent with the institution's mandate.
The legislation before us is largely technical in content. It does not have the drama of some other high profile issues, but this should not obscure its vital importance, nor its real benefits to our economy and to the security of millions of Canadians.
Consumers have come to expect that regulatory authorities take prompt action to deal with the problem of financial institutions. A sound, dynamic financial system is important to all Canadian consumers and an essential component to economic strength, the strength that ultimately, as we know, produces jobs.
The legislation enhances the soundness that Canadians expect from their financial system. A sound, dynamic financial system is a fundamental foundation for personal financial security and public confidence. The legislation before us will ensure that such confidence is fully justified.
I urge all hon. members to approve this legislation. It is in the interest of all our constituents and our nation as a whole.