We had all kinds of talk about the ten commandments but I will not get into that in this debate. Fortunately for the Secretary of State for International Financial Institutions he does not have to worry about religion on top of all his other concerns.
Let us talk about specifics. Let me respond with some substance to these amendments proposed in this group by the opposition which which we will not support.
If clearing and settlement systems are not properly designed they can result in considerable systemic risk; that is, the risk of problems experienced by one financial institution will spread to other institutions and destabilize the system as a whole. In an increasingly global marketplace in financial services that risk exists. If our systems are not properly designed problems occurring elsewhere may spread to the Canadian financial system.
The hon. member opposite can rail all he wants but this is an appropriate role for a central bank and it is not an appropriate role for a securities regulator.
Bill C-15 establishes a framework for proper risk proofing that is effectively designed and competitive in terms of the spread and cost with which payments are cleared and settled. This will enable Canadian financial institutions to compete more effectively. The proposed clearance and settlement legislation makes sense and has several key functions. It gives the Bank of Canada an explicit role in overseeing clearing and settlement systems that pose systemic risk. The bank already plays a key but informal role in ensuring that such systems are designed in a way which controls risk.
The proposed clearing and settlement legislation provides formal responsibility for the bank to oversee these systems, as it exists throughout the world. However, the legislation aims only to supervise those system that pose a risk to the financial system. It does not seek to regulate any associated financial markets. It is quite properly within federal jurisdiction. Equally important, it is what the safety, soundness and security of our financial system demands and what all Canadians would expect of the federal government. The oversight role for the bank is consistent, as I said earlier, with the role being played by central banks elsewhere.
Second, Bill C-15 gives the Bank of Canada the powers it needs to participate in clearing systems and contribute to their safe, efficient and cost effective operations. These powers will be important in the context of the large value transfer system being planned by the financial sector with the Bank of Canada. This may ultimately replace the large value component of the paper based system with a system that will facilitate the electronic transfer of large values.
The Bank of Canada does not currently have the power it needs to send and receive payments on what will be known as the LBTS. Under Bill C-15, the bank will be given powers allowing it to contribute to the operation of the system in several ways.
There is a level of risk containment that will allow Canada to meet internationally agreed upon standards and contribute to the global competitiveness of our financial institutions. It also reinforces what I believe is an important role of the government, establishing a framework so that financial institutions have the ability and incentives to recognize and control the risks they face.
Another example of a clearing and settlement system which will directly benefit from this risk proofing is the new system for clearing transactions of government debt securities known as the debt clearing service. It was implemented by the Canadian depository for securities and incorporates risk containment features accepted by federal and provincial authorities. Eventually placing all government debt on this system will reduce the cost for the government as issuer as well as for other participants in the systems.
A third key function, and the last one I want to comment on in this important legislation, is to strengthen the enforcement of netting arrangements under bankruptcy and insolvency law. Clearing systems rely heavily on netting of payments to reduce credit exposures between participants and reduce systemic risk.
Without legal certainty, netting arrangements can be called into question when they are needed most when a participant fails.
Confirming that netting arrangements are legally valid and unsaleable in a liquidation or restructuring is an essential part of this legislation.
My time is almost up. I emphasize that this aspect of the legislation is very much about ensuring efficiency and stability of the financial system and contributing to its international competitiveness and meeting our international obligations in regard to system soundness and security.
Therefore, I urge members of the House to reject the ill-advised amendments proposed by the opposition.