Mr. Speaker, I am pleased to speak on Bill C-15 at third and final reading in the House. This is the sort of workaday legislation that may lack drama but remains vitally important to Canada because it will enhance the safety and soundness of the country's world class financial system.
May I begin by reminding hon. colleagues that this legislation is the product of extensive consultation. I would like to take this opportunity to again extend the government's thanks to the many industry participants and other stakeholders that provided such constructive and insightful advice.
I would also like to thank the Standing Committee on Finance for having decided to hold hearings on the bill during the summer recess. The comments gathered by the committee constituted invaluable preliminary work prior to the clause by clause study of this major piece of legislation. We can rest assured that the bill we are going to pass will serve the best interests of consumers, financial institutions, our constituents, and the Canadian economy as a whole.
There is no question that sound, secure financial institutions are a fundamental requirement for national well-being. As I said at the start, Canada is blessed with a world class system. The financial sector is very much a part of a world of dynamic and dramatic accelerating change driven by new technology, globalization and new customer demands. All these factors culminate in heightened
competition. That is why we are moving ahead with the measures contained in Bill C-15.
This legislation is timely not because the system suffers from any critical weakness. It does not. But to make sure we maintain a dynamic, competitive financial sector and regulatory system we must respond to market trends and recent experiences without unnecessary delay. Bill C-15 will do this.
Let me emphasize that these are not patchwork, band-aid measures. They flow from a series of basic principles outlined in the white paper the government issued over a year ago. These principles include the following: first, that ownership of financial institutions is a privilege, not a right. Second, early intervention in and resolution of institutions experiencing difficulty should occur. Third, that financial institutions must operate with sufficient incentives to solve their problems in a timely manner. Fourth, there must be appropriate transparency and accountability in the system.
We have discussed the details of this legislation at some length in committee and the House. Today I simply want to remind us all of some of the more important changes that the House should approve.
First, the bill establishes an enhanced system of early intervention on behalf of troubled institutions. The legislation will allow the office of the Superintendent of Financial Institutions to take control of a troubled institution earlier than at present. It also provides greater transparency in the supervisory process by establishing guides to supervisory intervention. The intent here is clear, concrete and constructive.
Early resolution of an institution's difficulties is the best way to prevent substantial losses to depositors, policyholders or creditors and potentially to shareholders.
This legislation states clearly that if an institution is facing difficulties, owners do not have the right to continue in business until they hit the brick wall and cannot pay liabilities as they come due. Institutions will now understand that OSFI will take action if its concerns are not dealt with promptly. That is a major improvement.
This is not a punitive step. By increasing OSFI's scope for early intervention, the legislation provides a new incentive for managers and directors of troubled institutions to undertake early problem solving for themselves.
The second element I would highlight in Bill C-15 is the expanded role for the superintendent in the governance of troubled financial institutions. In this case, the superintendent will have the power to designate certain directors as affiliated and also veto the appointment of directors and senior officers in troubled financial institutions.
These additional powers reflect our appreciation of the importance of effective, independent corporate governance. They also stress that it is the boards of directors that represent the ultimate frontline for problem resolution and good management.
Before concluding I should address a criticism of the legislation levied by the official opposition related to jurisdictional issues.
The clear and certain benefits of this bill notwithstanding, the official opposition has chosen so far not to support its passage. The main criticism relates to the claim that the powers proposed for the Bank of Canada, to mitigate systemic risk in clearing and settlement systems, infringe on provincial powers over regulating security matters. This is not the case.
The opposition's problem and misunderstanding of the goal of this legislation begins with its failure to understand the nature of systemic risk itself. This is the risk that one institution's inability to settle a large value transaction could have a domino effect among other participants.
In the proposed legislation the government is acting to provide a formal oversight role for the Bank of Canada and to enhance its powers to require appropriate risk control in payment, clearing and settlement systems.
The bill provides the Governor of the Bank of Canada with the powers necessary to control systemic risk. This can be achieved by issuing directives to clearing houses, or where necessary, participants in a clearing house, requiring them to cease a particular course of conduct that results in systemic risk being inadequately controlled.
I want to emphasis that dealing with systemic risk issues is traditionally a matter for central banks, not just in Canada, but in other developed countries. If there is ever a day when the failure of a large financial institution at home or abroad threatens the stability of the financial system, it will be the central banks of industrialized countries, including the Bank of Canada, that will be called on to deal with the fallout.
I also want to note that in committee the government moved amendments to further clarify that the powers of the Bank of Canada with respect to systemic risk do not infringe on traditional areas of concern to provincial regulators about the health of individual securities firms.
Specifically, the bill now provides greater certainty that the governor may not issue directives in respect of matters directly related to the participation of securities firms or other individual participants in the clearing and settlement system. This includes the corporate governance of the participant, its relations with its customers, capital adequacy or the management of its investments.
We fully understand that these aspects of business fall under the purview of the principal regulator of the institution such as the provincial securities commissions. We have made it clear that these are not matters for the central bank. For these reasons I reject the notion that this legislation infringes on provincial jurisdiction. It does not.
In closing, I want to say that Canadians have come to expect a sound and stable financial system. This is one of our most enduring and sustaining economic strengths. That is why we must ensure that we sustain and evolve the appropriate mechanisms needed to manage and minimize risks. Bill C-15 honours that obligation with positive, forward looking measures.
I have no hesitation in calling on my colleagues to pass this important legislation. I hope that all members of the House will join with the members on this side of the House in doing so.