moved that Bill C-37, An Act to amend the law governing financial institutions and to provide for related and consequential matters, be read the second time and referred to a committee.
Mr. Speaker, I am pleased to lead off the debate, at second reading, of Bill C-37, which amends the legislative framework governing financial institutions operating in Canada.
This proposed legislation is significant for a number of reasons.
First of all, it will go a long way toward improving our entrepreneurial advantage in Canada, one of the five advantages at the core of our government's new long term economic plan for Canada, called Advantage Canada.
Advantage Canada sets out to create several advantages for our country: a tax advantage, a fiscal advantage, a knowledge advantage, an infrastructure advantage, and, as I mentioned, an entrepreneurial advantage for Canadian families, students, workers and seniors.
To gain an entrepreneurial advantage, we must build a more competitive business environment by reducing unnecessary regulation and red tape and improving services for consumers, so this bill is significant for another reason as well. It will have a positive impact on one of the most important drivers of our economy, and that is the financial services sector. This sector is one of the key foundations on which our economy, indeed any modern industrial economy, rests.
On a broader scale, this important sector plays a unique role in ensuring financial stability, safeguarding savings and fueling the growth that is essential for the success of the Canadian economy.
Moreover, the financial services sector plays a significant part in the daily lives of Canadians. Beyond those of us who use their services, the financial services industry employs about 700,000 Canadians in good, well-paying jobs. It represents about 6% of Canada's GDP and is a leader in the use of information technology.
We can no doubt appreciate the importance of ensuring that the framework governing this important and influential sector is current and effective.
Canada's new government is committed to doing just that with the proposals contained in this bill before the House today.
Before I outline the proposals in the bill, I would like to make a few remarks about the consultation process that led to this review of the financial institutions statutes and the legislation before the House today.
A representative number of stakeholders have shared their comments on the 2006 review of the financial sector legislation.
Overall, stakeholders generally agreed that no major overhaul is needed, but many believe, as we do, that some steps could be taken to refine the legislative framework.
Stakeholders also made specific proposals for technical amendments. Those submissions in the consultations resulted in a white paper issued by the Department of Finance this past June, entitled “2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework”.
For the most part, the white paper is the basis for Bill C-37, which contains the government's proposals to amend the legislative framework for financial institutions. These proposals are aimed at achieving three key objectives: first, improving service for customers; second, increasing legislative and regulatory efficiency; and, third, adapting the framework to new developments.
Together, these objectives will contribute to a modern and competitive financial sector framework in which businesses of all sizes and consumers from every corner of the country will continue to be well served.
I would now like to briefly outline the intent of the three objectives contained in Bill C-37.
The first is improving service for customers.
Consumers are taking greater responsibility for their financial affairs. At the same time, we are seeing an increase in the breadth and complexity of financial products, service providers and delivery channels. Clearly, this means more choice for consumers. At the same time, it makes it more difficult for them to make informed choices in the marketplace.
That is why Canada's new government is acting to ensure that services are improved and customers are adequately protected. The government believes that the best approach to improving services for consumers is through competition and disclosure.
On the one hand, competition provides more choices to consumers and allows them to find financial products and services that best suit their individual goals and needs, at competitive prices. Disclosure, on the other hand, ensures that consumers and businesses alike have the relevant information they need to make the best decisions in light of the choices available to them.
As we all know from newspaper and TV ads, the range of financial services and products offered to consumers continues to evolve. In order to assist consumers to make choices, the disclosure regime for our financial institutions framework needs to stay current to accommodate the different types of products and services in the marketplace.
The proposed changes to the framework contained in this bill reflect that principle.
One example of consumer protection measures in the bill is with respect to online disclosure. As we know, federally regulated financial institutions must disclose in their branches information on the products and services they provide to their customers and the public. Many Canadians today are opting for the convenience of the Internet to meet their banking needs and current disclosure requirements do not extend to the online world.
To ensure that consumers have sufficient information, the bill proposes, first, to harmonize online and in branch disclosure requirements to allow consumers to compare products more easily and, second, to ensure adequate disclosure is provided to customers conducting transactions online.
The intent of this proposed measure is to provide consumers with the information they need in order to make informed decisions.
The second major objective of the bill is to increase the efficiency of legislation and regulations governing the Canadian financial sector.
The regular review of the financial sector statutes allows this government to amend the framework as necessary so that financial sector legislation and regulations continue to be both effective and efficient.
Bill C-37 addresses a number of key areas identified in the review to achieve increased legislative and regulatory efficiencies.
One such area that is quite relevant to many Canadians is the area of residential mortgages. Mandatory insurance for high ratio mortgages was introduced over 30 years ago as a prudential measure to ensure that lenders are protected against fluctuations in property values and associated defaults by borrowers.
Of course, the marketplace has changed since then. Among other things, the risk management practices of lenders have improved significantly and the supervisory framework for federally regulated financial institutions has been strengthened significantly. This means that some homeowners may be paying more for mortgage insurance than they need to.
The proposed amendments to Bill C-37 reduce the cost of mortgages for some families by raising the loan to value ratio requiring mortgage insurance from 75% to 80%. This will lower the mortgage down payment consumers are required to make before the law requires the purchase of mortgage insurance. This proposal will create an opportunity for mortgage cost savings and ensure that more young families can realize the dream of owning their own home.
Another key area identified in the legislative review called for improvements to the regulatory approval regime. Ministerial approvals are currently required for a broad range of financial sector transactions related to market entry, structure and competition, as well as financial institution ownership.
There are, however, transactions that the minister reviews that are routine and do not raise significant policy issues. Bill C-37 proposes measures to streamline the regime to ensure that these transactions are dealt with more expeditiously.
As we know, the rate of change in the financial services sector has increased dramatically in recent years. Financial institutions must be able to respond to developing trends such as globalization, convergence, consolidation, and technological innovation. This adaptation to market changes often results in the creation of new products and services and innovative ways of doing business.
The government needs to ensure that the framework regulating financial institutions is up to date to allow them to respond to these changes so that they can evolve and grow. At the same time, the government is also committed to protecting consumers and small businesses adequately while maintaining the overall safety and soundness of the financial system.
Bill C-37 does that and more.
One way that this bill will improve our financial system is by allowing for the implementation of electronic cheque imaging. Currently banks process about one billion paper items, mostly cheques, annually valued at over $3 trillion.
The process of clearing a cheque includes the physical delivery of the cheque to the paying or issuing financial institution in order for it to decide whether or not to make the payment. This process is more labour intensive, time consuming and costly than necessary, particularly given today's developments in technology.
The proposal in this bill to allow for the implementation of electronic cheque imaging will result in significant efficiency gains, saving time and resources currently dedicated to the transport of cheques. This will allow banks to keep their costs down, a benefit that needs to be passed on to customers to ensure that the efficiencies derived from electronic cheque imaging will be shared by all users of the payment system.
Another proposal in this bill relates to cheque hold periods. For most large banks, the maximum hold period on cheques deposited with tellers is 10 days. While the government recognizes the importance of cheque hold periods for risk management, a concern remains about the length of time that consumers may be subject to these hold periods. Cheque holds not only affect consumers who need to access funds to pay their bills, but also small and medium sized businesses that need to pay employees and operate their businesses out of the funds they deposit.
While the proposed legislation would be facilitating the establishment of a limit on the time that banks can hold a cheque, the government is finalizing the agreement with the banking industry. The agreement will reduce the maximum hold period immediately to seven days and reduce it further to four days once electronic cheque imaging is fully implemented.
This change will be a significant improvement over the current maximum hold period of 10 days or more. It is a major step forward for consumers and businesses. It will increase efficiency and free money up more quickly, having a positive impact on the Canadian economy overall.
In summary, the measures proposed in this bill will amend the legislative framework governing financial institutions in order to achieve three key objectives.
First and foremost, the bill proposes steps to improve services for consumers. Second, Bill C-37 would increase legislative and regulatory efficiency and contribute to a framework where financial institutions could grow and prosper in the global marketplace. Third, the proposed amendments in Bill C-37 would allow financial institutions to adapt to new trends in the industry by providing a framework that is up to date and, above all, dynamic.
I urge all members to give Bill C-37 careful consideration.