Madam Speaker, I welcome the opportunity to open debate at second reading of Bill S-5, the financial system review act.
This proposed legislation matters to Canadians because it concerns one of the most fundamental drivers of our economy, the financial services sector.
Before I go any further I would like to note that the proposed legislation is in fact mandatory. Every five years, the government is bound to review the statutes that govern federally regulated financial institutions to maintain the safety and the soundness of the sector, while ensuring that Canada remains a global leader in financial services.
The Canadian Bankers Association has remarked that its members “believe strongly in the importance of ensuring that the legislative and regulatory framework is reviewed regularly”. As the last review was conducted in 2007, the Bank Act requires that this be completed this year.
For the information of members and Canadians watching at home, the current five year review was launched on September 20, 2010 when the Minister of Finance initiated an open public consultation process on how to improve our financial system.
Here in Canada, the financial sector plays a key role in fostering financial stability, safeguarding Canadians' savings and fuelling economic growth and productivity. Aside from the fact that these institutions offer essential services worldwide, the industry employs over 750,000 Canadians. It represents about 7% of Canada's GDP and is known for its use of information technology.
Not only are our banks the foundation of our economy, but their strength and stability are a model for the entire world. Unlike the United States, the United Kingdom and other European countries, we did not have to nationalize, bail out or buy stock in our banks. In fact, for the fourth year in a row, the World Economic Forum has stated that Canada has the soundest banks in the world. The Financial System Review Act will help to ensure that our banks remain strong and effective and that they adapt to the new realities of an evolving global marketplace.
As the Canadian Life and Health Insurance Association has noted, the act represents a welcome fine tuning of the various financial institution statutes.
To effectively describe the benefits of this proposed legislation to the House it is worth revisiting our government's response to recent financial volatility.
Beginning in 2007 and through 2008, turmoil in global markets revealed serious weakness in the international financial system. Around the world many major financial institutions failed and needed to be bailed out by governments at the expense of taxpayers, but not here in Canada. Thanks to sound regulation by our Conservative government, not one single bank failed and not a single bailout was necessary, making Canada a model for the world.
Listen for example to the words of U.K. Prime Minister David Cameron who praised our banking system on a recent visit to Canada:
In the last few years, Canada has got every major decision right. Look at the facts. Not a single Canadian bank fell or faltered during the global banking crisis... Your economic leadership has helped the Canadian economy to weather the global storms far better than many of your international competitors.
The Irish Times also declared that Canada's “strict banking supervision was a reason why it was one of the world's strongest performers during the recession”.
The International Monetary Fund also said it “commended Canada's strong financial regulation and supervision. This has resulted in a stable and resilient banking sector, which has resisted the international financial crisis well and remains well prepared to deal with most adverse scenarios”.
A U.S. Congressional Research Service report added that “Canada's financial system in particular is garnering attention, because it seemed to be more resistant to the failures and bailouts that have marked banks in the United States and Europe”.
Even so, we have responded to the crisis with quick action to ensure the long-term stability of our financial system.
First, in budget 2008, the government ensured that the Bank of Canada had modern, appropriate tools to enhance the stability of the financial system when necessary. In fact, the Bank of Canada used these improved tools to protect our financial system, particularly by redistributing liquid assets to financial institutions, which was key to preserving the flow of credit to Canadians and businesses during the so-called credit crunch.
In budget 2009, the Conservative government also strengthened the authority of the Canada Deposit Insurance Corporation, or CDIC. This enhancement gave CDIC a broader range of tools to provide financial assistance to troubled financial institutions, thus promoting stability and protecting Canadian's deposits.
We also took steps to protect our mortgage market. The American sub-prime mortgage crisis, and the recession which followed, illustrate the importance of a stable and well functioning housing market.
In Canada, our system of mortgage insurance ensures that real estate remains stable. In order to protect it from the dangerous excesses experienced by other countries, our government has acted three times to adjust the mortgage guarantee framework. These adjustments included reducing the maximum amortization period to 30 years from 35 years for government-backed insured mortgages with loan-to-value ratios of more than 80%. We also reduced borrowing limits for refinancing and withdrew government insurance from home equity lines of credit.
In budget 2011, our government announced that we would give the current rules on the mortgage insurance framework a basis in legislation. This would further promote financial stability. We are actively developing this framework.
As you can see, the government has not been idle since the last financial institutions legislative review in 2006. We have renewed many key elements of our financial system and bolstered it by adding new tools to ensure its stability. It is perhaps because of these changes that, during the consultations conducted during the 2011 review, we found that only a few minor adjustments are now necessary.
Numerous detailed and thoughtful submissions were received from various stakeholders, including industry associations, financial institutions, consumer groups and individual Canadians. I am pleased to announce that the participants were satisfied with the process.
The Canadian Life and Health Insurance Association stated at the Senate committee on banking, trade and commerce, which completed its study of this bill late last year, that:
The consultation process was very positive and reflected the technical nature of this review.
From these consultations, we received a number of excellent proposals for fine-tuning, clarifying, harmonizing and modernizing the existing framework. Our government has listened and is committed to doing just that with the proposals contained in the bill before the House today.
The current framework works well. Canada's financial system continues to be recognized as one of the soundest in the world. With that in mind, I will outline the key measures contained in Bill S-5 for members and Canadians watching at home. I remind them that this is very technical in nature. I hope that they will be able to understand the measures I will outline.
The proposed legislative package includes measures that will: respond to changes in the sector; ensure access to banking services for all Canadians; level the playing field by promoting co-operation among our financial institutions; improve the efficiency of our system; and, finally, clarify the intent of existing legislation.
Among the examples, to better respond to changes in the sector, our government is improving the ability of regulators to share information efficiently with their international counterparts.
Also, to keep pace with the growing global financial sector we are increasing the widely held ownership threshold for large banks from $8 billion to $12 billion.
To ensure universal access to banking services, the legislation clarifies that all Canadians, including bank customers, are able to cash government cheques under $1,500 free of charge at any bank in Canada.
To better protect consumers, we will enhance the supervisory powers of the Financial Consumer Agency of Canada by increasing the maximum penalty for a violation of a consumer provision, consistent with penalties for other violations under financial institutions statutes. To improve efficiency, the Superintendent of Financial Institutions will have the authority to issue a certificate to assist financial institutions in documenting incorporation information.
I am especially pleased with the responsiveness of S-5's measures to promote co-operation among our financial institutions. I would like to highlight them now.
For instance, federal credit unions will vote with the co-operatives class in the governance of the Canadian Payments Association. Competition and innovation will be promoted by enabling co-operative credit associations to provide technology services to a broader market. We have heard time and time again from stakeholders about the importance of these changes to the Canadian Payments Act.
The Credit Union Central of Canada stated:
Placing the federal credit union in the cooperatives class will preserve and strengthen the credit union system representation at the CPA. It will ensure that a federal credit union will be represented by a director, who speaks for the interests of cooperative financial institutions in CPA matters. A strong advocate at the CPA is important for the credit union system's ability to advocate on behalf of credit unions and to continue to operate payments facility efficiently and cost effectively, which has a direct impact on overall credit union system competitiveness.
Furthermore, the legislation reduces red tape and lessens the administrative burden for federally regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements.
Here are some of the other technical changes included in Bill S-5 to improve the efficiency of the financial sector. Mutual funds controlled by insurance companies through investments made from segregated funds will be permitted to hold market-indexed shares in managing life insurance companies. Greater flexibility will be provided in adjusting to new terminology under the international financial reporting standards in order to continue to promote prudential objectives.
Future adjustments on the limits on transfers to shareholders from participating policy accounts will be facilitated by adding regulatory flexibility. The Canada Deposit Insurance Corporation Act will be fine-tuned to enhance the corporation’s ability to protect insured depositors and manage the resolution of a member institution. Limited testimonial immunity will be provided to the Superintendent of Financial Institutions and the Commissioner of the Financial Consumer Agency of Canada, as well as their employees and agents, to enhance operational efficiencies and protect the confidentiality of information.
Finally, the bill before us includes a number of technical changes to clarify intent. For example, the bill clarifies the order of priorities where multiple security interests, including those taken under the Bank Act and under provincial legislation, are taken on the same collateral. It clarifies that derivatives can be cleared by a clearing and settlement system. It also confirms that banks can have an asset manager who also acts as a trustee of a mutual fund trust.
Many of the financial sector solutions now being promoted and adopted around the globe are based on the Canadian system that has served us so very well. For the fourth year in a row, the World Economic Forum rated Canada's banking system as the soundest in the world and as noted, Toronto Sun columnist, Peter Worthington, observed, “Canada's banking system is now widely recognized as arguably the world’s best. No Canadians fear for their deposits as many Americans do”.
The measures proposed in the financial system review act will further strengthen our system by reinforcing stability in the financial sector, fine tuning the consumer protection framework and adjusting the regulatory framework to better adapt to new developments.
As I have mentioned, the statutes which govern federally regulated financial institutions are subject to a five-year review cycle to ensure that Canada remains a global leader in financial services. It is imperative that this legislation be renewed by April 20 to allow financial institutions to stay in business.
Today's act would provide for a framework that would benefit Canadians by ensuring that we would have a safe and secure financial system that we could rely on by maintaining the long-standing practice of ensuring reviews of the regulatory framework for financial institutions, a unique practice that sets Canada apart from almost every other country in the world.
Our Conservative government recognizes that it must constantly evaluate what regulatory changes are needed to foster competitiveness and ensure the safety and soundness of our financial system for the benefit of all Canadians, and we have done exactly that with the measures contained in the legislation.
As the Canadian Life and Health Insurance Association noted during the Senate committee stage consideration, “prompt passage of the bill will ensure the legislative stability and continuity that are so important to the financial services sector”.
I therefore urge all members in the House to give the financial system review act careful consideration. I hope that opposition members will allow us to ensure that this moves quickly and prepares Canadians for more good things to come.