Mr. Speaker, my hon. colleagues have discussed many of the important features of Bill S-5 which would strengthen Canada's financial sector to its advantage. I particularly appreciate my hon. colleagues' characterization of the financial system as being only as strong as its weakest link and for outlining some of the key areas where the government has acted, both within Bill S-5 and elsewhere, to strengthen those links that needed the most attention.
The banking sector has expressed its strong support for this mandatory legislation. For example, Terry Campbell, president of the Canadian Bankers Association has explained, “In Bill S-5, the government has stepped up to the plate and is proposing what we think are very needed clarifications”.
I also agree with my colleagues' emphasis on the importance of considering the health of the whole financial system as fundamental to the growth and success of the entire economy. With this in mind, I would like to dedicate my allotted time to considering one special crucial link in the system which Bill S-5 would act to fortify, and that is Canada's payment system.
Our payment system is the set of instruments, procedures and rules used to transfer funds among financial institutions, either on their own behalf or that of their customers. This is not to be confused with the various other payment instruments Canadians use, such as cash, cheques, debit cards and credit cards to purchase goods and services, to make financial investments and to transfer funds from one person to another. The two are not unrelated, however, because these payment instruments, with the exception of cash, normally involve a claim on a financial institution such as a bank, credit union or caisse populaire. Financial institutions therefore need arrangements to transfer funds among themselves, which is why the payment system exists.
In Canada, the national systems for clearing and settlement of payment are run by the Canadian Payments Association, also known as the CPA, a not-for-profit organization of federally regulated financial institutions. This system has served Canadian financial institutions and their customers well. However, in a world of ever-changing demands, technological innovation, increased global integration and competition, no responsible and effective government can afford to let such a system remain static. That is why Bill S-5 takes action to ensure that this system can meet the ongoing demands of an increasingly dynamic, innovative and globalized financial system. I must note that the CPA provided input on these measures through an open public consultation process and has told the House finance committee that it welcomes ”the incorporation of technical and housekeeping amendments to the Canadian Payments Act legislation to provide greater clarity surrounding our membership”.
It is clear that the payments landscape is changing. For example, since 1996 we have seen in Canada and abroad increasing cases where clearing and settlement systems do not include banks as direct participants. To better accommodate this development, Bill S-5 proposes to amend the Payment Clearing and Settlement Act to remove the requirement that there must be at least one bank involved. The new definition would allow more flexibility in establishing systems to clear such complex financial instruments as over the counter derivatives, or OTCs. This change has the added benefit of allowing the Bank of Canada to oversee the transactions of these complex financial instruments to help ensure they pose no systematic risk to the financial system. Not only is this prudent, it is also in keeping with Canada's commitment to our G20 partners that by 2012 our OTCs be cleared through central counterparties.
Bill S-5 also proposes to change the Payment Clearing and Settlement Act to allow the Bank of Canada to disclose information to other regulators of payment clearing and settlement systems and to coordinate activities across current federal and provincial jurisdictions as well as with foreign regulators. This would also help us meet our G20 commitments by ensuring that Canadian prudential and market conduct regulators have the authority, tools and information they need to maintain effective ongoing oversight over the Canadian OTC derivative market. Moreover, the information sharing would help all parties understand the potential risk in these linked systems, building upon lessons learned from the 2008 financial crisis and helping in our efforts with our international partners to prevent such instances in the future. Failing to form such links could actually delay our ability to link to foreign systems and undermine Canada's ability to meet the commitments all G20 nations made. This is a key fact for hon. members to consider when debating the timely passage of Bill S-5.
If that does not convince hon. members to get behind the bill, I will offer another good reason.
As many hon. members appreciate, Canada's credit unions are a valuable source of financial services in communities across the country. In recognition of the important role credit unions play, in budget 2010 our government created a new legislative framework for federal credit unions to accommodate growth and expansion of the Canadian credit union system, putting them on a more level playing field with other financial service providers.
Once implemented through regulation, this would enable those credit unions that choose to do so to extend beyond provincial borders and pursue business strategies that are not limited by provincial incorporation. This change would encourage competition among financial institutions and promote a more level playing field within the financial sector, supporting a stronger and more stable system overall. It would also give credit unions a way to expand their sources of funding and diversify their geographic risk exposure.
Bill S-5 supports these efforts by amending the Canadian Payments Act so that credit unions fall within the co-operatives class in the act rather than the bank class, giving federal credit unions a more effective voice in the CPA. I am pleased to report that this measure has been very positively received by the federal credit unions.
According to Credit Union Central of Canada, the national voice for credit unions across the country, these changes would help credit unions represent their members more effectively at the payments table.
In the words of David Phillips, president and CEO of Credit Union Central:
Placing the federal credit union in the cooperatives class will preserve and strengthen the credit union system's representation at the Canadian Payments Association. It ensures that a federal credit union will be represented by a director who can bring the perspective of cooperative financial institutions to CPA matters.
At the same time, credit unions would still enjoy the long-standing, well-understood and robust governance, liquidity and clearing and settlement frameworks that they use today.
For these reasons, I would encourage hon. members of the House to support the timely passage of Bill S-5. They can do so with the confidence that by making these important improvements to Canada's payment system they will be strengthening key links in Canada's financial system and better connecting it with the world.