Mr. Speaker, it is a great pleasure for me to start the second reading debate on Bill C-82.
This legislation proposes important measures to better protect consumers of financial services, to lighten the regulatory burden of financial institutions, and to define some of the provisions in the legislation affecting these institutions.
These measures are the results of a thorough consideration process and of widespread consultations. Therefore, I would like to take advantage of this opportunity to thank, on behalf of the government, the many consumer groups, industry members and other stakeholders who shared their opinions with us.
I want also to mention the very helpful participation of the House of Commons Standing Committee on Finance and of the Senate Committee on Banking, Trade and Commerce.
Canada has one of the strongest financial systems in the world, a system that is effective, efficient and stable. It strikes a balance between our financial institutions' competitiveness and their stability. We want this to continue. That is why the Canadian government is keeping a close eye on the evolution of the financial sector and considering ways of evaluating the system.
In 1992, we eliminated a large number of restrictions that prevented financial institutions from freely competing with each other. The consensus seems to be that these changes had a positive effect. When the 1992 bill to amend the legislation on financial institutions was passed, it was agreed that the legislative framework would be reviewed five years later. That is why the legislation contained provisions calling for a review in 1997. We embarked on this legislative review with two objectives in mind: to determine whether the measures adopted in 1992 had yielded the desired results and to see whether the legislative framework was still appropriate in view of the financial sector's evolution.
Following extensive consultations and in-depth analysis, the government came to the conclusion that the framework put in place in 1992 was working well in general and that its main components had to be maintained. The majority of stakeholders agree with this evaluation. However, we believe it is possible to make a number of
major changes to give consumers better protection and to bring the legislation more in line with the new realities of the markets.
Let me now turn to the specifics of these adjustments. They involve amendments to statutes governing financial institutions and related acts, including the Bank Act, the Co-operative Credit Associations Act, the Insurance Companies Act, the Trust and Loan Companies Act, the Canada Deposit Insurance Corporation Act and the Canada Payments Association Act.
Several of the proposed adjustments are aimed at strengthening consumer protection. Relationships between financial institutions and their clients are in constant evolution and regulation needs to reflect this changing environment.
The bill proposes a number of amendments to improve protection for consumers in their dealings with financial institutions. The first of these changes involves privacy. The protection of personal information is an area of growing concern to consumers. Accordingly, the bill provides the authority to require financial institutions to establish procedures governing the collection, retention, use and disclosure of customer information, to implement complaints handling procedures and to report annually on complaints. Regulations will be passed to implement these requirements.
The bill also proposes to enhance cost of credit disclosure provisions in the financial institutions statutes following the recent federal-provincial agreement on harmonization of disclosure requirements. These changes will result in improved and uniform disclosure practices throughout the country.
Another matter the government will address is tied selling. The matter is a complex issue and, indeed, members opposite have been talking about it for a few minutes and should hear the reply.
Tied sales can be beneficial in many situations where a consumer pays less for one product if he or she purchases a second product. However, concerns have been expressed about the potential for financial institutions to exert undue pressure on consumers when selling financial products. In response, financial institutions will be asked to adopt a policy on tied selling and establish procedures for dealing with complaints in this area. While the government is confident that this is the best approach, we are prepared to go further if the need arises. The bill includes an amendment to Bank Act to prohibit coercive tied selling.
The Secretary of State for Financial Institutions issued a press release on February 14 which suggested that the government would proclaim this amendment if necessary. After additional consideration, the government is now prepared to set a specific date for proclaiming the amendment. We intend to bring it into force on September 30, 1998.
At the same time the government wants to provide an opportunity for the institutions to address the tied selling matter through the establishment of appropriate policies and procedures. Therefore, the government is requesting that, before the proclamation date, the House of Commons finance committee carry out a review. This review would assess the degree to which tied selling remains a problem and the extent to which financial institutions have responded to the challenge. It would also consider methods to differentiate between beneficial practices such as when discounts are offered for taking more than one service, something the hon. member for Calgary Centre did not want consumers to have the advantage of, and those forms of tied selling that might be anti-competitive. These matters would be reflected in regulations.
Consumers raised other issues during the 1997 review, including the difficulty many low income individuals face in getting access to basic financial services and the difficulty of comparing service charges across financial institutions. While the government is not proposing legislative changes in these areas, I am pleased to report that discussions with major financial institutions and consumer groups have resulted in concrete commitments to address these problems. I am confident that these commitments will result in significant improvements in access and information on service charges.
The government recognizes that to promote a proper climate for economic growth and jobs, we need to ensure regulatory requirements that are fair and necessary. The bill identifies several areas where the regulatory burden on financial institutions can and should be eased.
First, several rules governing the operations of foreign banks in Canada will be modified. These will streamline regulatory requirements and lower costs for foreign banks. In particular, the legislation removes the requirement for regulated foreign banks which own a schedule II bank to own other financial institution subsidiaries only through a schedule II bank. It also includes changes to ease regulatory requirements for near banks.
Near banks are entities that do not generally take deposits and are not regulated as banks in their home jurisdiction but provide banking type services. Approval requirements will be reduced for near banks in certain circumstances and near banks will be permitted to own non-bank financial institutions.
Another element of the bill that will reduce regulatory burden is deposit insurance opt-out for eligible institutions. Many banks in Canada specialize in serving wholesale customers whose deposits far exceed the amounts insurable by the Canada Deposit Insurance Corporation. Such institutions will be permitted to opt-out of Canada Deposit Insurance Corporation, CDIC coverage, provided they are not affiliated with another CDIC member. As a result they
will no longer have to fulfil the reporting requirements associated with CDIC membership. Banks serving retail customers are still required to be members of the deposit insurance program.
In addition, subsidiary requirements will be eased. Currently financial institutions can engage in certain types of business only through subsidiaries. To reduce operating costs the legislation will permit financial institutions to carry on both information processing and specialized financing activities in-house.
The bill also includes a number of changes to streamline the self-dealing regime. These involve streamlining the operations of the conduct review committee, narrowing the range of related parties and allowing subsidiaries of a federal financial institution to transact with each other.
Changes are also necessary to keep the financial institution statutes current with evolving trends. The bill proposes a number of changes in the area of corporate governance. Although the corporate governance provisions were updated in 1992 and are generally considered to be working well, changes are needed to keep the legislation in tune with evolving standards. The bill proposes measures to update and improve corporate governance procedures, including clarifying the duty of the audit committee and enhancing policy holders' rights.
Regulatory adjustments will also be made to provide more flexibility to financial institutions seeking to enter into joint venture agreements. The requirement that the eligible joint venture be controlled by a financial institution will be removed. These adjustments will enhance the ability of financial institutions to compete both in Canada and abroad.
The legislation includes a number of amendments to enhance access to capital for mutual insurance companies. They will be permitted to issue participating shares. In addition, the demutualization regime will be extended to apply to all mutual life companies and added flexibility will be provided. Large mutual insurance companies will be required to remain widely held after conversion to a stock company.
The Superintendent of Financial Institutions will have the authority to exempt companies on specific aspects of the demutualization regime on a case by case basis. The Minister of Finance will have the authority to exempt companies in financial distress from any aspect of the demutualization process. Details will be set out in regulations to be developed in consultation with industry participants over the coming months.
Bill C-82 also includes a number of amendments of a technical nature that are aimed at further streamlining the statutes governing financial institutions and the agencies that govern them.
Among the technical amendments are changes to the Bank of Canada Act to remove outdated impediments to certain activities of the bank. These include expanding the range of instruments that a bank may buy and sell in clarifying the ability of the bank to carry ancillary activities such as licensing anti-counterfeiting technology.
The bill also includes technical amendments to the Bank Act, the Co-operative Credit Associations Act, the Insurance Companies Act, the Trust and Loan Companies Act, the Canada Deposit Insurance Corporation Act, the Office of the Superintendent of Financial Institutions Act and consequential amendments to the Winding-Up and Restructuring Act and the Greenshield (Canada) Act.
The financial services sector is in constant evolution. It is absolutely necessary to update constantly the regulations governing this important sector of our economy to reflect the various changes that occur.
Even though it is agreed that the system works well in general, as I said earlier, it will be improved immediately through the bill before you. We are still focused on the future. That is why we have established a task force on the future of the Canadian financial services sector. The task force will be responsible for advising the government on the appropriate framework for the financial sector in the 21st century, a framework that will promote economic growth and job creation.
We have also undertaken a review of the payment system. Moreover, we are reviewing the access rules for foreign banks, which will lead to a system for establishing branches. Legislative proposals on this subject will be made public by the end of the year.
We have to approach tomorrow's challenges intelligently, but the same applies to the changes before us today. This is an important bill for many Canadians and I urge the House to adopt it as quickly as possible.