[Recorded by Electronic Apparatus]
Wednesday, August 16, 1995
.1315 
[English]
The Chair: Order.
We're continuing our hearings on Bill C-100.
Our first witnesses this afternoon are from the Consumers' Association of Canada: Rosalie Daly-Todd and Robert Kerton.
This is not the first time you've been before our committee. We welcome your presence and thank you for being with us.
Ms Rosalie Daly-Todd (Executive Director, Consumers' Association of Canada): Thank you very much, Mr. Chairman. On behalf of CAC, I thank you for the invitation.
Dr. Kerton is no stranger to this committee; he is a long-time CAC volunteer. He is the chair of our economics committee and a former board member. This is his area of expertise, so I'm going to let him take the lead on this.
The Chair: I've known Bob Kerton since public school in London, Ontario. His tremendous assets are very familiar to this committee, and we welcome him.
Dr. Robert Kerton (Chair, Economics Committee, Consumers' Association of Canada): Thanks. That's mutual. I could say that we grew up together, but I'm not sure that either of us actually grew up. I have no intention of doing so.
I want to say something, which I hope will be in the public interest, on this bill. In the main, we're quite pleased with it. The Consumers' Association of Canada can welcome what it does and what it doesn't contain, because some serious errors weren't made, and we regret too that it didn't go a bit further in the area of consumer protection.
The brief you have is in English.
[Translation]
I do apologize to my francophone friends for not having a French version.
[English]
The part I'd like to draw to your attention - I certainly have no intention of reading the whole brief - is contained at the bottom of page 1 and the top of page 2.
The Consumers' Association of Canada has had a longstanding interest in consumer protection, and we're not completely happy that financial sector provisions in Canada are somewhat behind those of comparable countries. This bill is a small step forward, but we hope your committee will be taking bigger steps later, particularly toward 1997.
Recently we appeared before the Senate committee with our views on this.
In the main, we've supported the provisions of the original position of the Department of Finance in its paper on enhancing the financial sector provisions, and we can support most of the provisions in this bill.
Among the recommendations of most importance to consumers are the early-intervention measures contained in this bill and the increased disclosure provisions, but the CAC has been on the record for some time as asking for improved provisions on transparency in this market. If you put yourselves in the shoes of a regular consumer who is trying to shop for financial services, then you'll realize that there is an amazing array of financial products, and it's very difficult to see through all the bells and whistles of 400 different types of accounts, provisions, and so on to find out which one is actually the superior product. As long as we can't see which one is superior, we can't deliver our trade to the supplier that has the best product. So the marketplace isn't working as well as it should be.
We're arguing here that while we support the transparency provisions in this bill, those provisions are largely for transparency or disclosure between the operating firm and the Office of the Superintendent of Financial Institutions. That's a good thing. It means that the services available meet some minimal requirements, so we're totally in favour of that.
But ``disclosure'' has a meaning broader than the one used in Bill C-100. It's more than an exchange with the regulator. We'd like to see, in the near future, some provisions for bringing Canada's disclosure of the financial institutions and things being sold to the consumer and bringing that up to the best international practice. Right now, Canada is lagging in that regard.
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In the presentation today, we're going to comment on Bill C-100 and concentrate on those areas of most interest to consumers, which are the reform of deposit insurance and proposals for similar protection for insurance companies.
I draw your attention to some things in the appendices that I believe will be very useful to the committee and very important to Canadians, to consumers in any part of the country, but that are not really on your agenda today.
Appendix A asks, what does the Consumers' Association of Canada seek in financial sector reform? There are lists there that have been on our agenda for some three years and crystallized more recently. There is a second list on page 9. Altogether, there are six plus five items. I might say that this bill, Bill C-100, does address some of them, so we're very pleased to see that finally coming to fruition.
Appendix B is on privacy. There are quite a few measures on privacy that are really important to Canadian consumers of financial products, and there are quite a few provisions that should be in our system in Canada that don't exist yet.
Appendix C is on redress measures. What do you do when something goes wrong? The industry is moving forward on its own with that, but it seems to us that it's moving forward at a snail's pace.
All of the disclosure provisions are limited to solvency. These welcome changes oblige financial firms to report truthful information about ownership, about owners and directors. This is on page 2, and there's a page reference to your document.
The bill has in several places improved provisions for disclosing information on the financial condition of institutions, such as on page 66, clause 93. The consumer needs more information than this to make an intelligence choice among institutions. We quote the Cashion report from Alberta, which looked at the financial market and concluded that the market contains a:
- bewildering array of new products and types of products, [consequently] distinguishing
between the hundreds of choices at hand is confusing for all but a very few consumers.
- You have to be an expert, really, to buy financial products in this country.
I would ask you to think about that and to consider whether you can improve on that provision, because right now the different institutions are all being asked to prepare this report. The bill doesn't ask them to do it annually - I take it that's what you mean - but it might be worth while to insert the word in there, that the superintendent is to prepare an annual report of improvements in the disclosure measures.
The Chair: That's a good suggestion.
Dr. Kerton: If I were able to draft a bill, I would allow it to include measures that include enhanced disclosure to consumers, things like the use of plain language. Ten years ago our institutions would have objected to any provisions on that, but now they're making a lot of progress, so there are a lot of documents being translated into plain language.
The Chair: Perhaps we could suggest to the finance department that the people who drafted the Income Tax Act could revise this legislation for us.
Dr. Kerton: Right.
There are some tests of the writing level to which you put these, and we've run some of the financial sector's documents through these tests. One of the early ones required you to have at least grade 18 to be able to understand it. That document was produced by the Canada Deposit Insurance Corporation, and the title on it was ``Some Things That Depositors Need to Know''. In other words, it was supposed to be addressed to a regular person, but you had to have post-graduate education to be able to understand the legal language in it. It used words like ``evidencing this'' and so on. CDIC has redone that and now has it down to where a grade 10 person can understand it. Now, we'd like to see that type of improvement made in every document.
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There are some other measures where disclosure would be worth while. Canada is one of the few advanced countries that allows its financial institutions to change the terms of contract without the customer being aware of it. That is ruled out by one of the directives of the European Community and by a 1989 act in the U.S. They say we should be requiring big financial institutions to inform the customer and to ask them if they're willing to change the terms of the contract. You don't want to sign a waiver saying you'll agree to that way.
But things such as this are covered by disclosure, and it's possible that in an annual report to the Office of the Superintendent of Financial Institutions on down the road improved disclosure in those types of areas might be addressed, rather than merely disclosure by the institution, let's say about its balance sheet, to the regulator. So there's an opportunity there that we wanted to draw to your attention.
I think maybe I should mention out loud that we're happy you didn't include co-insurance in this provision.
I'll open it up for questions. We have some other issues that affect consumers in the bill, but in the main the focus of this bill is too narrow. It's directly on tidying up a number of things that enhance the information between the regulator and the industry, but it doesn't go the second step and talk about between the industry and the final customer. We of course would like to see improvements there.
The Chair: Thank you, Dr. Kerton.
I'm sure there will be a number of questions.
[Translation]
Mr. Loubier, would you like to start?
Mr. Loubier (Saint-Hyacinthe - Bagot): I have a question without a preamble.
Mr. Kerton, you said that Canada was one of the few countries where financial institutions could change the terms of a contract without telling the client. Is that right?
Dr. Kerton: When you sign a contact with a financial institution, you give it permission to make changes.
[English]
It's a standard practice to have you sign a waiver that says this contract may be changed from time to time. Recently a number of the institutions have improved this, but they haven't done away with it. They've improved it to the extent that they will post information maybe in the branch and you're obliged to pass by and see it to know that your contract has been changed.
[Translation]
Mr. Loubier: This does not happen elsewhere, or it is very rare?
Dr. Kerton: Yes.
[English]
In Europe, the European Community has a system of issuing directives, and there is a directive on this very point that requires all member countries to improve their practice so that it's not possible for a customer to give away such rights. As you may know, the countries have different paces at which they adhere to the directives.
[Translation]
Mr. Loubier: Thank you.
The Chair: Thank you Mr. Loubier.
[English]
Mr. St. Denis.
Mr. St. Denis (Algoma): Thank you both for being here.
I'd like to pursue with you, Dr. Kerton, the issue of the cost of deposit insurance either through the co-insurance system, which is not proposed but you address it in some detail, versus the proposal for a risk-based premium on deposit insurance. I do have a couple of questions, but I thought maybe for the record you could elaborate a little bit on why you prefer the risk-based system over co-insurance.
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Dr. Kerton: In fact, the main problem in Canada, as in some other countries but certainly in Canada, has been that loans have been made imprudently, mostly to real estate ventures in the last round. Before that it was to developing countries. If this is to be a deposit insurance, then there should be an association between the insurance premium and the risk that's being borne by the Canada Deposit Insurance Corporation. So that part of it is based on logic, that if we could do the assessment properly, we would like to have those institutions with the greatest costs to the plan bear the higher premium.
On the other side, there are people who think the problem is caused by consumers chasing the high interest rate, that there's a risky firm that has a higher interest rate and a lot of consumers move there. I can assure you that the research evidence is quite strong in showing that the firms that offer the highest interest rates are not the riskiest. It's impossible so far to establish that. Those may be firms that are much more efficient. We don't know why, but there just isn't an association. It was true in the U.S., where they lacked some supervisory measures, that they opened the doors to the treasury and a lot of things happened that shouldn't have happened, but the Canadian supervision hasn't been as inferior as that.
Mr. St. Denis: Accepting those points - and I'm not arguing for co-insurance, but just to have a full discussion of it - at least with co-insurance, for those who are making the deposit, presumably the more they have on deposit the more out of pocket they are for the protection they're going to get, whereas in a risk-based system everybody, regardless of level of deposit, is paying through the overheads of the company. So more consumers are paying in the risk-based system than in the co-insurance system. It's less targeted, I would see.
So I'm just wondering whether you wouldn't, from a Consumers' Association point of view, on that basis alone argue for the co-insurance, because then the user pays.
Dr. Kerton: Our position really is that we're in favour of co-insurance over $60,000. That would address part of the problem you're interested in.
The real fact, though, is that individual consumers have great difficulty assessing the financial risk of different commercial operations. If you go in to ask the teller if they are making foolish loans to Olympia & York for buildings in London that won't be worth that value, the teller doesn't know. So it's extremely costly for you to find that information on your own, as you might be expected to do if you were buying an apple.
The rules seem to indicate that it's actually cheaper to have an expert do the searching for you, which is the Superintendent of Financial Institutions. Our costs compared to the U.S. costs are very much lower. So to some extent we've been doing rather well. I don't know whether we want to beat ourselves on the head at all times. It's not too often that you see this kind of...basically, it's good news. In the same way, Bill C-100 is a tidying up, but it's good news. We'd like to see a bigger improvement.
Returning to your point, if you talk about the person with, say, $3,000 and the person knows they might stand to lose 5% of it or something, the possibility is that they wouldn't be willing to use Canadian financial institutions. They might use an institution of one of the provinces that guarantee it 100%, as you know some of them do. They might use U.S. financial institutions, which give you 100% up to $100,000. I don't think it would be wise for this committee to change the law in a way that encourages Canadians to use U.S. financial institutions, because the deposit insurance would mean you were getting a better buy as a consumer from the U.S. institution as compared to a Canadian one.
Mr. St. Denis: That's helpful. Thank you very much.
The Chair: Mrs. Brushett.
Mrs. Brushett (Cumberland - Colchester): I thank you, too, for your presentation,Dr. Kerton.
You elaborated substantially on your favour of disclosure to the public, to the consumer, in plain language and certain specifics. How about disclosure of, say, the risk rating, if this should happen, or the assessment and more of this...? Do you think that would be a death-knell to some institutions, or are you in favour of better public participation in those information areas?
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Dr. Kerton: About five years ago we were very strongly in favour. The problem that's happened is that even the really sophisticated bond rating agencies have not done that well. If you look at how soon they found out about Confederation or one of the other failures, it turns out that the public regulator found out before, so that the bond rating agencies did their assessments and their downgrades afterwards. So you say, whoa, that wasn't of much value.
So we have to back off from the idea that the experts were marketing information that was highly valuable to the individuals. We're not opposed to it, but it just doesn't seem to be as reliable as one would have hoped. It may be that the increased disclosure that's in this bill will allow more daylight to shine on these things and even the bond rating agencies will be able to do a better job than they have. That's a possibility.
If you ask whether the government supervisor should publicize information on weaknesses here or there, in principle we wouldn't object to that. But it does seem that you could get an excessive response. A person will say, why should I bear any risk whatsoever? I'll take my money out of it. So as soon as you get the first indication, you have a rush that actually precipitates the disaster you're trying to avoid.
So there's a small but realistic chance that you'll be causing destabilizing of the financial services sector by these announcements from a highly credible source, the Office of the Superintendent of Financial Institutions. Right now it's very difficult for us as individuals to find that highly credible source, but the office presumably would have the information. So it may be taken so seriously that you get a mass movement out of any institution that is announced.
There may be ways of addressing your issue. The bill doesn't do it. But you would have to have something like a distant early warning system. This is to say that while this institution isn't shaky, we're going to look at it, that sort of thing. That might provide some measure of information. And the institutions would be eager to avoid the announcement, so they may take more sort of serious measures to avoid triggering anything that would make it look like they're having a problem.
Mrs. Brushett: You've made the point that the language should be understandable by a grade 10 level of education, and yet again you make the point that you can ask the teller where they invest money and what kind of shape they're in, and she probably knows as little as the client who's posing the question. So how do you propose that you would then give this great information to the public if they are at a level of not digesting it?
Dr. Kerton: The information, you mean, from the regulator?
Mrs. Brushett: Yes.
Dr. Kerton: That would be fairly difficult. The people who would pay closest attention would be the professionals in the field, deposit brokers and investment advisers and so on. So that would serve to inform people with a lot of money. They'd all get the information.
But I share your concern. The average depositor with $3,000, even up to the $20,000 that's supposed to be the average, wouldn't get the information. So I agree with you that that last degree of information, even if you published it in the paper, wouldn't reach him.
If you want evidence of that, right now, for those people who read newspapers, you can see that two institutions will pay you over 4% on a deposit account and other institutions are paying you less than 1%. How can this be if we have a competitive market? You can't have two prices that different at one time. Yet we do. So it's concrete proof that the information hasn't disseminated completely through the marketplace the way you would have to see it if you were going to argue on full information and perfect competition.
The Chair: Mr. Fewchuk, did you have any questions?
Mr. Fewchuk (Selkirk - Red River): Not really. I was just wondering why everybody's so concerned that they don't want to disclose everything when everybody else has to disclose everything. Take a big company like Camco, which makes General Electric appliances, for instance. Everybody's welcome to look at their books when they publish them once a year, and they're across the United States and across this great country of ours.
You people keep harping from day to day, and every organization that comes in here.... I can't understand that. Any individual on the street files an income tax report on what they're worth, and they have no problem.
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I think something should be done. I think maybe once you guys have been told that sometime down the road there'll be full closure and that you have to show what you make and what the CEOs are getting paid and so forth, it might be a better world.
Thank you. That's my point.
Dr. Kerton: We certainly wouldn't oppose full information. That's sort of like opposing motherhood. The big problem with this financial services market is that we don't have enough information to move our purchases toward the superior seller. There's an awful lot of improvement that could be made in Canada on these types of issues, and I'm happy to say that improvements are being made. Ten years ago it looked as through the financial institutions were so secure they couldn't care less about the customer. Well, a lot of things have changed since then. I don't know whether it's fear of foreign entry or just what, but things are at least moving in the right direction.
My argument to you would be that you have a special role as the creators of the framework of regulation that exists in Canada, and that framework affects how well people can see where the bargains are and where they aren't. So my point is, sure, pass this bill and let's get on with the serious stuff that matters to real people.
The Chair: Could I present to you the argument presented to us by Professor Jack Carr yesterday as well as by the Canadian Bankers Association. It is to the effect that deposit insurance is an added cost and regulatory burden to the system that, in effect, does no good in terms of protecting consumers.
What happens is that you create, to the extent of $60,000 guaranteed, a no-lose situation for the investor. They can go in and be paid any amount of interest by that institution, even if it is 5,000 basis points over the going rate that sane financial institutions, solid financial institutions, are prepared to pay. So what you have done is give rise to a whole bunch of marginal financial institutions that use the deposit insurance to attract money to put into risky ventures.
The professor pointed out that prior to the introduction of CDIC in the mid-1960s we had very few bank failures or institutional failures. We've had a lot more since it has come in. So that's the other paradigm that's been presented to us on this issue.
Dr. Kerton: That view is based on the U.S. experience with savings and loans, and it's an accurate interpretation.
But at the time they went through deregulation in 1980, they removed a whole lot of the supervisory rules too, one that mattered a lot. They used to require that to own a savings and loan company you had to have 400 owners. They lowered it down to three. But this meant that three scam artists had open access to a treasury. They could go and buy a savings and loan, lend some money to their other company, which was certainly not arm's length. Silverado was a famous example. If it paid off, the other company made all the money; it paid back the loan, and everything was fine. But if it was a loss, you lent it to your own company - and you didn't even feel evidently that it was thievery, which it certainly was. The company didn't make money. It didn't pay the loan back. But the depositors did get their money back from the central deposit insurance.
That was the U.S. experience.
I don't see how you could argue that this has been our experience in Canada. If you want to worry about something like that, you might worry about the holding companies that own some of our trust companies. If they get into deep trouble, they may be inclined to try to lend themselves money from their trust companies. You'd hope the supervisor could prevent that, but that would be the comparable situation to the U.S. one.
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The Chair: Do you feel there are adequate provisions now in the law and in the proposed changes through Bill C-100 to prevent this type of self-dealing?
Dr. Kerton: First of all, there have been adequate supervisions, because before the CDIC we had some supervisory measures affecting the owners, and the bill you're proposing contains increased measures of scrutiny by the Office of the Superintendent of Financial Institutions on who can own a financial institution. So that's the check that has worked for us so well.
The U.S. situation where they did away with a lot of their supervisory things, this wave of sort of religious deregulation, really was their problem. We haven't done that, and so far as this bill addresses the issue, it gives even more scrutiny to the types of people you let run financial operations.
The Chair: So would you then argue that maybe deposit insurance is not as necessary as it would be in a more deregulated environment?
Dr. Kerton: We have a lot of customers participating in Canadian financial markets because they don't have to check to find out if that institution is secure or not. If you ask them to start checking, you're going to either increase their costs - that is, the small operator, where are they going to put their money.... What will surely happen in Canada, you must know, is a flight to bigness, a flight to the big banks, because you're going to say, look, the Government of Canada will never let this big bank fail, so in fact I have 100% insurance with that institution, where if I go to a smaller trust or credit union it's not quite so secure.
So it's a very serious concern about the concentration of financial power. No doubt you've seen the literature that shows that the Canadian financial sector is twice as concentrated or monopolized as the next comparable country. If you look at the proportion of the business held by the six biggest financial institutions in Canada, it's about twice what you would get, let's say, in France and the U.K. When you go down to the U.S. and other countries, we're about four times more concentrated. So this is something that we, as people looking at the framework, have to be wary about.
The Chair: And becoming more so as deposit-taking institutions have disappeared from the scene.
Dr. Kerton: You're completely right on that.
To return to your original question, which is the role of deposit insurance in that, some people object that deposit insurance has made it easier for other firms to enter the market, because although you're a small firm, if you can buy deposit insurance people are willing to do business with you.
Now, when you talk to the Consumers' Association, you're talking to people who like to see new participants in the marketplace. We want more competitors. In fact, if we could recommend to you a rule that would allow the credit unions and even the trust companies to grow and to take a larger portion of the Canadian market, we think that would be good for the country. It's not that easy to do, but the decline in the number of players is something you can worry about.
Deposit insurance is something that allows new entrants to get in. As we've recommended elsewhere, the idea of having completely de novo new entrants, people who aren't in the marketplace now, is really important. In fact, the Canadian firms and Canadian consumers would probably be better served if we had more foreign banks operating in this country.
Now, it's not going to happen at the time when already we have excessive branches in all the communities and we're retreating from that, but the next generation of computer-based banking and so on isn't very far away. So anything your committee could do to allow truly new competitors access to the Canadian marketplace will allow the marketplace to be more competitive and to serve its firms and individuals better.
The Chair: Thank you very much, both of you. This is not your first appearance before us, and we know it will not be your last. You are a very important participant in our hearings on this issue and on the other issues in front of us. It's so important for us to have a voice that does speak for consumers. Again, on behalf of all members, may I thank you very much for your very valuable presentation to us.
Dr. Kerton: Thank you for your attention. We're very happy for any effort you can make to allow the disclosure reporting that's already in this bill to be broadened to include the whole of the Canadian marketplace rather than just that little interface with the regulator. Thank you very much.
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The Chair: If you have details on that which you wish us to look at further, we'd be pleased to do so.
Dr. Kerton: I had another report I may table with you, which talks about the competitiveness of Canada relative to other institutions. I believe Mr. Loubier was asking that question, so I will leave that with you.
The Chair: Thank you very much.
We'll take a two-minute break while our next witnesses come forward. Thank you.
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PAUSE
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The Chair: Order, please.
Our next witnesses this afternoon are with the Dominion Bond Rating Service: Bob Leshchyshen, senior vice-president; and Kent Wideman, vice-president.
Gentlemen, welcome. We look forward to your presentation.
Mr. Kent S. Wideman (Vice-President, Dominion Bond Rating Service Limited): Thank you, Mr. Chairman, and good afternoon.
My name is Kent Wideman. I have been at Dominion Bond Rating Service for nearly 15 years, and most of my work and responsibilities revolve around the area of financial services.
The Chair: You must have started there when you were very, very young.
Mr. Wideman: Thank you.
In view of the fact that this is the first time DBRS has participated in a forum of this nature, we thought it appropriate - I don't want to take a lot of time - to very quickly give you an idea of a bit of the background of Dominion Bond Rating Service, a bit of detail on the areas in which we are involved with financial institutions.
Our firm does appreciate the opportunity to be here, I should add, and we thank you for that.
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Following my comments on a bit of the background on DBRS, I'll be calling on Bob Leshchyshen and he'll make some more specific comments on Bill C-100.
First of all, I'll give you a brief history. Dominion Bond Rating Service was formed in 1976 as an independent, employee-owned credit rating agency. That has never changed. When I joined the firm in 1981 - when I was very young - we had three analysts. I was the fourth, and as we sit today, we have 19 analysts and five support staff. So we have grown. In fact, there is an appendix A at the back of our documentation that gives a corporate structure, and you can read that at a later time.
It basically shows that we've segmented into seven areas, and analysts in those areas have responsibility for following credits within certain industries and bringing their recommendations to the rating committee for final approval.
DBRS currently rates over 400 corporate and government issuers, commercial paper and longer-term securities. We're also involved in the asset-backed security market, where we rate over 40 Canadian issues. We are officially recognized by the OSC and by the SEC. We have official recognition for multi-jurisdictional financings.
Our mandate, which you see there, has many firms - a lofty goal, one that may never be attained, but it's critical that we have something to strive for. The key words there would be that we provide an objective, consistent, timely and accurate credit risk assessment, and without those we will not maintain credibility, and without credibility we will not survive.
Our client base presently has approximately 700 subscriptions. They receive hard-copy evaluations of our reports, background information on an ongoing basis. These subscribers include virtually all the sizeable domestic investors in the Canadian capital markets, but we've also been able to achieve growth over time in the U.S., Europe and the Far East.
We are on line with Reuters, Telerate and Bloomberg. We find that investors use DBRS information as part of their investment decision-making process.
I'll turn to the financial services area in particular, just to give you a snapshot of the companies that we rate and are involved with.
We don't rate all of the companies, but as the previous speaker mentioned, Canada is a fairly concentrated area, and because we do rate the larger companies, we find that in most of the financial service industries the companies we rate would cover all or nearly all of the assets involved in that sector.
Going quickly through ten areas, let me just comment on the companies we do rate. We rate the seven largest domestic banks in Canada, and that is nearly 100% of the $780 billion in assets currently outstanding. We have included in our package a study, which was done a number of months ago, on the six large banks. I won't refer to that specifically at this time but leave it to you to take a look at that if you find it useful.
We presently rate 34 of the 52 foreign bank subsidiaries operating in Canada. That represents about 94% of the assets of those 52 banks. We do have studies on some of those industry groups. We've not brought them along, but we certainly would be willing to get them if they would be of interest.
We rate the four largest Canadian trust companies, four provincial centrals of credit union movements, 10 of the largest life insurance companies in Canada. We are not able to get exact figures on the assets there versus the industry, but we think it's probably 50% to 60% of the industry or higher in terms of asset representation. Again, there is a study included in this, done in June 1995, so you have that to look at.
We rate the Canadian finance subsidiaries of three major North American auto companies and a number of other financial entities - investment banks, U.K. building societies, finance companies. Many are household names, such as Avco, Associates and so on; others are not as well known but big in the financial community.
I should point out that in many cases we do rate the parent. So when we rate Avco or Associates, there is usually a letter of comfort, an unconditional guarantee in most cases, that allows us to look directly through. So when we rate the Japanese banks, we actually travel to Japan and see the banks there, for instance.
In closing for my section, there's an appendix B included in this package that goes through all the bank ratings and the current insurance ratings. With the banks, we've given a history for the last ten years. As you are looking at that, I would just point out for your benefit that when you see an equal sign, it means that the rating has not changed.
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The two things to point out with that chart are, number one, that I think it's obvious if you look at the list of names that we do provide a comprehensive service, and number two, we've been doing this for quite a long time.
I'd now like to pass it over to Bob Leshchyshen. He's going to make some more specific comments on Bill C-100.
Bob is presently a senior vice-president with DBRS, as you've been made aware. He's been involved in the financial community for 20 years, so he has the experience there. In addition to responsibilities in various areas of credit analysis and corporate finance, he has also held management positions with OSFI and OSDIC, the Ontario Share and Deposit Insurance Corporation. I'm sure his comments will be useful.
I might add in closing that in addition to his management responsibilities he's involved in the U.K. building societies, credit unions, and investment banks. Between the two of us, we tend to cover probably most of the North American financial institutions at DBRS.
Mr. Bob Leshchyshen (Senior Vice-President, Dominion Bond Rating Service Limited): The Dominion Bond Rating Service appreciates the opportunity to be able to comment on Bill C-100 and to appear before the House of Commons Standing Committee on Finance.
You already heard from Kent Wideman, who provided you with an overview of DBRS's mandate and the breadth of the financial institution ratings that we have issued for more than 19 years.
We'd like to comment on the issue of greater disclosure of financial data, as discussed in the federal government's policy paper, Enhancing the Safety and Soundness of the Canadian Financial System. The contents of clause 93 of the proposed act were based on this policy paper. The other issues outlined in the bill do not generally have a direct bearing on the credit rating of financial institutions, and we do not intend to comment on them.
We'd like to begin by noting that the work done to date by OSFI and the members of FISC, the Financial Institutions Supervisory Committee, with respect to financial disclosure is a good start. We endorse the plan to have increased disclosure of information occur in stages to allow financial institutions to adjust to the new requirements.
The following are some of our recommendations with respect to the greater disclosure of financial information.
First, we feel the rating agencies and analysts who interpret complex financial information and its implications for customers and creditors of financial institutions need timely and consistent financial disclosure with access to a set of comparable information on all federally regulated financial institutions. It would be nice if we could have them for provincial ones as well, but I think that's another issue.
There should be increased requirements on financial institutions put on by OSFI to disclose this information. This would include the release of information concerning regulatory capital and the requirement that all federal financial institutions release annual and quarterly financial statements, which should include a balance sheet, income statement, a statement of changes in financial position, as well as annually a management discussion and analysis report.
Additionally, the statutory filings by federal financial institutions other than information about specific customers should be timely and available to investors at reasonable cost.
Second, we feel that Canadian chartered banks have come a long way in the last few years in terms of increased disclosure of financial information. Therefore, most of our comments relate to federally regulated insurance companies and cooperative associations. However, we expect that the existing disclosure by chartered banks will not be decreased.
Third, we feel that the greater disclosure of financial information should not be a matter of regulation but that the Superintendent of Financial Institutions, in consultation with other members of the Financial Institutions Supervisory Committee, should be responsible for enhancing the frequency and the consistency of this financial information disclosure.
As you know, FISC is a statutory committee consisting of the superintendent, the governor of the Bank of Canada, the chairman of CDIC and the deputy minister of finance. The ongoing process of consultation between the superintendent and the federal financial institutions will, in our opinion, ensure that disclosure keeps pace with the ever-changing financial services environment.
Fourth, we realize that credit ratings are now used in some form or other by regulators of most types of financial institutions around the world. They are also used as part of the investment criteria or policies of pension funds and mutual funds.
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However, we do not agree with the recent trend in the United States in which the Securities and Exchange Commission has begun to require less detailed disclosure of information by issuers whose securities were awarded an investment-grade rating. We are worried about this trend and hope it does not spill over into Canada. We feel that investors or depositors may treat ratings as an alternative to tough disclosure requirements. We believe the credit ratings are issued to inform investors rather than protect them. Further, we understand that regulators, like investors, value the cost savings achieved through the use of credit ratings in the credit evaluation process.
In arriving at our credit rating, we review past, present and future financial information provided by the financial institution. We take into consideration a number of subjective factors: size of the financial institution, ranking of the institution in the industry, whether it operates in specific niches or areas or segments of future growth, and the evaluation of strength and weakness of the entity and its management. In addition, we analyse the trust indenture along with any restrictive covenants.
Last, we do a thorough review and analysis of the asset quality of the financial institutions, which is a key factor for evaluating the strength of a financial institution. However, the credit rating agency's ability to assess credit risk depends in large part on the quality of the information disclosed by the issuers of debt. For this reason, we feel strongly that it is important that the financial information be released on a consistent and frequent basis by all financial institutions.
Thank you for your attention, Mr. Chairman. Both Kent and I will be happy to respond to your questions.
[Translation]
The Chair: We will start with Mr. Loubier.
Mr. Loubier: I don't have any question, Mr. Chairman.
[English]
The Chair: Are there financial institutions that would be reluctant to enhance their disclosure process?
Mr. Leshchyshen: Reluctant in the future or reluctant in the past?
The Chair: Reluctant today and in the future.
Mr. Leshchyshen: If you look at the disclosure of insurance companies, say an annual report of an insurance company - there are two types of insurance companies, those that are publicly traded and those that are mutually held - and compare that to an annual report of a bank in terms of the disclosure, there is a significant difference in that the banks have generally in the last while disclosed a lot more information about their operations than those insurance companies have, although I have seen in their submission that they are supporting greater disclosure.
One of the problems with insurance companies is that we only rate the larger ones. As you will know, there are a lot of smaller insurance companies that surprisingly, at conferences I have gone to on the insurance industry, have been complaining about the fact that they have a hard time putting together quarterly management information, which leads me to believe that - I don't know how they run their business. They should probably be doing it monthly.
The Chair: I think it's mutual insurance companies or publicly -
Mr. Leshchyshen: No, mutual ones.
The Chair: Not publicly traded.
Mr. Leshchyshen: No. The information disclosure of the two major public insurance companies, London Insurance and Great-West Life - and maybe Kent can comment a bit more because he is more involved - is better than that of some of the mutually owned insurance companies, but that's because they are regulated by the Ontario Securities Commission, etc.
The Chair: Okay, so your concern is for mutual insurance companies from which you cannot attain sufficient material on a timely basis to make credible ratings.
Mr. Leshchyshen: No, we as a rating agency get all that information. We don't have a problem getting the information. But what's happening is that other individuals or investors don't get the same access. We are treated as insiders and so we get a lot of information, some of which we cannot easily disclose at times because we are insiders, as other insiders are. But we need that information to come up with our rating, and we do get access to quite a bit of information.
What we are concerned about is that investors and creditors of these companies should have a lot more information than they are presently getting, so that they are not relying only on us or someone else, a deposit broker or somebody, to make an investment. If they are buying paper from some company, they should also have access to this information.
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Mr. Wideman: To add to that, it would also help our job. Even though we get the information, it sometimes is almost impossible to compare it because they're not using the same breakdowns.
Insurance companies are not like banks; they're much more diverse in terms of product lines. It is extremely difficult, if you're just looking at presentations from one versus another, to really compare. Is one better than the other? They're just so different. We do get good information, but -
Mr. Leshchyshen: The comparability of information is very important as well. For instance, if OSFI sets standards for these insurance companies and says you shall negotiate it with them; you shall on a quarterly basis issue a balance sheet, and it should have at least these items - you have an income statement and changes in financial position, etc., those kinds of statements - and they negotiate what should at least be in there and what kind of comparable types of information should be there, that will make it easier for investors and depositors and/or annuity holders to assess whether they should continue dealing with those companies and/or their deposit brokers or their agents or whoever they are using. A lot of the people who deal with these companies don't necessarily deal with them on their own and do all their own analysis. They look to advice from somebody. But even the people who are giving them advice don't always have access to a lot of the information.
The Chair: What interests me is that you suggested that we as a committee achieve this goal, not through legislation but through cooperative effort between OSFI and the institutions themselves to first of all develop these standards and then ensure that they are complied with.
Mr. Leshchyshen: Part of that is in the legislation, where it's requiring OSFI to do this. We're just here, in a sense, saying that's probably the better approach. If you start regulating - I have been involved. I have worked for OSFI and I have worked with the credit union system for a long time in Ontario. I have been involved with regulation. What happens with regulation is that it gets very specific. If you want to change a regulation, in some cases you have to move heaven and earth or change the party in power to get the regulation changed.
That doesn't work, really. The idea is to have -
The Chair: We'll try to work it so that you don't have to go quite to that extreme.
Mr. Leshchyshen: That's good.
The Chair: Is there anybody else who wanted to bring anything forward? Mr. St. Denis.
Mr. St. Denis: I have a couple of small questions. Thank you for being here, gentlemen.
In the second-last paragraph on the first page, Mr. Leshchyshen, of your presentation, most of your comments ``relate to federally regulated insurance companies and cooperative associations''. Is it generally accepted that there is less disclosure by the insurance side of the industry than by the banking side? Is that deliberate, or is that just the way it has evolved?
Mr. Leshchyshen: That's probably the way it has evolved, because the banks are all publicly traded. With all the problems in the trust company industry, the banks are more cognizant of the fact that they have to disclose more information.
The analysts have been after them. It is an evolving type of thing.
Mr. St. Denis: Roughly, what percentage of the assets held on the insurance side of the sector are held by publicly traded companies? Would it be half, one-third, two-thirds?
Mr. Wideman: I would guess it would be somewhere in the one-third range.
Mr. St. Denis: So two-thirds are controlled by mutual-based or small closely held corporations.
Mr. Wideman: Not necessarily. Mutual Life, Manufacturers Life - these are owned by the policyholders.
Mr. St. Denis: So they would hold a significant portion of the remaining two-thirds?
Mr. Wideman: Yes, and Sun Life, the largest company in Canada, is in mutual -
Mr. St. Denis: In the case of mutuals - that's where the ownership is - when you compare it to the public disclosure of the banks, is the disclosure to policyholders comparable? Are you including policyholder disclosure when you say that the insurance industry disclosure is not as great as that of the banks?
Mr. Wideman: The banks' ranking is the top. The stock companies, as Bob mentioned - London Life, Great-West Life - tend to be very close to the banks. They have been forced, because of the same type of analyst coverage and so on, through the years to do a good job and to give it out.
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The insurance industry, by nature, has not progressed very quickly in a lot of areas. I guess you could say it's stodgy, if you want to use that term. That has changed a lot in the last two or three years. If you were to open a copy of Manulife's 1994 annual report and compare it with something from two years ago, I would guess that you'd see almost double the information. A lot of the companies have taken steps, but there is still a long way to go.
Mr. St. Denis: To what do you attribute that lower level of disclosure?
Mr. Wideman: They just never had to in the past. When you remember, three years ago did anybody even know what a claims-paying rating was? Probably not. When people went to buy insurance, they would ask someone they knew, and then they would ask what the price and the service level were, but did they ask how strong the financial institution was? Until two or three years ago, probably they almost never did.
But now the insurance companies are realizing that they can't just sit back and publish the bits of information they want to; they have to give more or it's going to become a fact. They're facing an environment now, for most if not all of them, when for the first time in their history they really have to deal with the issue of how strong their credit ratings are and the whole issue of public confidence.
Mr. St. Denis: On the issue of disclosure, a point that has come up a number of times yesterday and today has been on the premium-based rating for deposit protection, a rating that is assigned to a particular firm, which most of us would assume is going to get out anyway, because it will eventually be reported by the audit firm or it will get out somehow. In terms of disclosure, do you see that information getting out as being a problem for companies, particularly those that have a poor rating?
Mr. Wideman: It could be a self-fulfilling prophecy. It's the same issue as life companies now not having to disclose their MCCSR ratio. I think there are some parallels there. They're afraid that if the public gets hold of that one ratio - which, in isolation, is an important ratio, but there are 20 to 30, and upwards, factors that are very critical in a rating and that's only one and it has some weaknesses in that ratio - then it will use that in its decision-making process.
The Chair: Gentlemen, I think there is a lot of merit in what you have suggested and I'm sure that in the future you will be prepared to work with the industry and with OSFI to try to help us develop the standards of disclosure that are appropriate in the circumstances.
Thank you very much for your contribution.
Mr. Wideman: Thank you.
The Chair: While our next guests come forward, we'll take short break.
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PAUSE
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The Chair: Order, please.
Our next witnesses are from the Canadian Payments Association: Robert Hammond, general manager; and Penny-Lynn McPherson, general counsel and corporate secretary.
We look forward to your presentation and then the opportunity to ask some questions. Thank you.
Mr. Robert M. Hammond (General Manager, Canadian Payments Association): Thank you, Mr. Chairman.
The CPA very much appreciates the invitation to appear before the committee in connection with its consideration of Bill C-100. We prepared for the committee a short written presentation providing background information on the CPA. We find that a lot of people aren't aware of the activities the CPA undertakes, and we thought it would be useful to provide you with some background information.
As the written presentation indicates, the CPA's interest in Bill C-100 relates mainly to the proposed Payment Clearing and Settlement Act. If it's agreeable to the committee, I propose just to summarize some of the highlights of the written presentation, and then Ms McPherson and I shall be glad to answer questions from the committee.
It's important for members of the committee to realize that the CPA was established in 1980 by an act of Parliament. It has two main statutory objects. The first is to establish and operate a national clearings and settlement system, and the second is to plan the evolution of the national payments system.
One of the main reasons cited for the establishment of the CPA was to provide non-bank deposit-taking institutions with direct access to the payments system and to bring them into full partnership with the banks in the management of the national clearing and settlement system.
The act permits five classes of financial institutions to be members of the Canadian Payments Association: first, the Bank of Canada; second, all the banks; third, trust companies and loan companies; fourth, credit union centrals; and fifth, other deposit-taking financial institutions. Included in that class would be mainly credit union locals that are independent of a credit union central.
The act stipulates that the Bank of Canada and all banks are automatically members and that financial institutions in the other three classes may apply for membership. To be eligible for CPA membership they must accept deposits that are transferable by order to third parties - namely, for simple chequable deposits - and meet any one of three requirements that we describe as the prudential requirements.
The first of these is to be a member of CDIC; that's the first possibility. The second is - and I'm expressing this in simplified terms, because it's complex in the legislation - that essentially you meet the requirement if you are a credit union central that is subject to the Cooperative Credit Associations Act. The third alternative is to be a member of a provincially enacted deposit insurance scheme and to be subject to inspection from the perspective of following sound business and financial practices.
As you will see from the table on page 2 of the presentation, about 55% of CPA members are non-bank deposit-taking institutions that chose to apply for membership. In other words, membership was optional for them and they chose to apply.
The CPA Act calls for an eleven-person board of directors, one being an officer of the Bank of Canada appointed by the bank, five being elected by the banks, and five being elected by the non-banks. Of the five non-bank directors, two are elected by trust and loan companies, two by credit union centrals, and one by the ``other financial institutions'' class.
If you get a chance to look at appendix A, which gives a list of all our directors and our alternate directors, you'll note that officers from a wide range of both federally and provincially incorporated financial institutions are represented on the board.
The act authorizes the board of directors to make by-laws respecting clearing arrangement settlements and related matters. However, a by-law does not become effective until it's approved by the Governor in Council. Subject to the by-laws, the board may also make rules respecting the clearing and settlement of payment items.
The written presentation you have before you provides a brief summary of the activities the CPA has undertaken to respond to the two statutory mandates I described to you. I won't take the time to go over them, but you have that material if you're interested in reading about it. If you subsequently have any questions, then the CPA would be glad to respond.
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I want to point out that the CPA's current major project is the development of a large-value transfer system for large or important payments.
The electronic system will have two main objectives. The first is to contain systemic risk. The second is to provide final settlement on a same-day basis, with the result that CPA members will be able to provide their customers with finality of payment.
After spending much time on the development of functional specifications for the large-value transfer system - the LVTS, as we call it - on May 1 the CPA issued a request for a proposal for construction of the LVTS. Proposals have now been received and are currently in the process of being evaluated. The CPA board will be meeting in September to consider the resulting evaluation report.
This brings me to the provisions of Bill C-100.
As we indicated in the written presentation, the CPA board of directors has not carried out a substantive, exhaustive review of the provisions of Bill C-100 and, as a result, does not have a formal position on them. Since the bill covers such a wide range of subjects, it was thought preferable that each of the five classes of CPA members - in other words, the banks, the trust and loan companies, the credit union centrals - would review the bill as each class saw fit and make representations as each class saw fit.
However, I want to emphasize that the board was pleased to note that the bill contains the proposed Payment Clearing and Settlement Act, which includes a number of provisions intended to facilitate the implementation of the large-value transfer system. Indeed, the provisions intended to facilitate the large-value transfer system have been reviewed.
In fact, earlier this year the CPA provided the document to the Department of Finance summarizing the CPA's views of the legislative provisions that would be necessary to implement LVTS, placing particular emphasis on the need for legislative action to ensure that the Bank of Canada can fully participate in LVTS, both as a participant and as a settlement agent, and that other, existing statutes will neither impede nor negate the enforceability of the fundamental netting structure on which LVTS will be based.
The proposed legislation deals with the CPA suggestions in a satisfactory manner. In particular, the CPA legal department has reviewed the so-called settlement provisions contained in clause 8 of the proposed act and is satisfied that they provide the statutory support necessary to ensure that the provisions in a proposed CPA by-law that will govern the operations of our large-value transfer system and provide for certainty of settlement will not be set aside by reason of any law that relates to preferential payments to creditors or that permits a stay of proceedings in certain insolvency situations.
So the CPA is quite pleased with the provisions directly related to the implementation of the large-value transfer system.
That concludes my comments, Mr. Chairman.
The Chair: Thank you, Mr. Hammond.
[Translation]
I have no doubt that Mr. Loubier has some questions for you.
Mr. Loubier: This is a particularly exciting moment in my day. I welcome you, Mr. Hammond, Ms McPherson. I've been wanting to talk to you since June, since Bill C-100 was tabled. I have followed your association closely over the last few years, and in particular, when you tabled your report, I believe it was last May, saying that it would be possible to contain a reduced systemic risk by improving the large-value transfer system, among other things.
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I would like to have a general idea of the suggestions you made to the Department of Finance in your report to the Standing Committee on Finance to improve the large-value payment system and control systemic risk.
[English]
Mr. Hammond: As we indicate in our written submission, the CPA has been working for a long time on the development of a large-value transfer system. We wanted to make sure that the system was such that there could be same-day finality of settlement and that the participants in the system would be able to offer finality of payment.
So we've spent a lot of time in developing the functional specifications, as I indicated, and I guess we've managed to develop a system that will cover any losses resulting from the single largest default if a participant in the system were to fail.
We're managing to do this in two ways. First, there are requirements for collateral that must be put up by the participants in the system. Second, there will be limits on the amount of payments that a participant can send through the system.
There are two types of limits. There are those that can be established by the participant itself by putting up collateral to back its own payments, or there are those that can be established by credit granted by other participants. Those other participants, by extending credit to you, will put up collateral to back the payment in the event that the financial institution making the payment does not survive.
[Translation]
Mr. Loubier: These measures improve the large-value payment system, control systemic risk and in fact reduces it to a minimum, according to the Governor of the Bank of Canada, who visited you in Montreal on June 20 of this year. He also maintains that these measures will eliminate systemic risk by tightening up the large-value payment system and by establishing a very sophistic electronic network in which the transaction becomes the final payment, on the same day or even at the very moment it is made. Would you agree with that?
[English]
Mr. Hammond: Certainly the objective of establishing the large-value transfer system is to reduce systemic risk and to try to eliminate it to the extent that this is possible.
As I indicated, as it has been designed the system will cover the default of the single largest participant. But in the small event or the unlikely chance that more than one participant will fail at the same time, the Bank of Canada, as you know, has agreed to provide a guarantee. This Bank of Canada guarantee is an essential element of the large-value transfer system scheme and the intention of reducing systemic risk.
[Translation]
Mr. Loubier: As the payer of last resort?
Mr. Hammond: Yes.
Mr. Loubier: Did you never suggest that other regulatory procedures or other authorities be established or have their powers increased to better control the market so as to better control systemic risk by improving the large-value payment system? Did you never suggest that controls be improved by adding another player in the securities market, or for the entire financial institutions sector? Is that not what you recommended?
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[English]
Mr. Hammond: No, I don't think improving the regulation or the control of the financial institutions involved in the payments system was the answer to developing a large-value transfer system.
If you look at developments around the world, you will find that in other major countries they are following exactly the same approach as we are in Canada. They're reducing systemic risk by ensuring that the payments are backed by adequate collateral and also by imposing limits on the amount of payments that can be sent over the system. So I think we're following a pattern that has developed around the world.
I don't think the trend is to try to regulate financial institutions more closely. I know you've been hearing about that subject here, and about just how much regulation there should be. Certainly the trend around the world is to try to do this through collateral and through credit limits.
[Translation]
Mr. Loubier: So, if I understand you well, the current system, with the role of securities commissions in Quebec and in Ontario, for instance, with the role also played by the inspecteur général des institutions financières, with the expertise developed over the past 35 years by these institutions and with the improvement of the large-value payments system, we still have not managed to eliminate all systemic risks, but we did manage to contain most of them. That's what I understood from your presentation.
[English]
Mr. Hammond: Certainly I myself have been a regulator in the past. Many years ago, I used to be the Superintendent of Insurance.
My experience is that the system of regulation and supervision is becoming much better. There's no question that improvements are being made all the time.
However, I still don't think we can rely on that to reduce systemic risk, because as you've no doubt heard at these hearings, a supervisor can't be in an institution all the time, watching all the decisions. Even if the supervisor was there watching all the decisions and approved them, they might not be the right ones. There are always circumstances where problems can occur.
We can't take away from the financial institutions the right to innovate and to try to operate within appropriate parameters. So I don't see the regulatory system as completely eliminating systemic risk.
Certainly improvements have been made, and perhaps there has been a reduction in systemic risk in terms of what might result from a poor supervisory system. At the same time, we have to realize that the numbers, amounts, and sizes of financial transactions are increasing significantly in the payments system. There are more transactions internationally around the world. We have electronic payments whizzing back and forth. So the world is changing as well.
I think the type of system that is being proposed by the CPA - and I indicated that this is the type being developed in the other major countries - is the way in which we have to go, and I don't think we can rely on the supervisory system to eliminate systemic risk on a 100% basis.
[Translation]
Mr. Loubier: Mr. Hammond, I found your presentation most interesting.
So this means that we would be ill advised to create a new Canadian authority which would have the power to issue directives to the clearing houses, to the institutions belonging to these clearing houses, should it have doubts with regards to the nature of systemic risks and should it want to prevent those risks. That's what it is. That would be redundant. We don't need that if we have an improved large-value transfer system, on top of which you have the role played by the provincial authorities such as the securities commissions.
[English]
Mr. Hammond: Perhaps I could answer from the perspective of the CPA, because the CPA is a clearing-house.
Under the proposed legislation, if the Bank of Canada designates the large-value transfer system as a system that will be subject to the legislation, then under certain circumstances they will be able to issue a directive.
What I want to say is that I can understand the interest of the Bank of Canada in making sure the system operates in a manner to contain systemic risk, because of course they are providing the ultimate guarantee in the unlikely event that there's more than one failure. But if you look at developments around the world, certainly it has been my understanding, based on my contacts and the reading I do, that central banks around the world are indeed taking greater interest in clearing and settlement systems and they are doing just the things that are being proposed in this legislation.
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You indicated the provision in the legislation that gives the Bank of Canada the authority to issue a directive either to the clearing-house or to a participant in it. Being the general manager of an organization that is considered to be a clearing-house, I was interested to know whether or not the intention was, in circumstances where it was deemed necessary.... Of course those circumstances are specified in the proposed legislation, but I was interested to know under what circumstances it would be likely to give a directive to a participant in the clearing-house, as opposed to the clearing-house itself.
When I inquired of the Bank of Canada, I was informed that the intention is that where a clearing-house exists the directive would be given only to the clearing-house, not to a participant in it; that there would be no intention to give a directive to a participant in a clearing-house but, rather, the directive would be given to the clearing-house itself.
My understanding is that the only time a participant in the clearing and settlement system would be given a directive by the Bank of Canada, subject to the circumstances that are set out in the legislation, was where there was a system that didn't involve a clearing-house; that there may be some possibility that there will be some sort of arrangements where a clearing-house doesn't exist, and in those circumstances the bank would want to give a directive to the participants, and probably would give it to all of them.
[Translation]
Mr. Loubier: What would happen, Mr. Hammond - and once again, I want to commend you on your presentation - if the Bank of Canada, which has the power to issue directives to the clearing-house or to one of its members, believes that the systemic risk is too high, and if a securities commission issues directives that are different from the ones issued by the Bank of Canada? The securities commissions would then be sharing the Bank of Canada's jurisdiction.
This morning, I used the example of the capital standards established by every securities commission. If the Bank of Canada believes that the systemic risk is increased and that its capital standards are different from the ones established by the securities commissions, either in Quebec or in Ontario, what would happen on the financial markets? Would we end up with more stable, safer markets, or would we increase the uncertainty and the instability of these markets?
[English]
Mr. Hammond: Mr. Chairman, I'm not sure it's appropriate for me to answer that question in the context of securities commissions or securities activities, because that's really a question for the Bank of Canada. But I can issue it in the context of the Canadian Payments Association. We are a clearing-house. So I don't think it's appropriate for me to talk about other clearing-houses, but I can talk about our situation.
The legislation is quite specific in terms of the circumstances that must exist before the Bank of Canada can issue a directive. Also, in the context of our organization, because we are one that has been established under an act of Parliament, the directive can be issued only with the approval of the minister.
In the case of our own organization, I don't see a potential for a problem. The Bank of Canada has been actively involved in the Canadian Payments Association over the years and we've managed to carry on our activities on a consensus basis, so because of the cooperation that exists among the various classes of our members, I can't envisage that it would ever get to a situation where a directive would have to be issued.
In the unlikely event that it did, because the CPA is incorporated by an Act of Parliament there is a provision in the legislation that the directive could be issued only with the approval of the minister. In the extremely unlikely event that discussions between the Bank of Canada and the CPA broke down, the CPA would have in essence a procedure whereby to appeal to the minister.
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So I don't really envisage a problem in the context of the Canadian Payments Association, and I think that's the organization I have to talk about.
[Translation]
Mr. Loubier: But the potential problem is not with the Canadian Payments Association. We witnessed disagreements in the past when they were two levels of government involved in one given sector, even sometimes three levels of government. There is a potential risk of friction and of uncertainty created by a lack of clarity in the attribution of responsibilities on both sides. That can happen. There are some financial markets which are very sensitive to that kind of situation.
[English]
Mr. Hammond: I really can't comment on that, Mr. Chairman, because I haven't really considered the situation of other clearing-houses. As I say, we are looking at this legislation in the context of our organization.
[Translation]
The Chair: Thank you, Mr. Loubier. Mrs. Stewart, please.
[English]
Mrs. Stewart (Brant): For the sake of information, at this point in time how large are the large transfers we're talking about? How large can they be?
Mr. Hammond: They're huge. In your material, I provided you with some figures. I don't have them in my head, but if we look at -
Mrs. Stewart: The largest being....?
Mr. Hammond: It's hard to give specific figures for the largest payment. We have huge payments going through. Billion-dollar payments can be going through.
If you look at the statistics on page 3 of the report, you'll see that in 1994, in terms of the payments that went through the clearing and settlement system, there was $21 billion. If we define a large-value payment as being one that exceeds, say, $50,000 - and let's assume that, just for purposes of discussion - then you can see that large-value payments would represent 90% of that figure, in terms of value but not in terms of volume. It would represent less than 10% in terms of numbers, but in terms of value it would represent 90%.
Mrs. Stewart: For the record, adequate collateral for large-value transfers is considered to be what?
Mr. Hammond: It depends on the amount of the payments you're putting through the system. So it would vary from day to day, and it's hard to give a precise figure. It also depends on how many payments go through the system, and on their value and timing. If you send a payment but at the same time receive a payment from somebody else, then there's a netting effect and the amount of collateral is reduced. So I can give you a -
Mrs. Stewart: Is there a point at which the Bank of Canada could be at risk for inadequate coverage, inadequate collateral?
Mr. Hammond: No. The system is going to be established in such a way that only payments that are backed by collateral can go through it. In the event of a failure, the system is designed to cover the single largest net debit position at the end of the day. That will be covered by the collateral.
In the event that there might be another failure, additional resources might be required. They might not be, because there might be sufficient collateral there to cover most. But in the event that there is another failure, there could be a chance that additional collateral will be required. I can't give you a figure, because it depends on the circumstances.
Mrs. Stewart: Who would be responsible in that potentiality?
Mr. Hammond: First, you would look to the collateral that's left in the system. To the extent that the collateral in the system isn't sufficient to cover it, you look to the assets of the failed institution. When institutions fail, very seldom do they not pay anything to their creditors. So you look to that money as well.
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Mrs. Stewart: To date, have we had any instances where there has been an inability to close a large-value transfer on the same day here that has had a significant impact?
Mr. Hammond: There have been situations. You hear stories about people who might prefer to make a payment in another country so they can be satisfied that they will get same-day finality of payment.
Mrs. Stewart: By that, are you indicating that without this system currently being in Canada there are people who are taking their business to other places in order to ensure that finality is available?
Mr. Hammond: I don't think it's happening to any great degree, but we have heard stories. To be able to compete effectively on an international basis, we need this sort of system.
Mrs. Stewart: This is precisely the point I'd like to confirm. Certainly the Governor of the Bank of Canada said that Canada is the only large industrial country without an electronic system, and that it impedes our ability to compete, and that if we don't take the initiative now, the risks of course become greater almost day by day. As you say, the implications are such -
Mr. Hammond: Yes, I certainly agree with the governor's comment.
Mrs. Stewart: So from the point of view of the viability of our economy and competitive positioning, the importance of this system is critical.
Mr. Hammond: It is of great importance.
Mrs. Stewart: Given the system that you've idealized, the risk to the bank itself is minimal.
Mr. Hammond: It's very unlikely that we would have a whole chain of failures, but I wouldn't pretend to quantify the risk to the Bank of Canada.
Mrs. Brushett: In terms of an institution, say the Bank of Nova Scotia as opposed to Dianne Brushett, if a person takes a big run on maybe a deposit or a withdrawal and a scam is going on - and I have no collateral per se in the system, whereas the Bank of Nova Scotia as the institution or whatever does - how do you account for or check-and-balance that with a same-day transaction or closure, finality of business, in that 24-hour period? How do you protect the bank or the Bank of Canada from a big run, such as we've heard about in international scamming, occurring?
Mr. Hammond: In the case of a run, people coming in to withdraw their money, that would have an ultimate impact on the payments system, but those are not items that would go through the clearing and settlement system. What we're talking about here are payments between one financial institution and another. In other words, if one bank owes another money, if you write a cheque on one financial institution and give it to me and I use another financial institution, then at the end of the day there has to be an exchange of money -
Mrs. Brushett: A reconciliation.
Mr. Hammond: - between those two financial institutions. So that's the type of arrangement we're dealing with in the payments system, as opposed to somebody just coming in and asking for their money back in cash or in any other way.
The Chair: Following up on that, could you give us an example of where other countries have had this advantage in a specific circumstance because they have been able to have same-day settlement of transfers of money?
Mr. Hammond: I can't put a specific instance before you, but certainly when you're doing large deals -
The Chair: Let's take a hypothetical deal. Could you give us one with -
Mr. Hammond: If you're doing a large real estate deal, for example, you might have a large takeover. You might have payments of close to $1 billion or in the hundreds of millions of dollars going from one party to another. When you get the cheque from the entity, you want to be sure that you're going to get value for that money. Our system will ensure that this happens.
The Chair: Let me back up a bit. Let's say that Mr. Fewchuk is selling you his personal holding company for $1 billion. So you are issuing a cheque, drawn on your bank, to Mr. Fewchuk. He gives you the shares and you give him the cheque, and then he goes and deposits the cheque within a half hour. You're saying that the risk is that the bank on which you have drawn your cheque might not honour it -
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Mr. Hammond: Or that it might fail.
The Chair: - or might fail, between the time when he deposits it and when it is cleared.
Mr. Hammond: That's right.
The Chair: Under the current system, you might have to wait until the following day to find out if your bank honoured your cheque for $1 billion.
Mr. Hammond: That's right. But if the hon. member received a large-value payment processed through our system, then when he got that payment he would know that he's guaranteed the funds.
The Chair: Under the proposed system, he would have that guarantee when - within how many hours after he deposited his cheque?
Mr. Hammond: He would know as soon as he got the payment. As soon as his financial institution informed him of the payment, he would know that -
The Chair: Excuse me. He would take the cheque drawn on your bank, by you, for $1 billion into his bank. How long would it take before his bank could confirm that it was effective?
Mr. Hammond: It wouldn't be a paper item. My bank would send his financial institution an electronic message, and if it passed through the system, then the bank or his financial institution has the funds.
Mrs. Stewart: The governor said yesterday that to make an absolute guarantee - and his word was ``absolute'' - the potential risk that the bank takes for a case that you said may happen, where there's a subsequent failure, is worth the competitive advantage and the commitment that we make to the purity of the system.
Mr. Hammond: Certainly the views of the members of the CPA would be yes.
Mrs. Stewart: So the potential cost is definitely worth the competitive risk.
Mr. Hammond: And it works to the benefit - If the Bank of Canada has to provide funds, then it doesn't go to the failed financial institution; it benefits the participant in the system who expected to receive funds but otherwise wouldn't do so.
The Chair: To add to what Mrs. Stewart has already said, we're the only country in the world that cannot provide this now.
Mr. Hammond: That's right.
The Chair: Under the new approach, the Bank of Canada will be the guarantor that those payments will be made. Some people might object to that, but I must say to you that I do not object to the fact that we are just catching up with the rest of the industrialized world in terms of this ability to transfer funds and have certainty of payment.
Mr. Fewchuk. Are you worried about your $1 billion?
Mr. Fewchuk: I'm not worried, because I'll never have it.
I have another concern. Does this system go right down to the fellow on the street? Would he benefit also when cashing his cheque for $10? Would he have a quick response on it, or would he still have to wait for the seven days?
Mr. Hammond: The system has been designed for what we call large-value or important payments. There'll be a cost to using the system, and I expect that for $10 you'll still be using a cheque, because it's not worth going to the trouble to process it through this system.
Mr. Fewchuk: I was wondering if the system would support that kind of transaction faster too, but apparently it has nothing to do with something that small.
Mr. Hammond: No. It wouldn't be the intention to use this system for the average $10 cheque.
Mr. Fewchuk: I used that just as an example.
[Translation]
The Chair: Mr. Loubier has the last word as usual.
Mr. Loubier: I want this to be quite clear because, earlier, you hinted that nobody could disagree with a large value payment system, with an almost immediate direct electronic reconciliation. Everybody's happy to have that. Everybody will be happy if this would be done right away. We would be proud of that too, but we don't need to give additional powers to the Bank of Canada to achieve that.
I would have another question for you. With the improvements that you are proposing, when do you expect to have such a system in use in Canada?
[English]
Mr. Hammond: If everything goes according to schedule, we're hoping that the system will be in operation at the beginning of 1997.
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[Translation]
Mr. Loubier: I wish to personally congratulate you, Mr. Hammond, for having been as clear a witness as we have ever heard, or at least heard in the last couple of days. You have a real talent for vulgarisation and you are to be commended for it. Your presentation was quite clear and it's the first time we have had that in a long while.
Mr. Hammond: Thank you.
Mr. Loubier: No, thank you.
The Chair: What can I add after that. On behalf of all members -
Mr. Loubier: I was impressed.
The Chair: - I would like to thank you. Take heart and good luck.
Mr. Hammond: Thank you very much.
The Chair: We will take a two minute break.
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PAUSE
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[English]
The Chair: Order.
Before we deal with our next witness, I'd just like to announce that the finance committee will be starting its pre-budget discussions, leading up to the budget of February 1996, and these will begin in early September, after Parliament's return. We now have a consensus on the committee to begin those hearings, starting with various ministers, on Tuesday, September 19. These will be followed by perhaps some round tables, and certainly we invite Canadians to contact the clerk so that they might make known their views that they wish to appear before the committee. We look forward to a very intensive set of hearings, and we will be reporting probably sometime in December.
Thank you for that brief commercial.
I now call upon our next witness, from Democracy Watch, Mr. Duff Conacher, coordinator.
Mr. Duff Conacher (Coordinator, Democracy Watch): Thank you, Mr. Chairman, and thank you for inviting me to testify today before the committee concerning Bill C-100.
Democracy Watch is a citizen advocacy group based in Ottawa. We are interested in bringing the citizen perspective - in this particular case, the consumer perspective - to the review of legislation and the issues of government and corporate accountability.
Specifically, today I would like to speak about our proposal for the creation of a financial consumer association. I hope all of you have a copy of our brief in front of you. I know you have just received it, so I've also provided a question and answer sheet that essentially summarizes our proposal. Rather than taking you through the whole brief, I will take you through the question and answer sheet. There are copies in both English and French. That will answer most of the questions you might have about our proposal.
When we examine Bill C-100, we look at it from the perspective, first, that it is mainly a reaction to a failure of Confederation Life last summer, one year ago. As a result, the thrust of Bill C-100 is protection for consumers when a financial institution fails. What we are concerned about and what our proposal addresses is ongoing protection for consumers.
Some commentators argue, from a laisser-faire perspective, that Bill C-100 is too interventionist and gives unnecessary powers to regulators. Others argue that Bill C-100 does not go far enough and there should be increased powers to regulators as well as increased requirements for disclosure from financial institutions.
No matter what market theory is applied, however, everyone agrees that the government can protect consumers only so much and that consumers have to be organized and informed in order to protect themselves. Everyone agrees that organized and informed consumers aid regulators in their enforcement efforts, and everyone agrees that organized and informed consumers enhance the operation of the market and the industry, increasing competition and standards of customer service.
The problem we have in Canada is that financial consumers generally are neither organized nor informed.
Our proposal for a financial consumer association is the most low-cost and effective means of solving these two problems: organizing financial consumers in Canada and giving them an easily accessible means to inform themselves about the state of any institution in the financial services industry.
What is a financial consumer association? It is a proposed federally chartered, non-profit, non-partisan organization that would be funded and directed by voluntary dues-paying members.
The federal government would help create the organization by requiring federally regulated financial institutions to enclose a flyer when they mail out a bank statement, credit card bill, or insurance premium statement. All of the financial institutions mass-mail to 20 million customers on a regular basis, and what we are requesting is that the federal government require them to enclose a flyer that would piggyback in the same envelopes. The flyer would invite customers to become dues-paying members of the financial consumer association at an annual rate of $10 to $15.
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The federal government would also either grant or loan the financial consumer association funds to print and insert the flyer for the first mailing. After that, the association would cover the costs of printing and inserting the flyer. Because the costs of inserting the flyer would always be covered, there would be no cost to the financial institutions at any time.
This model is based upon organizations in the United States called citizen utility boards. In four states in the U.S., utilities have been required to enclose a similar insert, a one-page flyer, in their utility billing envelopes and, through this, have organized utility ratepayers very effectively in these four states.
If you will look on page 6 of our brief, you will see a chart describing the effects of these citizen utility boards in these states. Essentially, by intervening in rate-hike hearings they have saved consumers about $150 for every $1 in dues. They also provide consumer education on conservation and other utilities issues.
The average response rate they receive is 3% to 5%. With 20 million customers of financial institutions in Canada, a financial consumers association with a similar response rate would have 600,000 to one million members. If each is paying $10 to $15 in annual membership dues, there would be annual revenues of from $6 million to $15 million.
Canada would then have an organization that would be able to monitor the financial services industry on behalf of consumers, would provide education through price surveys, publics forums, and 1-800 consumer services lines, and also would be much more broadly based than any consumer organization that currently exists.
There are many reasons for creating a financial consumers association.
First, the protection net is shrinking. The amount of money that the government is devoting either to determining or to solving problems that financial consumers are having is decreasing.
Last December the federal Minister of Industry urged consumers to shop around as their means of protecting themselves from market rip-offs. This is simply an inadequate response to the problems consumers face.
There is also a need to fulfil the need for consumer services and education. For example, in Bill C-100 there are increased requirements for disclosure of financial data by financial institutions, but the bill does not recognize that many consumers will still not be aware that they can obtain the information. They will not be able to interpret the information for themselves or they will not be able to afford to pay for an analyst to interpret it. The financial consumer association could provide all of these services to financial institution consumers.
As well, there have been many complaints about financial services over the past few years and many others that have not been examined, mainly because the resources aren't devoted to that.
Very few consumer organizations in Canada do any work at all in financial services. You heard from one of them earlier today, the Consumers' Association of Canada. They are able to do the very limited work they do only because they get grants from the Consumer Policy Branch. Those grants, which in total last year were $1.5 million, were cut to $1 million in last February's budget. You now have ten consumer groups - which examine all consumer issues, not just financial ones - sharing $1 million. It is simply inadequate. Last year, only about $200,000 of that $1.5 million went to research papers on financial services issues.
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Essentially, the input into Bill C-100 and the input into the reform coming up in 1997 from consumers has been and will be inadequate. The only way to solve this is to provide more resources.
The government is not likely to increase the amount in grants from the $1 million. What is much more likely is that the $1 million will be cut to zero over the next two years. There have already been signs that this will happen.
We are proposing the financial consumers association as a replacement that would cost the government and financial institutions nothing.
Many issues will be considered in the upcoming reform and many issues are addressed in Bill C-100, but currently there is no group in Canada that can respond in detail either to Bill C-100 or to the upcoming reform issues. Even if they can respond generally, as the Consumers' Association of Canada did earlier today, with the funding cuts to come in the next couple of years the ability of the Consumers' Association to respond even in general terms will be severely cut back as well.
We are suggesting the creation of a financial consumers association through this method simply as a means of balancing the marketplace.
Currently financial institutions, especially deposit-taking institutions, enjoy many privileges in the marketplace. These privileges include protection from competition through extensive barriers to start-up competitors, protection from insolvency through the deposit insurance system, protection from foreign competition, and protection generally in the marketplace just by the rights they have as corporations.
Financial institutions also enjoy the right to use consumer dollars to fund their advocacy efforts. Every person who will appear before you in these two days from a financial institution is funded by consumers. The corporations can very easily take their profits and shift them to their advocacy efforts. As a result, the Canadian Bankers Association, the Insurance Bureau of Canada - all of that is indirectly funded by consumers.
How can consumers just as easily band together their resources so that their interests will be represented in the marketplace? There is no way. But if a flyer was enclosed in every bank statement, credit card bill, and insurance premium statement envelope that invited all of those customers to band together for a cost of $10 to $15 a year each, then you would provide the easy means that financial institutions now enjoy of these groups banding together, gathering their resources, and advocating for their interests - again, in these tight fiscal times, at no cost to government or to these institutions.
Others say that there are other means of solving financial consumers' problems. A bank ombudsman has been suggested. We provide several reasons why a bank ombudsman, even if it did exist, would still need a financial consumer association in order to operate properly.
Essentially, consumers are on their own and they have nowhere to call if they have a problem with a financial institution. Some can pay for a financial analyst, but certainly the most vulnerable consumers can't afford such an analyst.
Some would say that private companies can fulfil the role of providing consumer education services, but again, the costs are very high. TRAC Insurance, from whom you heard earlier, charges $600 for a book rating of most insurers or $50 for an individual institution report. A financial consumers association would be able to provide these services for $10 to $15 a year.
Not all consumers are aware of these private companies. Consumers would be notified of the existence of an FCA because they would receive a flyer in their bank statement and their credit card bill or insurance premium statement.
When you look at the information that's going to be disclosed, the powers that are being given to regulators, I ask you two questions.
One, if you had $2,000 and you wanted to put it into a bank account and use 30 services of that bank or another financial institution, do you know now into which it would be best to put that $2,000? Which would give you the lowest rate of service charges for chequing and the highest interest rate across all of the financial institutions that exist? If you, as members of the finance committee, don't know that, then I don't think you should expect that generally consumers know it.
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A financial consumers association could provide that information. It could do surveys.
I've seen only one in the past, which was done by a magazine called Protegez-Vous, a Quebec consumer magazine. It surveyed seven institutions on the cost of 30 services and found that it ran from $39 up to $249 a year. How many consumers do you think know or have the time to compare 30 services across seven financial institutions? Not very many.
The second question I ask you is, when Bill C-100 extends powers to the regulators, doesn't it make sense also to extend power to consumers and allow them to organize and inform themselves, because they will only help the standards of service and also increase competition and improve the marketplace?
For these reasons, we call on the committee to amend Bill C-100 to allow for the creation of a financial consumers association in Canada. We have provided to the clerk of the committee a model statute from the United States, which can very easily be adapted to Canada or can simply be passed as a regulation. The regulation would contain the requirement to enclose the flyer and also set out the structure and purpose of the financial consumer association.
The Chair: Is that the end of your presentation, Mr. Conacher?
Mr. Conacher: Yes. Thank you very much, Mr. Chairman.
The Chair: A fascinating idea.
Mrs. Brushett.
Mrs. Brushett: I have no questions.
The Chair: Mrs. Stewart.
Mrs. Stewart: It is a fascinating idea.
As we're talking, I would suggest to you two or three things.
One, certainly your comment about the review that will come up in 1997 is a good one, and the chair and I have been talking about the importance of having individual Canadians represented in those hearings.
Second, I know you're aware of our strategies to hold pre-budget consultations, as we did last year. Certainly some of the best presentations we received were from individual Canadians who came to the table and shared their concerns with us. So that opportunity exists.
Another avenue, of course, is me as a member of Parliament. Individuals frequently come to me with concerns about federally regulated bodies, and certainly I take the responsibility to try to assist and support them in that regard.
The notion of an association is likely a good one. Is it possible that it could happen without legislation in that consumers would just come together because practically they see the value in doing that?
Mr. Conacher: There are difficulties. If you want to set up a representative organization, there are 20 million customers. That's the problem with most of the existing organizations. If you add up all of the groups that work on financial services issues from a consumer perspective in Canada, including ourselves, the total membership is about 15,000. That's not a very high percentage of the total.
Mrs. Stewart: You said you would have a more broadly based membership. How do you know you would? What makes you able to say that?
Mr. Conacher: I'll address the cost of trying to do it on your own. There are 20 million customers. If you try to send out direct mail, which I am sure you've received in the mail, as most people do - most people toss it out - it costs 60¢ per piece. So to 20 million customers, that's a cost of $12 million. There isn't anybody who's going to give $12 million to start up a consumers association in Canada just to work on financial services issues. But with a $350,000 loan from the federal government, you could start up a financial consumers association.
How do I know we would get that response? Part of what the federal government could do in response to this proposal is commission a survey of customers, asking if they would sign up if they received this flyer in the envelope.
There has been a survey of tenants in Ontario, and 80% said that if, when they were signing the lease, they had an opportunity to check a box that would put $1 toward tenants associations, they would do that. If you only get a 1% return, which is a low return for direct mail - a 2% return is average these days - you still have a group of 200,000 members and a $2 million annual budget. That is twice the total budget of all spending on consumer issues currently by the federal government, and that would just be for the financial services area. Also, 200,000 members is 15 times the existing membership of all groups that work on financial services issues currently.
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So it's going to improve the situation definitely even if you only get a 1% return. But I think you would get 3% to 5%.
Mrs. Stewart: Let me ask you a specific question about some of the other things we've been considering under Bill C-100, in particular the notion that has been put forward by the Canadian Bankers Association today and others that we don't need CDIC, a deposit insurance format, that if there is true and open competition consumers really can make the decisions they need to make to ensure their choices. Do you agree with that?
Mr. Conacher: Did the banks also say that all the barriers to competition would be lowered at the same time and that they advocate that?
Mrs. Stewart: They talked about competition.
Mr. Conacher: Did they talk about lowering the barriers to foreign competitors coming into Canada?
Mrs. Stewart: They talked about competition.
Mr. Conacher: Okay. I guess I would say that no group has the capacity to examine those things in detail in Canada. We certainly don't. We don't pretend to; we're very humble. And all the other groups can make a presentation. The CAC made some very general recommendations, but in terms of tracking either Bill C-100, which is a very contained review, or the review leading up to 1997, no one has the resources. You're not going to hear informed, well-researched presentations on the review in 1997 unless you create a financial consumer association. It's not going to happen.
Mrs. Stewart: Thank you very much for your participation in these hearings.
Mr. Conacher: Thank you very much.
I would say also in response, in terms of consumers gathering together, why don't they do it by themselves? If the CEOs of not very many banks get together in one room, you've organized the bank lobby. So all we're asking for is a simple means for consumers to be able to gather together in one room just as easily. This is the best way there is. There's no other way that will be as cost-effective or as effective at organizing and informing consumers.
The Chair: Duff Conacher, you make a point that I think applies not only in terms of banks and financial institutions but in terms of the types of input to which Mrs. Stewart referred, that we as a committee find essential in our deliberations. The rich and powerful have their paid lobbies, which are an important part of our process, but unless we have the counterbalance coming from the groups representing consumers, the poor, the aged, whatever, we don't have the balance that we need to make the decisions that will benefit all Canadians to the greatest extent possible. If some type of utilitarian concept can be put forward -
Mr. Conacher: We make the point in our brief that the updated conflict of interest code requires public office holders to consider the merits of the case when making decisions. You have to hear both sides in order to consider the merits of the case.
The Chair: We agree with you.
Mr. Conacher: You say you hear from individuals and then you try to respond. Well, not to question the integrity of your response from an individual, but if instead of an individual calling you with a complaint about a bank a representative from a group of 600,000 to 1 million members called on behalf of your constituents -
Mrs. Stewart: Each individual is highly valued, I think you'll find, in -
The Chair: What I'd like to do right now is give out Mrs. Stewart's home phone number so those people might have better access to her, because we don't yet have in place the system you've advocated, Mr. Conacher.
Some hon. members: Oh, oh!
Mr. Conacher: No, and I know it's a lot to ask to amend Bill C-100 in order to create this organization. But I'm urging the federal government to do this sooner than later, because if we go through the 1997 reform without such an organization, then the consumer voice will be silenced.
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I should remind you that, at least in terms of banks, depositors' money makes up 95% of bank capital, not shareholders' money. You have the Dominion Bond Rating Service talking about the concern of individual investors being able to get access to financial data. Well, still only 5% of bank capital comes from investors. What about the 95% who are the depositors, the 20 million Canadians who elect you and who allow the banks to exist?
I urge you also, despite the strength of the bank lobby, which you see here today and you see all of the time.... I'm the only person in the room right now representing the consumer perspective, and that's usually the case whenever we appear before a committee, while there are ten to fifteen representatives from the financial services industry monitoring your every action, at every moment.
But the banks aren't going anywhere -
The Chair: Do you think that's because they feel that in order to match your quality they need fifteen to one?
Mr. Conacher: I guess I may feel that, but we are very humble in terms of our presentation and our ability to counter the power of the bank lobby. That's why we are not trying to do this ourselves. It's simply not sustainable, and we know we will constantly be outmatched. We can't say we represent Canadians, because we don't have enough members to legitimately claim that, but we try to represent the citizens' perspective and we say that with this proposal of the financial consumer association....
For a $350,000 loan, the federal government can afford to give bank, trust, and insurance company customers the opportunity to decide for themselves whether they want to join such an association. If only 1% join, then we have 200,000 members and a $2 million budget. But maybe 15% will join, or maybe 20%; or maybe half of all bank, trust, and insurance company customers are fed up with the way they're being treated and they will join. Why not give them the opportunity, for the cost of a loan of $350,000?
The Chair: Thanks very much, Mr. Conacher, for a very interesting idea.
[Translation]
For now the best thing for me would be to give you Mr. Loubier's home phone number, which is (514) 234-9876.
Mr. Loubier: Please, don't call after midnight.
[English]
The Chair: I think there's a great deal of merit in what you've presented to us, and we want to reflect on it. Thank you very much.
Mr. Conacher: Thank you very much.
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The Chair: Our last witness today and our last witness on our reference to Bill C-100, at least for the time being, is from the Insurance Bureau of Canada: Janice Oliver, accompanied by Mark Yakabuski.
We look forward to your presentation, and we look forward to being able to ask you some questions thereafter.
Would you like to begin, Ms Oliver?
Ms Janice Oliver (Assistant Manager, Government Relations, Insurance Bureau of Canada): I'll pass it on to Mr. Yakabuski.
The Chair: Mr. Yakabuski.
Mr. Mark Yakabuski (Director, Government Relations, Insurance Bureau of Canada): Thank you very much, Mr. Chairman.
Let me begin by saying first of all, very quickly, how grateful we are to appear at these hearings. We commend the committee's early study of Bill C-100.
By way of a very brief introduction, the Insurance Bureau of Canada is the voice of the property and casualty insurance industry in Canada, an industry that employs some 100,000 Canadians in small communities across this country and that - and this is something that perhaps not too many people are aware of - last year paid out some $12 billion to Canadian consumers in order to correct losses or damage to automobiles, homes, and business properties, and to rehabilitate victims of car accidents and other accidents. So we have to be a consumer-oriented business because we pay a lot out to consumers.
[Translation]
I would now like to tell you that this bill is very important to us since it will lead to a stronger and more efficient financial system throughout the country.
As I've just said, I would like to commend the committee for deciding to review the bill during the summer and to take advantage of the new parliamentary rules to review the bill at first reading. It's the first time. Congratulations.
[English]
Perhaps I should just add that in our perspective the passage of Bill C-100 at the earliest opportunity will allow all of us to clarify the other important issues that have to be dealt with in the 1997 financial institutions legislation review, a process in which we expect this committee to play a capital role.
[Translation]
Of course IBC fully supports the vast majority of the proposals contained in this bill, in particular the development of an early intervention policy, greater disclosure of financial information by financial institutions and the development of a legislated mandate for the Office of the Superintendent of Financial Institutions.
[English]
Alas, Mr. Chairman, no piece of legislation is perfect, at least not at first reading. We expect this committee to make it perfect, and therefore those of us at IBC want to draw your attention to four particular aspects of the bill.
The first provision of the bill I would like to bring to your attention is the one that would give the Superintendent of Financial Institutions the power to designate certain persons as being affiliated with a given financial institution, thus disqualifying them from sitting on the board of directors of the company. We are told by OSFI officials and finance officials that the intention of this section is to restrict the number of persons who have a direct material interest in a company who can sit on its board.
However, if you read the proposal in the legislation, it has been drafted so broadly that it could well cause administrative problems for P and C companies as well as other financial institutions.
There is in fact a danger that under the current wording a person who sat on the board of a European parent company, for example - the parent company, yet, of a licensed Canadian insurer - would be disqualified from sitting on the board of the Canadian company. Now, we think such a restriction would deny the Canadian company of the unique international expertise that could be brought to bear by someone who sits on its European parent, both at a time when good directors are hard to find and particularly so at a time when Canadian companies ought to be as well informed as possible about international opportunities.
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We recommend, therefore, that this section of the bill either be amended so as to be more tightly phrased to prevent the kind of problem I've described to you today or that it be dropped and be more effectively dealt with in regulations that are already pursuant to each of the financial institutions with respect to affiliated persons. So there are two options I would like the committee to consider.
The second aspect of the bill that I think the committee perhaps ought to review is the provision in a number of sections in the bill where there is a lack of checks and balances, where authority under the new legislation is transferred to the superintendent which previously resided with the minister.
We are not at all opposed to having decision-making power transferred to the superintendent in these areas. In fact, we agree that the hands-on experience of the superintendent leaves him or her best placed to make these kinds of decisions. However, it is bad public policy in principle not to have this authority checked by an appropriate right of appeal either to the minister or to the Federal Court of Canada with respect to the merits of the superintendent's decisions.
Perhaps I can cite a particular portion of the bill that could become problematic. For example, proposed section 679 amending the Insurance Companies Act would give the superintendent the power to take over the assets of a company for up to sixteen days without even having to report to the minister and without any requirement to receive representations from the company affected - sixteen days within which the superintendent could act without absolutely any referral to the minister or with representation from the company in question.
Under the current regime, which in our estimation has given rise to no significant difficulties in this area, the superintendent may take over a company's assets for only seven days and must report to the minister. Moreover, a company may currently appeal the superintendent's actions both to the minister and to the Federal Court.
Under the proposed changes under Bill C-100, both these avenues of appeal are to be removed. We think that conceivably you could have a real problem, not just in the exercise of these powers but in the very legitimacy of these powers. If the superintendent is not seen to be subject to a proper form of accountability, then the exercise of this power could become problematic.
Now, I understand some people have mentioned...and in fact it has come up in discussions that I have had with OSFI and Finance. The argument is raised that, well, we have to avoid these kinds of motions being caught up in the courts. That is certainly a legitimate point of view.
Our response would be, first, the current regime has not posed a major problem in that area, and secondly, we suggest that there are two options. If there really is a concern, as I know, Mr. Chairman, you yourself have given expression to, that this could lead to excessive legal action in winding up a company and having OSFI take over its assets, we say at least in that case let us have an appeal to the minister that is written into the law so that a company can make an appeal to the minister if the superintendent uses these powers to take over its assets. We believe that is perfectly realistic and we would certainly commend that to the committee's attention.
The third area of the bill that I would like to bring to your attention - and this was raised in passing when Mr. Daniels of CLHIA appeared before you earlier today - is that under the legislation as proposed, insurance companies, for example, would no longer be able to use the word ``insurance'' or ``assurance'' or assurance in their corporate name. In fact, within one year of this law coming into effect, they would be required to either change their name or divest themselves of their insurance holdings.
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Now, we understand the intention of this provision, namely, to prevent any confusion amongst consumers. However, we think this provision is excessively harsh.
Let's keep in mind that parent corporations of insurance companies have developed and acquired very valuable goodwill in their names. In fact, in the case of the two property and casualty insurance companies of which I am aware who use ``insurance'' in their name, both parents companies in question explicitly use the words ``management company'' along with the word ``insurance''. We believe the use of these words is sufficient to prevent any confusion for consumers.
We would therefore recommend that the committee consider amending this provision in the bill to exempt those parent companies that make explicit use of the terms ``management company'' or ``holding company'' in their corporate name.
CLHIA has presented another option that I think is valid as well, that there be a grandfathering clause for companies now using those. We're presenting another option so as to give you a menu which we hope you will choose judiciously from, namely, amending this so that companies that use the terms ``management company'' or ``holding company'' would be exempt.
The last item I would like to bring to your attention is the provision in the bill that would require the release of information concerning executive compensation for all financial institutions, be they public or private. We have absolutely no difficulty in the property and casualty insurance industry with the principle of disclosing executive compensation for publicly traded companies. In fact, we have consistently argued that there should be greater disclosure of all kinds of financial information and we have consistently offered it to OSFI in our industry. But we can see no larger public policy purpose being served by requiring the disclosure of executive compensation for private companies.
Let's keep in mind that the release of executive compensation for publicly traded companies is already required by most provincial securities commissions, and it's usually required by provincial securities commissions on the grounds that executive compensation information is important information in allowing shareholders to exercise some measure of control over management.
In publicly traded companies, the only way this information is likely to get to shareholders is by the requirement that it be publicly disclosed. So we have no problem with that. Yes, sure, shareholders have to be informed in order to be able to exercise some measure of control over management. But in private companies, almost certainly the major shareholders are very well aware of what the president and the chairman of the company are making. This information would be well known within a company that was closely held and that was not publicly traded. So they can exercise the control over management. That information is available to them.
The other argument sometimes advanced for disclosing executive compensation is that it might assist regulatory authorities in identifying a company whose management might be astray. If you have a company in an industry whose executive compensation levels are far above the norm of the industry, that might be a signal that we should take a closer look at the wider operations of this company. We agree. The reality, however, is that OSFI, which is the regulator of federally incorporated insurance companies, is already well aware of what the executive compensation of all financial institutions is. This information is already filed with OSFI.
So the regulator has that information. The regulator can act upon that information. What additional benefit would there be by having this information available to the public of private companies over which the public has no control whatsoever?
We submit that the committee might want to look at this, and we would recommend that the bill be amended so that the disclosure of executive compensation would not apply to private companies.
[Translation]
In closing, IBC fully supports the vast majority of the provisions contained in Bill C-100, and in particular those that would strengthen the Canadian financial system and make it more efficient.
We do, however, oppose four specific provisions presently in the bill and we hope that the Committee will, in its report on C-100, recommend some changes.
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[English]
I want to thank you very much for being allowed to appear before you today. I'd be happy to answer any questions you have.
[Translation]
The Chair: Thank you, Mr. Yakabuski. Do you have some questions for Mr. Yakabuski,Mr. Loubier?
Mr. Loubier: Thank you very much for your presentation. It, plus the four comments you made, were very relevant.
Before appearing before the Standing Committee on Finance, you met with officials from the department or elsewhere in government. What was their response to your first comment regarding the powers of the superintendent and the appeal procedure that has been abolished in this bill? What arguments did they present to justify the fact that there's no right of appeal and to justify the decision-making authority given to the superintendent?
Mr. Yakabuski: The officials in the Office of the Superintendent told me that their fear was that if an appeal procedure were enshrined in the bill itself, they could have trouble seizing the assets of a company. They fear that the company would go to court directly and prevent OSFI from going to provincial court to get an order to take control of the company.
I asked whether there had been any problems of this type in the past. This was not the first time that the superintendent has seized the assets of a company. I was not very convinced by the arguments presented by the officials in response to my question.
I therefore said that should the case be completely tied up in the courts, we should at least be given the right to appeal to the minister, because he is an elected official, whereas the superintendent is not. There must be some sort of appeal mechanism.
Mr. Loubier: So you are saying that officials in the Office of the Superintendent of Financial Institutions are not very keen on this idea of an appeal to a political authority?
Mr. Yakabuski: The conversations I've had recently indicate that they're not very enthusiastic about this idea, because the bill already provides for a transfer of authority from the minister to the superintendent.
So they ask whether this would be a genuine transfer of authority if there were still an appeal to the minister? I think there is a genuine transfer of authority, because the superintendent is the person who decide to take over the company. So there would be a real change in that regard. We say that in order to balance things better, we should at least be given the right to meet with the minister, because seizing the assets of a company is a serious measure.
Mr. Loubier: I hadn't noticed this provision. This is a large bill. But this is the first time that I have understood this aspect of it so clearly. What is customarily done elsewhere? Do you have any idea? Is this much authority given to an administrative authority such as the superintendent, or is it rather the political authority that makes the decision and assumes its responsibilities?
Mr. Yakabuski: I must confess, Mr. Loubier, that I cannot give you an informative answer about what goes on in other countries or other jurisdictions.
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I could certainly call you as soon as I get this information.
We must also bear in mind that the Canadian financial system has a number of levels as compared to other countries. In the banking area at least, we have a corporate concentration that is much much greater than that of other industrialized nations. Consequently, I don't think we can always rely on the models provided by other countries.
Mr. Loubier: It might be a good idea to ask the minister about this transfer of authority, because it is quite an important matter.
The Chair: That's an interesting suggestion. Is that all for the time being, Mr. Loubier?
Mr. Loubier: Yes, thank you very much indeed.
The Chair: Would you like to add something, Mrs. Brushett?
[English]
Mrs. Brushett: I'm questioning on the same line and asking if you've had any experiences or situations in the past where the superintendent has seized assets and an appeal has been made to the minister or to a higher court -
Mr. Yakabuski: There certainly have been instances.
Mrs. Brushett: - where this then leaves a great void. Could you elaborate on some cases?
Mr. Yakabuski: There certainly have been cases in the past where the Office of the Superintendent of Financial Institutions has seized the assets of a company. There have not been instances so much in the property and casualty insurance industry, which I represent. There have been instances in the life insurance industry. I think you're aware of the Confederation Life seizure of assets, and prior to that the assets of Sovereign Life were seized.
I'm not privy enough to those two cases to know exactly what court actions have transpired since the seizure of assets in those two companies. In my discussions with Finance I was led to believe that they thought that with the new transfer of authority to the superintendent and the increased provisions for early intervention, there could indeed be a problem with companies endlessly going to the courts and stopping the process from going on.
At least the Department of Finance and OSFI ought to be obliged to provide evidence that this might be a problem, and we're willing to entertain that evidence quite objectively.
That's quite different, though, from allowing at least an appeal to the minister. We're suggesting another option. If you don't want to give a right of appeal to the Federal Court of Canada, then at least give us the right of appeal to the minister. Under the new provisions, OSFI can seize your assets for 16 days. The superintendent doesn't even have to meet with the minister.
So we're just saying that this provision could be ill seen. It's one thing to have a power, but it's another to exercise a power. If that power becomes very illegitimate because people say that there are no checks and balances, then it might have the opposite effect; it might actually hamstring OSFI. So we're saying, look, you don't want to be in that position. We suggest at the very least that you give us a right of appeal to the minister.
Mrs. Brushett: This legislation is to ensure early intervention, some sense of quality assurance, that good business principles and practices will prevail and that political interference may not. Is there not that side of the coin as well: that we leave it under objective guidelines and objective vision as to assets and liabilities and the fiscal health of the situation and remove political, or potential political, interference?
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Mr. Yakabuski: With all due respect, I do not think a minister would let political sway affect his or her decision about the seizure of the assets of a major financial corporation. I do not think it has ever happened in the past.
We would have full confidence in the ability of the Minister of Finance to hear an appeal.
I want to make clear that we have nothing against transferring the authority of making this decision to the superintendent. He or she has the expertise to make this initial decision, but all of us are subject to making mistakes. Frankly, the superintendent might be more comfortable if they knew that there was at least the possibility of appeal to the minister by a company that was affected.
That is not here to block the system. We want the system to work, but it will work better if you have at least that appeal to the minister.
Mrs. Stewart: Your brief is very succinct and reiterates, as you pointed out yourself,Mr. Yakabuski, some of the issues that we have heard already. There is a repetition here of requests for improvements.
When we are talking about your first concern, the issue of phraseology in terms of determining who can be on the board of directors and who cannot, I am assuming that you are all right with the notion of the strategy of limiting the number of directors that have a direct - In your example here, if you wanted foreign participation, you still agree with the balance of directors. You are just concerned about a technicality here.
Mr. Yakabuski: It is simply the phrasing of this provision. We have no problem whatsoever. As I say, there are already regulations dealing with affiliated persons pursuant to each of the financial institutions acts.
We just think this provision is phrased in such a way that it captures more than it was intended to capture. It was intended to make sure that you did not have too many people who had a direct material interest in that company sitting on its board.
That is a recipe for disaster. We agree, but it is drafted in such a way - and we have checked it out with our legal people - that possibly some of our companies who happen to be Canadian companies with a European - French or British - or American parent company would be prevented from benefiting from the presence on their board of someone sitting on the European company's board, for example. I do not think that would be in the interests of anybody. As I say, we want that kind of international expertise brought within our Canadian companies.
Mrs. Stewart: And you would accept that that person has a direct material relationship and so would be one of those few who would sit as a board member in that definition.
Mr. Yakabuski: We would not say there is such a great material interest on the part of that board member in the Canadian company. We just want to make sure it is defined in such a way that he or she would not be excluded from sitting on the board.
Mrs. Stewart: So they would not be considered as a director.
Mr. Yakabuski: No.
I have had discussions with OSFI on this. Again, they say, look, we want to make sure the company is structured in such a way that somebody's son or daughter may not have actual shares or there is not some back-door scheme by which this son or daughter has a very significant interest in the company and they are placed on the board. The provision is designed to avoid that. We agreed that this sort of situation should be avoided, but it is phrased in such a way that it is capturing more. We want to avoid these problems before they happen.
Mrs. Stewart: The fourth concern, with regard to the disclosure of compensation for executives of privately held companies, was also raised by the Canadian Bankers Association. Following on the presentation we received just before yours, which was a consumer-related one, is it possible that information about those salaries might just be of interest to people who buy your products and help them in their determination of from whom they want to buy their insurance policy?
As you point out, OSFI has access to that information. They are making judgments as to whether a particular company will be able to meet its potential pay-outs, so they are looking at it from that point of view.
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But let's say that you have a company that has perhaps cornered the market in a particular product and has some control over the premium-setting levels. If the consumer was looking at it and said, ``Holy mackerel! This executive's making how many millions of dollars - and you're charging me a 50% increase in this particular premium?''.... I am just coming at it from a consumer's point of view. What do you think?
Mr. Yakabuski: I've heard the argument. Maybe I can ask a question in return. Do you think McDonald's ought to disclose what the president of McDonald's Canada is making and that this should be appearing as the bottom line on every Big Mac you buy? It's not different.
The Chair: Are you comparing your product to a hamburger or to a hot dog? Which is it?
Some hon. members: Oh, oh!
Mr. Yakabuski: No, we're comparing hamburgers to our products. They sell well, you see.
It is a question of real philosophical importance.
Mrs. Stewart: We were just talking about how nice it would be if it were really competition that drove the marketplace. I suspect that if there was full and open competition, then that would be information your consumers would be interested in knowing about.
I agree with you that there are restrictions, but I'm just asking you from the point of view of the consumer. There might be value from that point of view.
Mr. Yakabuski: I wonder. Is there real value to the consumer? The question has to be asked: is this of material value to the consumer of that product? I think the consumer is much more interested in ensuring that -
Mrs. Stewart: Could it be in the example that I gave you?
Mr. Yakabuski: I think the consumer is much more interested in whether the company is financially solid, in whether its management is sound, and the kinds of information that we in the property and casualty industry have always been in favour of divulging and are now going to be further required to divulge under this bill. We're entirely in favour of the divulging of that information. I ask the question: what is the public policy purpose of publishing private companies' compensation data?
We have private companies in this country, and we have publicly traded companies, and certain people decide that they want to access capital on the public stock exchange and certain people decide that they seek capital through private means. I believe there's a fundamental distinction and that the compensation data have no material bearing on the quality of the product that this consumer is going to buy as long as the kinds of information about financial solidity, etc., are provided, and we are doing that and we shall continue to do it.
Again, you can't just throw these things into a bill. Show us the public policy purpose, and then we'll discuss it.
[Translation]
Mr. Loubier: I would like to make a final comment.
I have yet to make up my mind on this issue of disclosure, however, I am not convinced that consumers would not use as an indication of the solidity and potential performance of a company the fact that it can afford to pay big bucks to its directors. The fact that an institution or a company can attract experienced managers is a sign that it is well run and that its product and the company itself will do well in the future.
Anyway, I believe the message to the financial community is quite clear when a company says that it can attract the crème de la crème of managers.
So, I have not made up my mind yet on this issue, but I believe it is an indication or a sign that could be useful to consumers of financial products.
Mr. Yakabuski: At least, to a sophisticated consumer like you. I suspect the consumersMrs. Stewart was talking about would see things differently.
I just want to say that OSFI has this information. The goal is to ensure that the company is well run. The Office already has the tools to do so, and I think that is enough, as far as the solidity of the Canadian financial system is concerned.
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[English]
The Chair: This arises out of testimony we have heard. Do you believe that one individual should be able to control an insurance company, property and casualty, and also control an agency that sells that insurance and get the commissions? Does that cause any problem?
Mr. Yakabuski: Generally, we have consistently avoided that situation in our industry. We of course have 220 property and casualty companies competing actively to meet your insurance needs, and we have, along with our companies, a highly professional independent brokerage system and 75% of property and casualty insurance in Canada is sold through this brokerage system.
The Chair: Do you know of any cases in which there is control of the brokerage end?
Mr. Yakabuski: I know of no instance in the property and casualty insurance industry where an insurance company also owns an insurance agency.
The Chair: Or where the same individual controls both companies?
Mr. Yakabuski: Or where the same individual controls both companies. No, I do not.
The Chair: And, because of the potential for self-dealing, you would consider it to be inappropriate for that situation to be allowed to exist?
Mr. Yakabuski: That could be a problem. I know that we, as an industry, have never encouraged that practice.
The Chair: I must confess that I'm very partial to most, if not necessarily all, of your recommendations.
I have a question simply on the appeal to the minister. Do you agree with the fact that under the current legislation an appeal where the assets are seized by OSFI can be appealed to the courts but that we don't need that, that it causes unnecessary delay in dealing expeditiously with the assets on behalf of all stakeholders?
Mr. Yakabuski: Absolutely. Under the current legislation, companies have a right of appeal to the Federal Court. That's very clear in the legislation.
The Chair: Do you agree that we should be abolishing that because it could tie up the assets for too long a period?
Mr. Yakabuski: We are willing to consider that possibility, although we think that the burden of proof is on OSFI and Finance to show that major problems have arisen under the current regime. We're not convinced of that.
The Chair: But you accept abolishing that providing that we provide an appeal to the minister?
Mr. Yakabuski: If, in the opinion of the government, this is a major problem, with companies going into court and tying things up, not allowing the superintendent to seek a winding-up order, etc., then we are willing to consider the merits of doing away with an express appeal to the Federal Court of Canada, as long as an appeal to the minister is in the legislation.
The Chair: Okay. I understand that.
Do you know of any other instance in which the decision of a regulator can be appealed to the minister as you've called for - in Canadian law, in the Canadian system?
Mr. Yakabuski: CRTC rulings are appealable to cabinet generally. That's just an example.
The Chair: I know of only two.
Mr. Yakabuski: Yes.
The Chair: The CRTC and the CTC.
Mr. Yakabuski: Right.
The Chair: Decisions taken by those two regulatory bodies can be appealed to the Governor in Council.
Mr. Yakabuski: Right. I would ask if there is anything closer to the kinds of decisions governments can take than the seizure of a company's assets.
The Chair: These are appeals to cabinet, as opposed to the minister. So I don't want to quibble over words here.
Mr. Yakabuski: Why do we say ``minister''? It is because currently there is an appeal. One can appeal to the minister and the Federal Court. If you're going to do away with one, one's already there.
The Chair: I haven't had any experience with these appeals to the minister under the statute. Because it is in the statute at present that the rules of natural justice apply - i.e., hearings, both issues, lack of bias, all of the conditions that apply - do those rules of natural justice apply under the type of ``appeal'' now set forth in the act? Do you know the answer to that?
Mr. Yakabuski: I know that the appeal procedure covers administrative grounds such as natural justice: was the proper procedure followed, etc. It's true that if the act did away with the appeal to the Federal Court, there would still be possibilities for an administrative appeal. But the appeal would be only on the grounds of -
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The Chair: A breach of natural justice.
Mr. Yakabuski: - a breach of natural justice. It would not allow the courts or any instance to review the merits of the case. It's a review of the merits of the case that we believe is necessary in order to have proper checks and balances
[Translation]
and restore the legitimacy of the law.
[English]
The Chair: Thank you very much for a very lucid, pointed, and articulate presentation.
This concludes our current hearings on Bill C-100. Based on the discussions, I believe our research staff will be drawing up a list of the recommendations made to us and circulating this among members. Perhaps I could suggest that the steering committee could then meet and decide where we shall go from there.
In the meantime, could I repeat my little advertisement for the pre-budgetary hearings of the finance committee of the House of Commons, which will be starting in Ottawa in the week of September 18. Will any Canadians interested in making submissions on the budget slated for February 19, 1996, please be good enough to contact the clerk.
In conclusion, may I thank members for coming here in the middle of summer, with staff, and giving us the opportunity to get into this very important topic of the governance of Canada's financial institutions.
This meeting stands adjourned.