Can we get started? The sooner we get started, the sooner we finish. We all have things to do.
The meeting is called for 11 o'clock to 12:30. I'm going to allow the Canadian Bankers Association their five to ten minutes for opening remarks.
The Department of Finance has already appeared, just previously, with the making his presentation.
I will allow members to ask questions until 12:30, but I don't think we need the full time. What I'm going to do is start with five-minute rounds, then continue with those until every member has asked questions, and then I am in your hands.
Before we begin, we have some housekeeping. We need to approve the operational budget for extra costs to have witnesses appear, and there are some other miscellaneous charges. We are asking for $9,200. Is that okay?
(Motion agreed to)
Thank you very much, Mr. Chairman and members of the committee. I really appreciate the opportunity to contribute to your review of , the amendments to the Bank Act and other federal statutes.
My name is Terry Campbell, and I am vice-president of policy at the Canadian Bankers Association. With me today are my colleagues Karen Michell, the vice-president of banking operations; and Linda Routledge, the director of our consumer affairs area.
Mr. Chair and members of the committee, the banking industry believes strongly in the importance of ensuring that the legislative and regulatory framework is reviewed regularly in order to keep it up to date with technological developments, to eliminate obsolete provisions that no longer reflect sector realities, and to make the framework as efficient as possible for the benefit of Canadian consumers and the industry's competitiveness. Canada's banks and other financial institutions operate in an environment of rapidly increasing regulatory burden, particularly in light of the explosion of international regulation, which impacts the regulatory environment here in Canada. Since this environment affects the ability of institutions to innovate and serve their customers, it's critical that policy-makers and legislators here in Canada ensure that the legislative framework provides as much flexibility as possible and avoids imposing unnecessary or prescriptive measures.
With these principles in mind, we were deeply disappointed that the government did not adopt our proposals for the insurance rules. In our view, the facts of the case—the benefits to consumers of removing out-of-date restrictions and the positive experiences in other jurisdictions that do not have these restrictions—told a good, common-sense public policy story. Nevertheless, as we heard from the minister this morning and as we've heard from the minister in the past, the government has made it clear that changes will not be made to the insurance rules, so we are turning our attention to the piece of legislation at hand,.
As you know from commentary this morning, the bill is focused on technical matters. Those matters are the focus of our commentary to you today. Describing these matters as technical doesn't mean they're not important for consumers or the efficient operation of the marketplace. Indeed, in some key areas the government has taken positive steps in the direction of modernizing the framework.
One such step that we would like to highlight was mentioned this morning, and that was the government's proposal to amend the Bills of Exchange Act to allow for the introduction of electronic cheque imaging. Canada has one of the most highly efficient cheque-clearing systems in the world, but it's still largely based on the physical clearing of paper cheques. Cheques drawn on one bank and cashed or deposited at another must be physically transported between banks and processing centres—sometimes right across the country—before they can be cleared. The proposed amendments would allow financial institutions to use electronic images of cheques. In effect, rather than having to physically transport pieces of paper, images of the cheques could be sent electronically. Making an already-efficient system even more efficient will speed up the cheque clearing process, reduce the amount of time that funds are held, and, importantly, will reduce risk.
All of this will bring real benefit to consumers. In fact, as was mentioned, the banking industry has been working with the government on this and has agreed to reduce the maximum period for the very small number of cheques that actually have holds on them from ten business days to seven business days by April, and to then reduce that further to four business days upon full implementation of the Canadian Payments Association's cheque imaging system.
Another positive step in is the proposal to streamline the foreign bank entry regime. We have a highly competitive financial services marketplace in Canada, with some fifty foreign bank subsidiaries and foreign bank branches competing to provide services to individual and business consumers.
While Canada's market is open to the entry of foreign banks, the actual structure of the legislation is highly complex, cumbersome, and difficult to navigate. The rules apply to real foreign banks as well as to what are called near-banks, or companies that are not banks in their own country but want to undertake activities in Canada that normally would not be regulated. The result of having to deal with both types of entities in the legislation currently is a very convoluted set of approval processes for near-banks, and these processes don't seem to be necessary.
We'll see the details in the regulations ultimately, but it appears that in this area does help to streamline the system by focusing the rules on real foreign banks wishing to enter this country.
While we do think does take positive steps, there are some areas where we feel some targeted changes would improve the bill. For example, in clause 31 of the bill, the government is proposing to extend the current disclosure requirements to deposit-type registered plans such as RRSPs.
We understand what the government is trying to achieve here, but we think the actual drafting of the bill is simply unworkable. The bill doesn't adequately distinguish among registered plans, deposit accounts, and deposit products; it doesn't take adequately into account that registered plans often contain products that are not federally regulated or are offered by institutions that are not federally regulated. In short, we think the current drafting of the bill could actually frustrate the government's policy intents and potentially confuse consumers.
We think this is a provision that needs further tinkering. It's a very technical area, and we're offering to work with the government to explore ways to address the technical issues.
A further and in effect final point we would like to raise this morning concerns bank holding companies. As you know, in the 2001 round of reform of the Bank Act—the regular five-year review—banks were allowed to structure themselves as holding companies, as banks in most other countries around the world are allowed to do. The option held out the promise of greater flexibility and a more targeted and streamlined regulatory system.
Unfortunately, while the power to create bank holding companies was provided in 2001, other rules in the Bank Act make it very difficult for banks to actually convert to this structure. In our view, it adds or could add regulation rather than streamlining it. The practical result is that six years after the 2001 reforms, the bank holding company model is still not an option that banks can use.
In effect, what the rules say is this: a bank can enter into such transactions as offering loans or guarantees to its downstream subsidiaries without restrictions, but if those same subsidiaries become sister companies of the bank under a holding company, then restrictions on transactions between the bank and its sister companies now must be imposed, even though no new risk has entered the system.
We are working with the government and with the superintendent's office to sort through these issues, but in our view more work is need. Given this committee's interest in the efficient operations of the financial sector, we would encourage the committee to urge the government to take steps to ensure that the holding company model is in fact a workable option for the industry.
Chair and members of the committee, in conclusion, let me thank you again very much, on behalf of my colleagues, for the opportunity to provide our thoughts and to engage in some discussion with you.
To sum up, while we have some improvements to the bill that we would encourage you to consider, we feel that this is a technical bill that makes useful improvements for the benefit of consumers and the efficiency of the system. The goal of making the regulatory system as efficient and effective as possible and of making the system as supportive of innovation and international competitiveness as possible is an ongoing task. is an important step in this process, but of course we look forward to continuing to work with the government and with members of this committee on these important goals.
That concludes my remarks. We look forward to discussion with you.
Thank you, Mr. Campbell—and the others; I'm anticipating they'll want to chime in here from time to time.
As you know, any time you deal with banks, everybody has a negative bank story to tell, and you end up side-barred into a whole bunch of other issues. While I don't think there's much disagreement among members about the substance of this bill, there are a few things that grate here, which possibly there's an opportunity to fix.
My overall impression is that the amendments proposed are really catching up to the 20th century, when we're in fact in the 21st century. They don't address the core issue, which is that Canadians have embraced electronic banking very enthusiastically, whether computer banking, ATMs, or whatever. It speaks to the issue of what they expect in their electronic network and how the banks and the regulatory regime, in some respects, haven't kept up.
I referred earlier to a question to the minister, which I would appreciate you and the officials taking a crack at, with respect to moneys being removed from an account to pay for a bill, which is presumably within the payment clearance system, and that transaction not being instantaneous. We still seem to want to bundle checks across the country. Whether it's four days or seven days, it's rather irrelevant to electronic transfers these days. I would be interested in your general comments. You heard the question specifically.
I buttress that question as well with an e-mail I received from a constituent, and again I'd ask for your comment on this: “We have, for as long as it has been offered, viewed our statements via the bank's electronic payment and presentation service. Unlike other monthly statements”—for example, hydro, taxes, or whatever—“we view through the servers, however, the option to download an image of our Visa statement is not available.” So he can't watch his statement accumulating over the course of the month, for some strange reason.
The general comment is that you seem to already be behind the times, and all this is going to do is create more frustrations and irritations. I'd ask you to respond, both you and the officials, not only to the inquiry I sent to the minister but also to this particular question.
Well, of course in an electronic age we're all used to having instant communication. At the push of a button, we can send an e-mail to one another. But in the payment system, we have a very sophisticated, safe, and secure system, and it requires a number of processes behind it. In terms of paying a bill, there are a number of billers who participate through the Canadian Payments Association and adhere to their rule H6. I'd encourage you to ask them more about that. What it does is say that any biller who adheres to it will agree that the date on which you make your payment is the date on which they will post it to your account, so you won't incur any interest charges or losses there.
In terms of billers who are not part of that system, billers and financial institutions both advise that you should be paying your bill a day or two in advance to make sure it goes through. The reason is that if all billers and financial institutions were completely interconnected, the system would be only as good as its weakest link. Rather, what we do is have batch processing at the end of the day and transfer the funds from the financial institution of the payer to the biller.
As to the technical aspects, I'd certainly encourage you to ask the CPA more about them. It's a system that's very secure and very safe, and this provides a number of benefits to consumers. In Canada, with the payment system we have, if you're depositing a cheque, for example, you are able to get access to those funds immediately in the vast majority of cases. And that's essentially the financial institution giving you credit.
There is already a code in place.
Pardon me, but it's preferable that I speak in English.
As Mr. Dupont said, the credit card companies and issuers have agreed among themselves on the limit. There already is a code in place on debit cards. and there has been for about 15 years in fact. It works very well. As was mentioned this morning, it's actually overseen by the Financial Consumer Agency of Canada. If there are issues of fraud and so on, it provides a process so consumers will get their money back fairly quickly.
On the point made earlier about the importance of keeping the system up electronically, we know the government is going to be undertaking consultations on electronic...and when they call upon, as I know they will, we will certainly be participating.
Karen, did you have anything to add?
If you look around the world and if you look at regulatory bodies in Canada, like the FCAC or OSFI, all of the agencies are funded by the banks and other financial institutions. You have to ask the question about where else the money would come from.
I think one of your questions was a very good example in terms of independence and avoiding the problems of conflicts of interest in the ombudsman system. Canada has an absolutely first-rate ombudsman system, the OBSI, or Ombudsman for Banking Services and Investments.
While OBSI is funded out of levies on the banks, there is a range of protections and structures in place that guarantees independence. There's a nine-person board of directors, six of whom are independent, and the independents appoint themselves. The industry people have nothing to do with that. There is a wide range of very knowledgeable people. Senator Plamondon was on the board a few years ago.
The board cannot countermand or even review the individual decisions by the ombudsman. If you actually get to the stage where you have to terminate the ombudsman position, again it's only the independents that can do that. There's a whole series of protections in place that guarantee the independence of that body, so our sense is that when people go through the system, it works very well.
The other thing is that the ombudsman system that we have is very powerful in the sense that nobody wants to be on the wrong side of an ombudsman decision. The ombudsman has the power to name a particular institution. I believe it's true—and Linda can tell me if it's wrong—that there has not been a single recommendation coming out of the ombudsman's office, in the 11 years it has existed, where the banks haven't said, okay, you're right.
So I understand the point, but we think there is a range of protections in place.
Fair enough. In terms of process, I think the best answer is just that we have raised this issue with the department. We have worked through our technical concerns in some detail in order to have the department understand them.
Our sense, sir, is that the legislation itself just talks now about plans. If you go through and try to sort it out, it's not at all clear what the disclosure would apply to. Is it a plan itself? Is it the products in the plan? Is it the accounts? RRSP registered accounts can have deposit accounts and can also have mutual funds and other things. It just isn't clear.
There's another issue. As you know, we're talking about the Bank Act, but the bill also amends a series of other statutes, including the Trust and Loan Companies Act, for instance. Trust companies can offer these things on their own account, but they can also act as trustees, which means a whole range of other plans can get sucked into the ambit of this, perhaps unintentionally.
The approach we're trying to take is to work with the department and suggest some areas that they may wish to consider, and we'll see how that goes.
Linda, is there anything you would suggest on that?
Thank you, Mr. Campbell, for appearing and for your comments. I think there's been some discussion amongst parties or at committee on this bill and I think there's general agreement that it's a good advancement, it's a modernization and largely technical. We look forward, of course, to the other presentations and your recommendations, during clause-by-clause, on modifications that could be made to take out the irritants and make it work and achieve its goals.
But it's difficult to have the bankers here and not talk about something else. One of the concerns we hear of in the Canadian public is this. It appears that at a time when the banking sector is making increased profits and seems to be doing well both domestically and internationally, and on their brokerage arm as well, we see a proliferation of fees, and sometimes not with great understanding by consumers. So I would like you to take this opportunity to explain to me how fees for ATMs, for example, are established. Why is there such a differentiation? Sometimes if I'm in a restaurant and I have access to one, I'll pay a different fee than I will if I go to my local bank or to a competitor's bank and use their ATM machines.
Could you help us understand that process better?
In Canada we have a very competitive system. We have a number of different financial institutions competing for the business of their clients, and one of the ways they do that is to invest in networks like ABM networks to serve their own clients. We also do have a white label industry in Canada, white-label ABMs owned by institutions other than the banks. They also participate in this marketplace, and in fact they're the majority of the marketplace in terms of ABMs. So while banks do invest in the ABM network to serve their own clients, there is the possibility of getting your money out from another bank, a bank that you don't bank at. But there's a convenience fee associated with doing that. So it allows you the convenience to do that if you choose to do it.
Interestingly, a lot of Canadians don't choose to do that. They choose to use their own bank's ABM, or other ways of getting access to their cash. For example, at a point-of-sale terminal, you can get cash back and there's no fee associated with that.
So there's a variety of different options in terms of how you can get your cash, how you can pay for goods and services, and sometimes there are fees associated with the convenience of doing that. But the range of options exists, and consumers are making rational choices about what works best for them.
I'm going to continue by asking you a question on transaction delays. I think there are two aspects: there's the practical reality—earlier you explained a bit how the mechanics, protection and security work—but there's also people's perceptions.
People in my riding often talk to me about that, and I've previously experienced it myself. Perhaps I could cite some personal examples that have not been distorted by intermediaries. When we pay our credit card bill, the money is withdrawn from our bank account. However, if we go and look at our Visa, MasterCard or whatever account on the Internet, the transaction doesn't appear immediately. It will obviously appear a few days later, with the date on which the amount was withdrawn.
Now, in consumers' minds, there's a moment when they don't know where the money is. That's how this is presented. Wouldn't it be better to have amounts withheld on accounts, rather than withdraw the money from the account? That's a bit of a concern for people, who wonder about it.
I can give you another actual example, which I experienced last year at the same time. I received a cheque from my broker, and I gave him one to invest in an RRSP. That happened the same day; it was the same transaction. I deposited my cheque immediately. The amount of the cheque was greater than $1,000. Usually the bank automatically authorizes amounts under $1,000 without delay. The balance is drawn on my line of credit, as a result of which my line of credit goes into the negative, whereas my account shows an equal, positive amount. However, I can't transfer the money from one to the other to stop paying interest.
When I called my banker, he told me that, when I write a cheque, they pay the other institution immediately. So there has to be money in my account. I asked him whether the other institution gave them the money immediately. He answered that they had to wait five, six or seven days. Something isn't consistent. When I write a cheque, why do they immediately take the money from my account, allegedly, whereas there's a delay when I deposit a cheque?
There's an inconsistency in that mechanism. There's something very concrete, very palpable. Even in the case of an Internet transaction, the money is withdrawn or it isn't, but it can't be in limbo.
Can you do something about the perception and about conducting transactions in real time?
I would start off my minute by saying I would say, quite frankly, sir, that other countries can learn an awful lot from the Canadian regulatory system and the Canadian industry. Look at the United States, it's highly fragmented. We've got a national system.
I would come back to the point that Mr. Del Mastro raised. Let's look at our regulatory system in Canada. We could make it more efficient.
If you look at Australia, if you look at the United Kingdom.... If you go back in time 10 years in the United Kingdom, you had nine, ten, half a dozen different authorities. They have put that together in a single financial services authority.
In the province of Quebec you had a series of regulatory bodies that came together as the AMF; ditto Australia.
I think that's one area where Canada could really improve, because the more efficient the structure of the regulatory system, the better it is for consumers, through better enforcement, lower cost, more efficiency.
That would be my 30-second answer.
There are a number of issues that we're working on outside the scope of this bill, issues that we'll continue to work on. I mentioned the voluntary code for electronic transactions, which is an important one, we think. The issue was raised of a common securities regulator. We think that is also good in terms of investor protection, and I think we need to continue to work on that. So there are a number of important files that we'll need to work on.
We're also continuing to work with the provinces, and collaboratively with the provinces, I might say, in further strengthening the ombudsperson services, which we think is an important part of the system.
And the FCAC is going to evolve over time. We think there is scope, for example--and I think the Senate committee indicated this, and other well-spoken individuals have mentioned this need--to ensure continued consumer education, financial literacy, and so forth. Those are issues that governments have to continue to work on.
This bill admittedly, in the consumer area as in others, does not do as radical a change as in 2001, for example, when the FCAC was constituted, but it does enhance disclosures and it does provide some tangible benefits. So it's one step along the way, responding in part to the Senate committee. There is more to come.
Thank you, witnesses, for coming today.
I've had numerous inquiries from constituents who are very concerned about identity theft, and in particular about someone stealing their mortgage. In one particular case—which was of national notoriety, of course—the bank was ready to turf the person out of the house because they were owed money, and it wasn't really that important who owed them the money: they just were owed money. Of course, because it became national in scope there were solutions made such that, in the end, the right thing was done.
Since we are speaking now, frankly, to the men and women who are your customers and who are our constituents, could you go through the steps that the banks, in cooperation with other institutions, have enacted to prevent this identity theft from costing innocent people their homes?
The other question I had—and most of it was answered—related to the fees surrounding ATMs. One of the issues raised in the Parliament of Canada by various opposition parties—and sometimes we share some of the same concerns—is that other countries don't charge ATM usage fees to their customers. You've very eloquently stated why Canadian institutions do charge.
I suppose when you say we're one of the largest users of ATMs, that we have one of the world-class systems, we could argue that the reason we have this is that people pay such high user fees. Therefore, you're able to build it, and you keep building on that.
I think we need to be able to articulate appropriately, especially when folks are trying to pay their credit card balances or bill off before they have to pay interest. When people use the services that banking institutions provide, and they see such profits at the same time as they're struggling to make ends meet, you have to be very sensitive, not only to be able to articulate in saleable ways but actually to deliver vis-à-vis comparing the fees that people pay now, and to be able to show....
What I'm saying is that when we go to the gas pumps, we see the little scale from the gas companies that says exactly how much profit they make vis-à-vis the costs that are incurred in producing the product, and who's taking a bite out of that. I'm wondering if there isn't a better way that you could articulate to your clients, who are our constituents, to show them why those fees are as good a deal as you say they are.
Would you like to respond to that?
As we said and outlined in our paper, we have a system in Canada where ABMs are one of many options that you can use to access your funds, where you can pay for goods and services. It's part of the network that is offered to clients in terms of online banking, telephone banking, ABMs branch availability, and so on.
The other thing that's really been growing in volume over the past number of years is the point-of-sale network in Canada. It's interesting to compare that to the U.K., for example. Point-of-sale doesn't seem to be as big an option for consumers there, but here in Canada people are using it as a means to pay and also get back cash. So if you're using your debit card at the point-of-sale to buy your groceries in a grocery store, you can also get cash back right then and there. It's interesting, because merchants appreciate this option as well. For the small business, it's a cash-rich business and also a way of managing their cashflow.
In Canada, there's a system that provides options, choice, and convenience to customers.
But I would go back to what my colleague said earlier in terms of affordability. In Canada, there's also a whole range of service packages. The FCAC and banks encourage you to talk to them and look at the options that most suit your needs, your patterns of withdrawal, and so on.