DISSENTING OPINION OF
THE PROGRESSIVE CONSERVATIVE PARTY

Response to Change, Challenge, Opportunity - Report of the Task Force on the Future of the Canadian Financial Services Sector: The Challenge is to Implement Changes that Provide Canadians with Real Opportunity

INTRODUCTION

The Report of the (MacKay) Task Force on the Future of the Canadian Financial Services Sector contains some very broad and far-reaching recommendations, covering the interests and concerns of consumers to the corporate structure of financial institutions.

The MacKay Report provided a legitimate framework for meaningful discussions on the nature and structure of the financial services industry in Canada. The PC Party has been advocating and implementing change in this sector for many years. Our Party brought in reforms that saw cross-pillar activities by financial institutions. These changes have given consumers greater choice, and Canada more innovative, efficient, and stronger financial institutions.

The PC Party agrees with the overall theme of the MacKay Report: Canadian consumers are best served by a dynamic and competitive marketplace. To achieve the goal of a more competitive and innovative marketplace, we believe the following recommendations should be adopted by the federal government.

RECOMMENDATIONS

Increasing Competition/Choice for Canadians

• The Progressive Conservative Party supports the MacKay Task Force recommendations to encourage start-ups of new Canadian financial institutions. These initiatives will help create an environment in which innovation will flourish and consumers will be provided with new products and services.
• We support the MacKay Report recommendation that would permit the Minister of Finance to have discretion to allow new financial institutions (including banks) to incorporate with less than $10 million in capital.
• The Task Force recommendation for a 10-year capital tax exemption for new financial institutions should be implemented.
• We endorse the MacKay recommendation to increase foreign competition to ensure that consumers have the most choice possible for their financial services.
• We support the elimination of withholding taxes for all arm's-length borrowing. These taxes discriminate against foreign lenders, and reduce access to capital for Canadians.
• We support levelling the playing field between all financial services companies by allowing non-bank firms access to the Canadian Payments Association.
• The PC Party supports the recommendations to reduce the regulatory burden on the Cooperative sector (Credit Unions) to encourage greater competition and choice for Canadians.
• The Interac network should be fully utilized to permit as many functions as the technology allows, including making deposits through any ATM to any participating deposit-taking institution.

Regulation

• The PC Party endorses the concept of reducing duplication of regulation between federal and provincial regulatory bodies. We are encouraged by the latest cooperative initiative by the provincial securities commissions.
• We support the reduction of the regulatory burden for financial institutions, while ensuring the financial services industry is prudentially safe and sound.

Consumer Powers

• We support the MacKay Report recommendations on transparency, privacy, and consumer redress.
• We agree with the MacKay report recommendation that there should be a specific legislative ban on coercive tied-selling by all financial institutions.

Retailing Insurance and Light Vehicles Leasing

• The PC Party does not endorse the Task Force recommendation to allow banks to sell insurance through their branches. We would, however, encourage further investigation into the potential effects of allowing deposit-taking institutions to retail insurance, certainly as the regulatory and competitive environment improves and if the government moves to increase consumer protection.
• The PC Party does not support the Task Force recommendation to allow banks to lease light vehicles through the branch network. An alternative may be for the banks to lease light vehicles through automobile dealers.

Bank Mergers

The Progressive Conservative Party of Canada understands the rationale for, and acknowledges the potential of such mergers to create strong financial institutions that are able to compete in both international and domestic markets.

Given that the Competition Bureau has not reported its findings and that Canadians have not been given a chance to speak on this issue, the PC Party cannot endorse or oppose the proposed mergers between the Royal Bank of Canada and the Bank of Montreal, and between the Canadian Imperial Bank of Commerce and the Toronto-Dominion Bank. We must have more and better information than that which is available now.

Given the lack of complete analysis, it is interesting to note that the Liberal Caucus Committee on Financial Services has already made a decision on the proposed bank mergers. Like the APEC Inquiry and the Somalia Affair, the Liberals have prejudged the merger process, putting partisan politics ahead of public policy.

It would be inappropriate for the Finance Minister to make his decision on the proposed bank mergers immediately after he receives the Competition Bureau Report which is due to be released December 1998. The final report of the Finance Committee on the Future of Canadian Financial Services is not to be tabled in the House of Commons until March 1999.

The PC Party proposes a review mechanism expanded beyond the Public Interest Review Process (PIRP) set out in the MacKay Report. The public review will fully examine the impact the proposed mergers will have on Canadians and our financial services industry and would be conducted under the direction of the Finance Department.

Under the PC Party's Proposal for a Public Interest Review Process:

• Public hearings would be held across Canada for a period of 90 days. The travelling hearings would be broad consultations on the specific mergers being proposed.
• The review guidelines should require merger proponents to submit a detailed Public Interest Impact Assessment that:

1) describes their business plan and objectives if the mergers are approved, and an alternative business plan in the event that the mergers are not approved;

2) clearly identifies the benefits and costs to the nation and the public;

3) outlines any remedial steps with respect to public interest costs, and any assurances with respect to public interest benefits, which are proposed by the merger proponents.

4) addresses public concerns, including:

(i) job losses due to mergers and how institutions deal with potential job losses (i.e., through early retirement, buy-out packages, etc.);

(ii) small business lending and the availability of capital to small and medium-sized businesses;

(iii) rural access to financial services;

(iv) bank service charges and how savings resulting from mergers will be shared with consumers.

• The Finance Committee should receive a summary of the presentations heard under the PIRP and should table its report in the House of Commons within 60 days of receiving the summary of the hearings.
• Members of Parliament should debate the Finance Committee report and the report of the presentations made at the public hearings.
• Within 30 days of the tabling of the Finance Committee report in the House of Commons and after debate by Members of Parliament, the Finance Minister would announce his decision.

The Minister of Finance should have legislative authority to seek and obtain enforceable undertakings from the merging banks to ensure that commitments made to address competition and other public interest concerns are fulfilled. Strong legal sanctions should be provided for non-compliance with the commitments.