[Recorded by Electronic Apparatus]
Monday, April 7, 1997
.1532 
[English]
The Chairman (Mr. Jim Peterson (Willowdale, Lib.)): Order, please. The finance committee of the House of Commons is very pleased to be considering clause-by-clause of the financial institutions legislation, Bill C-82. Before we go into that, however, we do have a witness from Entraide assurance-vie, Gaétan Gagné, president.
[Translation]
Welcome. I know you have a presentation. With you, you have Mr. Yves Le May, your counsel. We are awaiting your presentation.
Mr. Gaétan Gagné (President and CEO, L'Entraide assurance- vie): Thank you very much, Mr. Chairman.
First of all, ladies and gentlemen of the Standing Committee on Finance, I would like to thank you for giving us this opportunity to present our views in the context of Bill C-82.
However, before addressing Bill C-82, I'd like to introduce our company and give you a rapid overview so you'll understand why we think it's necessary to amend the bill.
L'Entraide assurance-vie is a company holding a Quebec provincial charter, a mutual company with assets of $23 million managing an insurance volume of approximately $500 million. The average of our insurance contracts is $12,500, which is not very high, but l'Entraide assurance-vie has specialized and targeted the low and middle-income population as their clientele, people earning less than $25,000 a year, who represent about 66% of Quebec's payroll.
L'Entraide assurance-vie has 40,000 insured on its books, a majority of them being from Quebec, but a certain number are to be found outside the province today because of the globalization of markets and jobs outside the country, and they are scattered across the 11 Canadian provinces, 17 American states and 3 European countries. Nevertheless, l'Entraide assurance-vie develops its business entirely on Quebec provincial territory.
Financially, l'Entraide assurance-vie has an enviable position. For example, never during the last 10 years has its return on investments ever been lower than 10% which makes it a financial jewel for some future competitors.
.1535
Our surplus is far greater than required by standards for federal and provincial institutions and is almost three times the minimum amount required. Just as any Canadian corporation, our institution is a member of the Canadian Life and Health Insurance Compensation Corporation otherwise known as CompCorp in English or SIAP, in French.
Mr. Chairman, I'm quite proud of our institution, first of all because of its financial stability and for what it represents and also for its dynamism, its flexibility and its huge potential. In fact, even though our institution is not an international one with offices established everywhere in the world and even though we're not part of the 10 biggest financial institutions in Canada, I can certainly state, without a doubt, that we are a world class institution, that we can face any competition in our market and that we have the will and the determination to fight as well, I would say, as the passion to build and succeed in our undertakings.
We all know that during the last few years, the life insurance industry in Canada has gone through a more difficult time in its market. The industry has a whole, at that time, showed solidarity and set up a consumer protection mechanism that all Canadian and provincial parliamentarians are proud of, or should be proud of, when it set up CompCorp.
In my opinion, CompCorp is to the Canadian insurance industry what NAFTA is to free trade in North American, in other words a guarantee for free trade. CompCorp is a treaty between the industry, governments and regulatory organizations, the industry meaning all insurance companies whatever their status, whether the charter is provincial or federal, governments, at both the federal and provincial levels, and regulatory organizations including the OSFI, here in Ottawa, and the IGIF in Quebec City. We set up a financial self-regulation organization for the whole Canadian insurance industry to protect the consumer. Whether they're out West, in Vancouver, down East, in the Maritimes or in Central Canada, in Quebec or in Ontario, all consumers enjoy the same protection. Isn't that a beautiful example of harmonization of regulations in Canada?
It's an industry that I'm personally proud to belong to. L'Entraide assurance-vie and all the other insurers in Canada and Quebec have contributed to maintaining an enviable financial force and ensuring that all Canadian men and women enjoy uniform protection from sea to sea.
But in Bill C-82, there is a little detail that slipped by you and which, in my opinion, threatens to destroy this culture of harmony so dearly bought over the last few years. So I'd like to tell you about transactions between corporations with a provincial charter and corporations with a federal charter operating in the same country, in Canada.
Under the present Act, a corporation with a federal charter is not allowed to sell part of its clients to a corporation with a provincial charter such as l'Entraide assurance-vie. However, Quebec legislation, probably just as the legislation in the other provinces, does allow a corporation with a provincial charter to engage in transactions with a corporation with a federal charter and sell it part of its client list.
.1540
I believe this is quite appropriate in view of the existence of CompCorp which is the vehicle par excellence to ensure equality in the area of consumer protection.
In the reports submitted previously, the financial services industry, which includes insurance companies, banks and trusts, speaks unanimously in favour of free trade between financial institutions. In fact, I can't see where the interest lies, through this little glitch in the bill, in setting up second-class financial institutions in the insurance industry within the same country.
So I would ask you, Mr. Chairman and honourable members of this committee, to amend Bill C-82 in order to allow corporations with federal charters to engage in transactions with their sister corporations with a provincial charter. I thank you in advance for accepting this amendment.
Thank you, Mr. Chairman.
The Chairman: Thank you very much, Mr. Gagné.
Mr. Loubier, I could ask the witnesses from the Department of Finance to answer this suggestion or I could invite you to begin questioning. The choice is yours.
Mr. Yvan Loubier (Saint-Hyacinthe - Bagot, B.Q.): I'd like some clarification onMr. Gagné's presentation and perhaps also from Mr. Le May, who is with him. Welcome to the Standing Committee on Finance. What Mr. Gagné has to say seems very important, all the more so since his suggestions would not lead to major amendments to the bill.
The Chairman: That's very true.
Mr. Yvan Loubier: After I've obtained this clarification from the witnesses as well as from the officials from Finance, a little later on, not at this stage, we'll be able to suggest an amendment, during the process, with a view to correcting the matter.
Messrs. Gagné and Le May, if you held a federal charter, what would that change for you in the area of controls and regulations? Would your company have to play by stricter rules? Would the criteria regarding solvency be more stringent? What specific changes would you have to adapt to?
Mr. Gagné: The regulations would not be more stringent. The Canadian Life and Health Insurance Compensation Corporation was set up with a view to ensuring consumer protection and from this manner of financial self-regulation sprang the solvency standards that must be honoured all across Canada. These solvency standards are harmonized within the different provincial jurisdictions in this country which means that the consumer enjoys exactly the same protection whether we're operating under a federal or provincial charter.
Mr. Yvan Loubier: Could you then tell us, in your opinion, why provincial legislation would allow the sale of provincially chartered corporate blocks to federally chartered corporations while the reverse would not be true? Is it an oversight? Is it because there's a defect in the presentation? What are the fundamental reasons for this state of affairs?
Mr. Gagné: I'm not familiar with the basic reasons that could prevent a transfer of this type, except that the provinces have confidence in the CompCorp system, which authorizes...
Mr. Yvan Loubier: It is not a consumer's protection issue?
Mr. Gagné: Absolutely not, because the provinces, in their own jurisdictions, are responsible for the distribution networks. If the provinces agree that companies with provincial charters may sell their insurance policies to companies with federal charters, the reason is, on the one hand, that they have confidence in the CompCorp protection system, and on the other hand, the whole mechanism exists to oversee the activities of insurance companies, whether they have federal or provincial charters. Each company doing business in different jurisdictions is required to have a permit and, under this permit, to be a member of CompCorp. Once you are required to be a member of CompCorp, which requires you to have a permit, both the federal and provincial control authorities are structured to follow up on companies' activities.
.1545
So, in the area of control, no reason could be advanced that would prevent legislation of this type from coming forward and from continued harmonization of the legislation to comply with the requirements of free trade. One could deal with foreign companies, but a company with a Quebec provincial charter, which is a Canadian company, cannot deal with its sister companies in Canada.
Mr. Yvan Loubier: I want to be sure I understand correctly. Is it not true that the bill allows transactions of this type between provincially and federally chartered companies in cases of insolvency or bankruptcy? Would that not solve your problem? Could you not deal with these companies under these provisions?
Mr. Gagné: You are right. The law would permit, as was the case recently, a company such as L'Entraide assurance-vie to buy the insurance policies of bankrupt companies, or, to use our jargon, of companies being wound up. If the legislation allows us to purchase companies being wound up, I fail to see why, under the supervision of the respective authority, we would not be allowed to make transfers between healthy companies.
Mr. Yvan Loubier: It is rather incongruous that you would be allowed to purchase blocks of insurance from federal companies, if they are in difficulty or if there are no other buyers, and yet, under normal circumstances, you would not be allowed to make such a purchase or to engage in free competition.
Mr. Gagné: It is difficult to accept legislation that would not allow us to function freely within Canada and to remove these boundaries that are irritants and that prevent us from making a healthy progression and dealing on the same basis as any other sister company in Canada.
Mr. Yvan Loubier: I would like to accept the invitation you made earlier, Mr. Chairman. I would like the officials from the Department of Finance to tell us why we have a provision of this type which prevent provincially chartered companies from purchasing blocks of insurance, even though the opposite is allowed.
The Chairman: I too would find that very interesting.
Mr. Yvan Loubier: You're interested in this as well, and you find this provision quite incongruous.
The Chairman: I could ask Mr. Swedlove to reply.
[English]
Mr. Barry Campbell (St. Paul's, Lib.): Do you want to see if any other members have questions for the witnesses, Mr. Chairman, or will those witnesses stay at the table as well?
The Chairman: What I was going to suggest is that we see to what Mr. Loubier suggested and perhaps invite the Finance officials to explain why we have this seeming anomaly in the law, unless other members want to ask questions before the officials come forward.
[Translation]
Mr. Yvan Loubier: If other members would like to ask witnesses questions, they will be able to do so, but could we ask the witnesses to stay to discuss these matters with the officials from the Department of Finance? That would be instructive for everyone.
The Chairman: Yes, that is a good idea. I am in favour of an open discussion.
[English]
Mr. Swedlove, thanks very much for being with us.
Mr. Frank Swedlove (Director, Finance Sector Division, Department of Finance): Thank you, Mr. Chairman. It is indeed a complex issue, and therefore I will call upon Mr. Gingras to provide some explanation of the reason why we were not able to accommodate this change. Of course, as I mentioned last time I appeared, this is not a change from 1992. This policy is the same as it was in 1992. But I'll ask Mr. Gingras for some explanation. I also have here officials from the Office of the Superintendent of Financial Institutions to respond to any further technical questions.
The Chairman: Would you like to have them at the table as well, Mr. Swedlove?
Mr. Swedlove: Sure, if there's room, although we seem to be out of room.
The Chairman: There's lots of room.
[Translation]
Mr. Yvan Loubier: We will have to cut back on the Liberal side, there are too many of them.
The Chairman: There is no such thing as too many Liberals!
Mr. Yvan Loubier: We will see during the next election.
[English]
Mr. Swedlove: We have André Brossard and Heather Friesen from the Office of the Superintendent of Financial Institutions. But first I'll ask Claude Gingras to speak.
[Translation]
Mr. Claude Gingras (Special Advisor, Finance Sector Division, Department of Finance): I would like to explain the nature of the transaction in question here. This is a complicated issue, which involves replacing insurance contracts held by one company with other contracts held with another company. In a case such as this, the client has an important say. Normally, a transaction of this type is not carried out unless the client agrees.
.1550
Without the client's consent to substitute his or her contract with one company for a contract with another company, the company transferring the contracts remains completely liable, even if the new company that acquires the contracts assumes the risk. The former company, the transferring company, remains fully liable as to risk. That is where the problem occurs, because there is no way of avoiding this liability.
In order to guarantee consumer protection and in the interest of the solvency of federally regulated companies, the same individual must supervise the two companies, the transferring company and the company which purchases the policies. The reason is simple. When financial problems occur subsequently, it is important that the superintendent have access to the information immediately and on an on-going basis. This enables him to take steps to correct the situation, both as regards the company which purchase the policies and the company which transfers them. Without this type of supervision of the two companies, no steps can be taken. Since the company which transferred the policy remains liable, without the client's consent, measures of this type are required. That is why a single individual must provide on-going supervision over the two companies.
The Chairman: Would you care to comment, Mr. Gagné?
Mr. Gagné: Yes. That is exactly the point we raised, and that is why the Canadian Life and Health Insurance Compensation Corporation was established. Its role is to protect consumers. I fail to see how we can better protect consumers in cases where there are two federal charters, given that under the Canadian Life and Health Insurance Compensation Corporation, the same criteria must be met.
Provided companies in this country, whether they have a provincial or a federal charter, meet the solvency criteria of CompCorp, and provided this corporation provides supervision under the legislation, there is no reason we could be required to have a single individual review the legal proceedings between federally chartered companies and provincially chartered companies, which are also federal companies.
At the moment, it is easier for a foreign company with a branch in Canada to take a product and sell it to another foreign company whose head office is in Brazil. This is because the two foreign companies have a branch in Canada and therefore, under federal jurisdiction they can make transactions of this type, whereas companies in Quebec, such as L'Entraide assurance-vie, would not be able to deal with a federal company operating in Quebec for customer protection, on the pretext that the two companies do not have the same individual in charge or the same legal control system.
Yet CompCorp was created specifically to protect consumers and to avoid their having to deal with a strange or insolvent firm. I would like to repeat that in order to be a member of CompCorp, companies have to meet both federal and provincial criteria. Under the formula, the criteria of the two levels of government were harmonized almost to the commas.
Mr. Chairman, with all due respect for my colleagues, this is an argument I defended with COMCORP, because I believe this body provides protection for Canadians. Quebec could quite rightly decide not to approve a transaction between a provincially chartered company and a federally chartered company if the argument we were providing today were not solid. What is done with respect to Quebec? Does COMPCORP no longer count? I would like to know.
Mr. Yvan Loubier: Mr. Gingras, why are provincial and federal transfers allowed? Should the Quebec legislation be changed? Was a mistake made in Quebec? Is insufficient protection provided there? Why does your bill allow this type of transaction from the provincial level to the federal level in the case of bankruptcy and insolvency? There are clients involved here. It is difficult to follow you sometimes.
Mr. Gingras: To answer your last question, once a company declares bankruptcy, it no longer has any obligations. When the liquidators transfer a portfolio, no claims can be made against the company that declared bankruptcy.
Mr. Yvan Loubier: But what happens in the case of provincial and federal transfers?
Mr. Gingras: Your first question was about provincial and federal transfers. I understand that the Quebec inspector of financial institutions has the power, under the Quebec Act, to prohibit such transfers, if he wishes, depending on the circumstances and the facts of the case.
.1555
Sections 275.4 and 275.5 provide for a prohibition power and do not necessarily give the inspector of financial institutions the power to prohibit transfers.
Mr. Yvan Loubier: Yes, but the Quebec inspector of financial institutions has this power. Is it not correct to say that the Minister of Finance in Ottawa also has this power at the moment?
Mr. Gagné: He could have it.
Mr. Yvan Loubier: He could have it.
Mr. Gagné: That's clear. The minister would supervise the authorization.
Mr. Yvan Loubier: Yes, if you wanted to. He does so in many fields, he could do the same thing in this case as well.
Mr. Gagné: Exactly.
Mr. Yvan Loubier: Thus, there would be some analysis done to determine whether or not approval would be given to a federally chartered company that asked to purchase a block of insurance of a provincially chartered company.
Mr. Yves Le May (Legal Counsel, L'Entraide assurance-vie): The federal legislation already provides for ministerial approval of transactions between two federal companies. So provincial transactions would be subject to the same approval in any case.
Mr. Yvan Loubier: Mr. Gingras.
[English]
Mr. Swedlove: Maybe I'll ask Mr. Brossard to answer, because we're getting into the responsibilities of the superintendent.
The Chairman: Mr. Brossard.
[Translation]
Mr. André Brossard (Director, Legislation and Precedents Division, Office of the Inspector of Financial Institutions): I understand the witness's concerns. I would like to state that the bill before us suggests some changes to current practices that will allow for some openness in the transfer of some federal institutions' activities to provincial institutions. So the bill before the committee at the moment already makes the rules in effect at the moment somewhat less stringent.
We are simply talking about a certain type of transfer or activity. For the time being, we do not think it wise to allow this type of transfer. We are not saying that it does not deserve consideration, but I would not like the committee to think the bill does not provide some flexibility.
There is flexibility as regards transfers on the basis of indemnity. There are a considerable number of transactions of this type in the business. Before Bill C-82, these transfers between federal institutions and provincial institutions were not allowed.
Mr. Yvan Loubier: Mr. Gagné just told us that as far as caution goes, and you seem to be very interested in caution, there is apparently no problem. There is already very tight control as regards existing institutions, and by giving the Minister of Finance the power to accept or refuse transactions of this type, I think you are ensuring complete security and caution. We are being very cautious here, even more cautious than usual.
Mr. Brossard: In some ways, I can see that the regulations enforced by the organization in question provide some protection. The question is under what conditions we can permit the transfer of large blocks of insurance policies. Generally, we are talking about people with very long-term contracts.
These people took out their insurance with a federally regulated institution because of the long-term nature of these contracts; they do not feel as comfortable with a regulatory body responsible for protecting policy holders. When the contract is transferred and the reserves for this block of policies are also transferred to an institution, in our capacity as the federal regulatory agency, we have no information on an on-going basis, and we cannot intervene as we do when the policy holders in question remain insured with federally regulated institutions.
.1600
The Chairman: I would like to give Mr. Campbell and Mr. Gagné a chance to speak.
Mr. Yvan Loubier: Mr. Chairman, we are in the middle of a heated discussion. Would it be possible for Mr. Gagné to respond before we turn the floor over to the officials and then to other members? Otherwise, we will lose the thread of the argument being put forward by the official.
The Chairman: I am in the committee's hands.
[English]
Mr. Barry Campbell: Mr. Chairman, with all due respect, we've been sitting here since 3:30 p.m. This is a meeting of the finance committee, an all-party committee of this House. What we've had is a two-way conversation between Mr. Loubier and witnesses he's asked to come to the committee. They have raised a very serious issue for us to discuss and debate, and so far it's been a two-way conversation. We have members of another party of the House here, and from the Liberal Party. I think some of us might like to get into the conversation before the discussion goes much further. I have several questions that have arisen from the discussion thus far. With your permission, Mr. Chairman, I'd like to get into this discussion. Mr. Loubier has had several minutes -
[Translation]
Mr. Gagné: I would like clarification about this matter of liability and caution or prudence. How do federally chartered companies provide more protection or how are they more prudent than provincially chartered companies, when the two jurisdictions, within the same country, are members of the same organization, which was approved by all the provincial governments and the federal government through legislation which requires us to belong to the same association and to harmonize our rules? How do federal charters provide more protection for consumers? I would like to hear the answer to that question.
The Chairman: Who could answer the question? Mr. Brossard?
Mr. Brossard: That is why I was trying to point out earlier that the bill already provides some flexibility. This is the point I was getting at. We are not saying that this flexibility could not be pursued in future. However, when we are asked to provide the same flexibility in the case of companies which transfer the rights of the consumer to another company once and for all, and this company is under a different jurisdiction and a different regulatory scheme, we must look, among other things, at what is done in other countries.
In our opinion, in many countries outside Canada, transactions of this type are not facilitated as much as the witness would like. Although we think this question should be considered, we think it wise for the time being to proceed cautiously, and, as the bill suggests, to accept that there may be transfers for contracts done on the basis of indemnity. As regard other types of contracts, I think we should study the matter more thoroughly before opening the doors to transfers of this type. As I was saying, in most other countries, transfers of this type are subject to an approval process by the courts, and there's no reference to that here whatsoever. We would have to look into these procedures, but I don't think we would be able to do so very quickly. There are certainly good reasons for looking into options of this type in the future.
Mr. Gagné: The details of the procedure for approving a transfer are of very little importance to me. What I want is that the legislation deal with provincially chartered and federally chartered companies, without discriminating between the two, since we are both members of the same association, the Canadian Life and Health Insurance Compensation Corporation, which exists to protect consumers. To date, endless discussions have been held with a view to harmonizing the solvency rules used by insurance companies.
I think we can make a big step forward by allowing the minister to authorize transactions of this type, as the industry as a whole has suggested. All the federal and provincial officials will meet to discuss the procedure that will enable us to complete the transaction. I think it is in the interest of the citizens of Canada and Quebec that the legislation be harmonized to prevent us from becoming a second-rate insurance company because we have a provincial charter. That would be unacceptable.
The Chairman: Thank you, Mr. Gagné. You have the floor, Mr. Campbell.
.1605
[English]
Mr. Barry Campbell: Thank you, Mr. Chairman.
I'm sorry for my frustration, but it's an interesting discussion and I wanted to get into the discussion. It isn't because I think the issue you raise is not a serious one. It's a very serious issue, and, I guess, an impediment to doing business the way you and other provincially regulated insurers want to do business. I'm concerned, as are many of us around this table, whenever there are impediments to the free flow of people and commerce in this country.
So I think you raise a good concern. I simply hear officials of the department saying they are not comfortable enough at this time to proceed with this change. But you raise some very good points if all the prudential concerns were addressed satisfactorily throughout the country...because we're not talking about just a federal government-Quebec situation here. Of course this would be a change at the federal level that would affect all provinces. I personally don't know the state of regulatory supervision of insurers throughout this country, but it would be a change the government would want to make while taking adequate time to assure itself that at the end of the day policyholders are protected.
There are two concerns I have as a policyholder, and I want to welcome the witnesses and officials in commenting on them. When I take out a policy with a particular company, I do that for a number of reasons. I do that because of the nature of the policy. I do that because of the entity that's issuing the policy. I do that because in the back of my mind perhaps I'm comfortable that they are supervised at one level or another, either provincially or federally. A number of things go into that decision.
But could we just take this back? So far we've had the witness on behalf of the industry bringing forward a position at the eleventh hour - which is fine; that's why we meet and study bills - one the industry is generally supportive of, I understand. It doesn't mean the government is there yet. We have an industry fighting for something that's in its interests so it can get on with doing business. We also have members of the official opposition who are keen to do this. But we don't have - as is often sadly the case, Mr. Chairman - representatives of consumers at the table; policyholders.
So let's take it right back to basics. I'm a policyholder. What happens when you buy that block of business? How do I find out about it? Do I have any say in it? Could you take us back through that? Then I have some follow-up points. I really don't know what happens to me as a policyholder.
[Translation]
Mr. Gagné: You have raised a good question, Mr. Campbell, and I would like to answer.
When you purchase an insurance contract, you are buying long- term protection, and you obviously hope that your company will always be there to serve your part of the country and that, for many reasons, you will maintain your relationship with the company.
What is important for you is not necessarily the name of the company on the contract, but the fact that the company lives up to the contract. The insurance company that sells the insurance contract does not include a clause saying that it can sell the contract. That is a business decision between two companies that decide to buy and sell a block of business and to provide protection for the insurance contract by transferring the appropriate reserves to the other company, the one acquiring the business under the terms set out in the contract.
Once the transaction has been completed, if I remember correctly, the policy holders must be informed of the decision, and they have 30 days to comment on the transaction. However, we are in a free market, as far as I know, and transactions of this type are possible provided that consumers' protection does not suffer. That is what you are after.
You may say that the company will not have the same financial capability. If that is the case, you have the protection from the Canadian Life and Health Insurance Compensation Corporation. Both companies belong to this body and follow virtually the same rules.
.1610
As I was saying, the rules regarding the solvency of financial institutions have been harmonized. Since we live in a free country with free markets, you will enjoy good protection anywhere in the country.
Tell me why, under the current bill, there would be better protection when the transaction involves two federal companies than when it involves a provincial company and a federal company. What difference would there be in consumer protection?
[English]
Mr. Barry Campbell: It may or may not be, depending on the health of the company, but I want to know about the policyholder. I get notice in the mail that says you've bought this block of policies. Company A has bought this block of policies from Company B and I'm given an opportunity to say no thanks. What happens to me?
[Translation]
Mr. Le May: Not individually, but steps can be taken by...
[English]
Mr. Barry Campbell: Oh, I see.
[Translation]
Mr. Le May: ... the OSFI or the inspector general. That is part of the approval process of the transaction. There is a deadline that must be met.
I would like to add another point.
Mr. Gagné: I would like to add something for your benefit. Exactly the same thing occurs when a federally chartered company sells a contract to another federally chartered company.
[English]
Mr. Barry Campbell: I would assume, sure. I want to understand, because...
[Translation]
Mr. Gagné: We are not here to amend the legislation as regards consumer protection. Bill C-82 should authorize the sale of blocks of insurance between companies in the same country; however, it authorizes such sales between two federally chartered companies only. We should not bring the issue of consumer protection into the debate. There are laws on consumer protection that apply in each province. I would suggest you refer to them.
We are here to talk about amending a bill that prevents provincially chartered insurance companies from purchasing a block of business from a federally chartered company...
[English]
Mr. Barry Campbell: I understand that.
[Translation]
Mr. Gagné: ... whereas two federally chartered companies could make such a transaction.
Mr. Barry Campbell: This is quite a complex issue.
Mr. Gagné: How would consumers be less protected in the case of a transaction involving a provincially chartered company than in the case of a transaction involving two federally chartered companies, Mr. Campbell?
[English]
Mr. Barry Campbell: Mr. Chairman, one of the risks a witness takes in coming before this committee, and it happens all the time, is that you raise an issue and because we have MPs around this table who, as they say in the supermarket tabloids, have inquiring minds and they want to know, these discussions tend to get us into other issues, which you may regard as extraneous.
You're absolutely right. The same issue for the policyholder arises whether it's a transfer from a federal to a federal or a provincial to a federal or a federal to a provincial. I would just like an answer. What happens to the policyholder? Your colleague was about to say I don't get an individual say, so I'm just curious.
Mr. Yvan Loubier: It's irrelevant.
[Translation]
Mr. Le May: No, no. I would just like to add one point. There are fairly few transactions of this type. When a company sells an insurance portfolio, it does so because it is no longer in business. You take out your insurance contract at the age of 5, 10, 15 or 20, but the company, for various reasons, stops doing business in a particular field at a certain point. It therefore sells its portfolio, its business line or something of this type. These things happen.
Mr. Gagné: In that case, Mr. Campbell, exactly the same thing happens as when the case involves two federal companies.
[English]
Mr. Barry Campbell: Let's try it one more time, because your colleague was about to answer. I'm a policyholder of two federally supervised companies. One buys my policy from the other. Do I get notice of that? Do I get a chance to say I approve or I don't approve?
Mr. Gagné: Sure. Why not?
Mr. Barry Campbell: Do I?
Mr. Gagné: Yes, you do.
Mr. Barry Campbell: I would like to hear from OSFI, I think. Did you want to answer that?
Ms Heather Friesen (Director, Analysis, Life Insurance Division, Office of the Superintendent of Financial Institutions Canada): Yes, I would like to answer that. I'm Heather Friesen. I'm the director of life analysis at OSFI. I'm responsible for overseeing the corporate transactions approved pursuant to the legislation.
The process that's in place at the moment provides that the policyholders are notified of the proposed agreement. They are given thirty days, as our witnesses mentioned, to voice an objection. We often get policyholders who write in and say ``I would rather not have my policy transferred''. It's then up to OSFI to make a recommendation to the government or to the minister whether or not to approve the proposal.
It's not practical to have some policies transferred and others not, because as the witnesses mentioned, in a number of situations the companies that are selling the blocks of business are leaving and they aren't going to continue to be in Canada to service the business.
.1615
So when we get objections from policyholders, we look at the reasons behind those objections, and we also ask the companies that are buying the business to resolve the objections. Once we're satisfied there are no substantive objections -
Mr. Barry Campbell: Our witness's point, then, is that's what would happen in a transfer between two federally regulated entities. Right now that can't happen when you do a transfer between a federally regulated and a provincially regulated entity.
Ms Friesen: That's correct.
Mr. Barry Campbell: It just can't happen yet.
Mr. Friesen: I wonder if I could make one other point as well, and that's with regard to this harmonized body. I believe the witnesses are referring to CompCorp, which is the compensation corporation that steps in when there is a liquidation.
From OSFI's point of view, it's important for us to be able to intervene and to get information on an ongoing basis, and hopefully to prevent any situation that might lead to a liquidation. That could be one of the reasons we have that information ready at hand when it's a transfer between two federal companies.
Mr. Barry Campbell: This is my last point, Mr. Chairman.
We heard from the Finance officials about Prudential's concerns if we were to permit these transfers, and I presume that over time those questions could be sufficiently addressed.
We're not talking about just the province of Quebec, which I understand has excellent supervision. We're talking here about all of the provinces, which would benefit from that change. What kinds of things would OSFI seek to ensure this could proceed so that people could get on with doing what they do best, which is their business, and would not have to waste their time appearing before committees? What considerations would you want to see or what comfort would you want to have in time so that we could move forward?
Ms Friesen: I would say a lot of work has been done and a lot of work remains to be done to harmonize on a supervisory level our procedures as well as our legislation. There is an opportunity even to harmonize some of the legislation regarding some of the returns we get so that we are looking at the same information, because we have certain standards.
Mr. Barry Campbell: ``Harmonization'' is a very touchy word around this table.
What you're saying is you're not there yet. You don't include the possibility of eventually having enough comfort, and if this committee were to push you to get on with that work, that would certainly give you a bit of an incentive. But we're not there yet.
Ms Friesen: We're on the road.
Mr. Barry Campbell: Thank you.
The Chairman: Thank you very much, Mr. Campbell. I can understand why at your age you'd be worried about the security of your life insurance.
[Translation]
Mr. Gagné:
Mr. Gagné: Mr Chairman, I would like to come back to the issue of harmonization, with all due respect from my colleagues.
I think the industry has achieved a most respectable degree of harmonization. CompCorp is the living proof of this, because it sets out financial harmonization rules at both the provincial and federal levels. I don't think the industry would have accepted lower or higher harmonization standards in order to create two levels of insurance. That would have meant that it would have been more politically correct to buy an insurance contract from a federally chartered company than from a provincially chartered company.
Substantial effort was made to achieve harmonization, and I maintain that this bill discriminates against provincially chartered companies in Canada by preventing certain transactions. This is particularly true, given that the oversight and communication procedures are very well established, Mr. Chairman.
The Chairman: May I ask a question? When was this issue with the Minister of Finance?
Mr. Gagné: It was probably raised in 1992, and briefs were presented by the Canadian Life and Health Insurance Association, the Canadian Bankers' Association and the Trust Companies Associations of Canada. Everyone agreed on the harmonization of the legislation, and you even have a letter I sent you, Mr. Chairman. Mark Daniels says that...
The Chairman: What is the date of the letter?
Mr. Gagné: It is dated March 19 of this year.
.1620
The Chairman: But the question is as follows.
[English]
When did officials of the finance department hear about this issue? Is this something that came forth just recently?
[Translation]
That was not part of the White Paper, was it?
Mr. Gagné: That was part of the brief presented by the CLHIA two years ago. The situation is described very well in the brief. The CLHIA made representations on the same matter again recently.
[English]
Mr. Barry Campbell: Mr. Chairman, I understand this is one of many issues mentioned in that brief and in other briefs. Some have been included in the recommendations in the white paper, and others were added as a result of the response to the white paper. As members of this committee know, this is very much an ongoing process of updating and amending our financial institutions legislation. We're not going to get it all done in one round. I know that's not a satisfactory answer for witnesses who are keen to have something done that they think is overdue.
The Chairman: I would like to add to that, Mr. Campbell. I for one do not recall this issue having been brought before the finance committee last September when we sat to consider the white paper. Was it part of the insurance industry brief that was presented to us?
Mr. Gagné: Yes.
The Chairman: Then it's my fault that I didn't see it.
Mr. Brossard: Mr. Chairman, I'd just like to make the point again that this is not a new issue for the officials in the sense that, as the witness is rightfully saying, the subject has been brought up in industry briefs before, and these views have been considered. What has been proposed in the bill is to go a certain distance in accommodating the industry by actually proposing a regime whereby a transfer on an indemnity basis between a federal company and provincial companies, or even foreign companies that are not federally registered, would now be permitted with the minister's permission. So that's an overture and a move in the direction that the industry has been requesting.
What we're saying is that the last leg, if you want, of that exercise, which consists of approving those types of transfers where the policyholders have no more recourse against the original insurance company with which they were dealing, needs, I think, some further consideration before that can be proposed. We would like an opportunity to review what is being done in our jurisdictions and to see whether further harmonization can be achieved that would give us the degree of comfort that would be needed in order to take those further steps. I'd like to leave the committee with the notion that there is a move in the direction of meeting the industry's concerns.
[Translation]
The Chairman: Are there any further questions? Mr. Fewchuk.
[English]
Mr. Ron Fewchuk (Selkirk - Red River, Lib.): I have a question. Let's say you sell four blocks to another company, a brother-in-law or whatever, and two weeks later you take off with all the cash. Then there's a flood in Ontario and a lot of claims are submitted. Does the province match the federal payment dollar for dollar?
[Translation]
Mr. Gagné: The system works in exactly the same way for provincial companies and for federal companies. When a company is being wound up and cannot meet its commitments, whether it is a federally or provincially chartered company the Canadian Life and Health Insurance Compensation Corporation, or CompCorp, provides standardized consumer protection from coast to coast, regardless of the type of charter held by the company. All Canadians enjoy the same protection.
[English]
Mr. Ron Fewchuk: To the lady sitting over there, what role would you play in this to protect me as a policy owner? Where do you come in?
Ms Friesen: The first protection is at the level of the review of the agreement itself. We ask for a fair amount of information to satisfy ourselves that the company acquiring the block is a good company and will continue to meet their obligations. Then on an ongoing basis, for the companies we supervise, we have a regular regime for intervention if we see a company is running into difficulty. But once the action is taken to liquidate a company, then everything goes into CompCorp in the case of a life company, and there are specific benefits available to consumers depending on the size of their policy.
.1625
Mr. Ron Fewchuk: But how do you arrive at it every year, that you know this company is solvent or they're taking the money off to one side? How do you know? What is your protection? Do you get a T-4 from Revenue Canada to know their income? Tell me, how do you ensure yourself of this protection?
Ms Friesen: That's a very good question. We have regular filings from the companies, which include statements as to what level of capital - this is the margin - they maintain over and above the liabilities they have assumed. There are safeguards in the corporate governance area. There are compliance regimes in place. We have on-site examiners who would actually go in and see the books and records.
There are a number of protections. The legislation we're looking at today has a number of areas of protection, and if you ask companies, they'll say the regulation is very stringent.
Mr. Ron Fewchuk: Who is your accountant? Thank you.
The Chairman: Mr. Loubier.
[Translation]
Mr. Yvan Loubier: Mr. Chairman, I would like to draw to the attention of yourself, of other committee members and of officials the fact that in a joint brief, the CLHIA, the Canadian Bankers' Association, the Insurance Bureau of Canada, Canada Trust, the Trust Companies Association of Canada, and Credit Union Central of Canada asked in February 1996, that is, last year, that the federal government, with the approval of the minister, permit the transfer of policies in Canada from a federal insurer to a provincial insurer, exactly as Mr. Gagné has requested.
Therefore, this is not a new debate.
The Chairman: It was before the publication of the White Paper.
Mr. Yvan Loubier: There were even representations after it was published. Letters were addressed to senior officials, the federal department and even to you, Mr. Peterson.
The Chairman: Are there any other comments on this issue?
[English]
I think all of us around this table are taken by the fact that we have a system that should be harmonized and should offer equality of treatment among institutions. How long would it take for officials working with their provincial counterparts to come to some type of decision on this issue and feel comfortable?
Mr. Brossard: Mr. Chairman, may I point out that the issue involves not only a federal-provincial relationship but also presumably a relationship with foreign companies that operate in Canada, and they do represent a very large part of that industry. All I'm saying is that this issue would have to be considered as well as -
The Chairman: You couldn't consider the federal-provincial issue in isolation for the moment?
[Translation]
Mr. Gagné: Perhaps we shouldn't start by dealing with foreign companies. We'll start by dealing with Canadian companies. If ever there was a problem, we should begin by looking after Canadian companies with provincial or federal charters. I think that can be harmonized very quickly.
In fact, Mr. Dumont, the inspector general of financial institutions, sent a letter stating that he found it inexplicable and inadmissible that such transactions were prohibited whereas Quebec allows dealing with federal companies. It's the federal government that does not allow dealing with Quebec companies. Harmonization would not be very difficult.
Mr. Yvan Loubier: I have a suggestion for you. In the past, we did not always agree on amendments, but it has happened. For instance, in the case of copyright, there was a provision in the tax system that led to problems. We managed to work together and propose an amendment to ensure that it worked.
The Chairman: You have that right. I have another question.
Mr. Yvan Loubier: I am not finished, Mr. Chairman.
Given that this would not be a major amendment to the bill...
.1630
The Chairman: Excuse me; I was asking questions. May I continue? I have a second one.
Mr. Yvan Loubier: I thought that you were finishing. You weren't reaching a conclusion and throwing the baby out with the bath water? I'm sorry.
The Chairman: Sorry.
[English]
The recommendation proposed to us is that these transfers to provincially regulated financial institutions could not be made without the consent of the minister, and the minister could impose terms and conditions and require undertakings. Does that not deal with the issue of prudence and security, or does that impose too much of a burden on our regulators?
Mr. Brossard: It could, Mr. Chairman. The issue is just that surely you wouldn't want to create a regime whereby a minister is given some discretion if in substance the minister and the government believe that an essential condition of approving such transfers in these very limited circumstances would require continuous federal regulations. That would really bring us back to the same situation as we're in now. In other words, you don't want to be seen as providing something without providing anything of real substance. Presumably, if one was allowing the minister to provide those permissions, there's an acceptance of the principle that those policyholders would be in the hands of the minister in transferring from one regulatory regime to another one.
The Chairman: Mrs. Brushett.
Mrs. Diane Brushett (Cumberland - Colchester, Lib.): Thank you, Mr. Chairman.
I've listened considerably here as well and I think this has to serve all provinces and territories of this country.
An hon. member: Hear, hear!
Mrs. Diane Brushett: If we're going to develop policy around this table from all parties of the House of Commons, then that policy should serve all Canadians. I don't think we should rush into anything that's going to give the minister the full authority when it doesn't come back before this House or before a standing committee that makes the decisions and regulates it accordingly. Therefore, I am totally against any suggestion of what you're making at this time.
Thank you.
An hon. member: Hear, hear!
[Translation]
Mr. Gagné: Mr. Chairman, if we can't give the minister the necessary powers in the democratic system in which we live, I wonder who we will give them to. I think that we should give the minister the power proposed by the financial institution industry in Canada, especially since specially chartered corporations can exercise that very power among themselves. In the case of a federally chartered company, everything's perfectly fine, but as soon as there's a transaction with a provincially chartered corporation, within the same company, there are many doubts raised about the nature of the transactions and its soundness even though we all benefit from the same COMCORP protection.
Giving the minister the power to conduct the transaction would be an acceptable compromise to us. The industry has been and continues to be in favour of this.
Mr. Yvan Loubier: That's what I was going to say, Mr. Chairman. It's not for nothing that we have elected people. There are ministers who are appointed by the prime minister and that's not for nothing; it's to take on responsibility. If, in those cases, we appease the fears of senior officials... I find they're afraid of their own shadow. It doesn't make sense. With all the ironclad protections we have, both at the provincial level and at the level of an organization like COMCORP, I don't see why it wouldn't be possible to quickly table an amendment to eliminate the discrimination to which provincially chartered corporations are subjected.
The Chairman: Do you have an amendment to propose?
Mr. Yvan Loubier: We intend to propose one, but you are aware of the process. If you assure me that we can manage to eliminate the discrimination against provincially chartered corporations, you can be certain that we will get to work and propose an amendment for the benefit of all.
.1635
The Chairman: I'm my opinion, there will be no unanimous consent right now to adopt such an amendment.
Mr. Yvan Loubier: Not for the time being, Mr. Chairman. I'm talking about the report stage.
The Chairman: All right. Mr. Schmidt.
[English]
Mr. Werner Schmidt (Okanagan Centre, Ref.): Thank you, Mr. Chairman, and thanks to the witnesses.
There's an element that was addressed very tangentially by Dianne Brushett, but I think the issue here becomes one of provincial jurisdiction as well as federal jurisdiction. It's all right for the regulators to look at this issue in one way and look at the practical difficulties here, but governments do change and provincial governments do change. Unless there is some sort of overriding legislation, these so-called assurances that CompCorp will provide - and I agree it's a very good organization and it certainly has a good record. I have absolutely no criticism of the organization at all.
I think what the regulator would want to be assured of and what the minister would want to be assured of is that this kind of agreement, whatever harmonization, whatever other word you'd want to use, would carry on in perpetuity from one government to another government. That kind of assurance would have to be there before any legislative changes were made in this kind of act to provide for that flexibility.
So you'd want some stability built into this system, it seems to me. I think that kind of amendment, at this point, to grant that sort of flexibility is premature.
The Chairman: Is there further discussion?
On this issue, just briefly in conclusion - and maybe this was brought to my attention long ago - as I recall, there was no mention of this issue in the white paper and I don't recall having been approached by the industry after publication of the white paper or during our hearings in September regarding this particular issue. The first I heard about it was about two weeks ago. So maybe that's my fault.
As the chairman, I have a great reluctance to recommend adopting amendments when our officials, who have served us so very well, have incredible reluctance to do it, not having had an opportunity to discuss it further. I feel we've heard very compelling evidence from our witnesses today that we have a system that could work better. This is something I would feel more comfortable with, as the chair, being able to study further.
Now, I don't know what the ramifications for the industry would be if we deferred consideration of this, but I would feel much more comfortable if this was something we could put on our agenda and look at. We're probably going to have amendments to the Bank Act within 18 months anyway...and to other financial institutions to consider it further. Now, I don't know whether that would be acceptable to the industry or not.
Mr. Gagné.
[Translation]
Mr. Gagné: I appreciate your comments, Mr. Chairman, and I don't want you to feel guilty because there have been no developments in terms of the White Paper. I'm not addressing members of the committee and you specifically in the sense of trying to find guilty parties. Rather, I'm seeking solutions.
Sometime tomorrow, it would be possible to suggest a very simple amendment allowing the minister to authorize the transaction, as the industry has suggested and as Mr. Daniels suggested to you in his letter of March 19. That would be fully acceptable to the industry.
We have transactions underway and it is completely unthinkable to us that we have to wait 18 months while there is a debate about a problem that doesn't exist, particularly when we're talking about harmonization. Over the past few years, we have built a consumer protection system based on harmonizing the rules between the provinces and the federal government, and today we're alleging that harmonization is difficult to achieve. I find that completely inconsistent. The industry is very sound. In the coming months and years, it will have to confront vicious competition and we must be ready. This amendment will benefit both federally chartered corporations as well as provincially chartered ones.
.1640
I wonder what we'd say today if the government in Quebec decided that, in order to do business in Quebec, you need a provincial charter and you can't sell the customers of your provincially chartered company to companies with provincial charters other than Quebec's. I wonder what kind of uproar you would have then in the industry. And yet that's what we see in the current bill. I'm convinced that members of the committee, under your skillful guidance, will see that this would be unacceptable and submit an amendment before passage and third reading in the House.
Thank you.
The Chairman: Personally, I can't give you that assurance, because many objections were raised today by officials, but I would like to examine this question in-depth, because I think that you have good arguments.
[English]
Our next issue is to go to clause-by-clause, unless there is anything else.
[Translation]
Mr. Yvan Loubier: Mr. Chairman, I would like to make a brief comment. You understand,Mr. Gagné, that this government is led by bureaucrats. You can be sure that in the coming weeks or days, we'll do everything we can to accede to your wishes, because there is no justification for maintaining such discrimination in a bill.
If things aren't settled here, they may be elsewhere. I thank you for your very good arguments.
[English]
Mr. Barry Campbell: Mr. Chairman, I just can't leave that last remark stand without responding on behalf of the government. This government is -
[Translation]
Mr. Yvan Loubier: [Inaudible]
[English]
Mr. Barry Campbell: You know, Mr. Loubier, throughout the afternoon when others have spoken you have made comments off the record. We could turn your microphone on; maybe you want to record all those. But people have not interrupted you as you have spoken at great length earlier, and I would ask that you not make side comments when others speak.
This government is responsive. This committee is responsive. We're not getting everything done all at once, especially everything Mr. Loubier wants on the day he wants it done.
I for one want to thank the witnesses for coming and raising this issue. I have sat through a lot of these sessions, as have other members, and to my recollection it has not been raised and discussed before this committee, and certainly not at the length it was today. It has been a valuable exercise.
If you were to ask Mr. Daniels and other members of your industry, they would say this government has been exceedingly responsive to reasoned and thoughtful recommendations that have been made to improve regulation, to end regulation, and to simplify regulation in your industry. We can't get it all done all at once, and for that I apologize. It is an ongoing process. We look forward to continuing to be in a position to respond to other things you raise in the future and to this one as we move forward.
The Chairman: Thank you very much, Mr. Gagné and Mr. Le May.
Maybe our officials would be good enough to stay at the table, because I suspect members have questions about other aspects of Bill C-82.
Mr. Schmidt, did you have questions you wanted to ask of our officials?
Mr. Werner Schmidt: Mr. Chairman, it's a matter of procedure here. Will the officials stay here as we go into clause-by-clause?
The Chairman: Yes.
Mr. Werner Schmidt: Well, then we can deal with the questions as they appear in the clauses. I think that's better.
The Chairman: I'll tell you what I would prefer to do, because it will go faster. I would prefer that we raise objections right now. It's my experience that we can run through this faster. Once we've decided where the areas of contention are, then it's easier to do the bill...if you don't mind. But I'm in your hands.
Mr. Barry Campbell: Mr. Chairman, with your guidance...I'm changing seats in my capacity and wearing my parliamentary secretary's hat and sitting on a very short chair at the end of the room now. Do we make the witnesses sit in these short chairs? It's very unfair, Mr. Chairman. It's a tactic chairmen sometimes use, but I wouldn't have thought you would.
.1645
The Chairman: We provide phone books for people like you, Mr. Campbell; people who are depressed about their size.
Mr. Barry Campbell: Let the record show I am now sitting up properly; rising to the occasion.
Before we proceed, Mr. Chairman, because it might respond right up front to some ofMr. Schmidt's concerns, I wanted to indicate that the government is proposing 33 motions on Bill C-82, motions that have the effect of amending the bill. Opposition parties were provided with these amendments earlier today and an invitation was issued to them to have a briefing. I don't know whether people took advantage of that or not, but I wanted to take just a very few minutes to discuss the nature of these motions. Really only 13 changes are being proposed in the 33 motions, because the other 20 motions put the same changes into statutes dealing with other institutions in the financial services sector.
So, Mr. Chairman, might I just quickly discuss what the nature of these motions is, because indeed they may address some of the issues members are concerned about? Would that be an acceptable way to proceed? Then we could open it up to discussion with officials or however you want to proceed.
The Chairman: Sure, please go ahead.
Mr. Barry Campbell: Thank you.
As I said, there are 33 motions. Only 13 changes to the statutes are being proposed. Of the 13 changes, 10 are technical, correcting errors, clarifying language. Those are motions G-1 through G-4, G-7 through G-10, and G-15 and G-16. They are all of this type.
Another two motions, Mr. Chairman, G-5 and G-6, relate to disclosure of the cost of borrowing following on the recent federal-provincial agreement to harmonize disclosure requirements. The bill includes amendments to existing federal disclosure provisions. The changes proposed to the bill today are intended to reflect the federal-provincial agreement more clearly.
Finally, Mr. Chairman, the only major change proposed to the bill in these amendments deals with the coming-into-force provision. This is motion G-33. The change relates to the amendment to the Bank Act on tied selling. It is proposed that the repeal of the existing tied selling provision - that's subsection 416(5) - and the coming into force of the new tied selling provision take place on the same day. This is a point that was raised in committee discussions and in our many deliberations.
Mr. Werner Schmidt: Excuse me. I don't have G-35.
Mr. Barry Campbell: I'm sorry, G-33. It goes only to 33.
Mr. Werner Schmidt: I don't have it either. It goes to G-32.
Ms Paulette Nadeau (Procedural Clerk): It's G-9 and then G-9A.
Mr. Barry Campbell: I apologize, Mr. Schmidt. Now I need clarification, because I thought that one was 33. Is it 32?
Mr. Werner Schmidt: Yes, it is 32.
Mr. Barry Campbell: I'm sorry. It's 32.
To conclude, then, there are 13 changes, and 20 motions that make identical changes, to various financial institution statutes. Of the 13, 10 are technical, correcting errors and clarifying language; two deal with disclosure; and one deals with tied selling.
With that introduction, Mr. Chairman, we can open it up as you wish, to general discussion or discussion as we proceed to clause-by-clause, and we will have to insert the motions at the appropriate time.
The Chairman: Thank you, Mr. Campbell.
Mr. Schmidt.
Mr. Werner Schmidt: Thank you, Mr. Chairman. I want it said that the process... I really had prepared myself on a clause-by-clause basis.
The Chairman: I'm in your hands. Whichever way you want to proceed.
Mr. Werner Schmidt: I'm ready to move ahead on the major part of my concern, but I do have other concerns throughout the bill. I would just as soon raise them as we -
[Translation]
The Chairman: Mr. Loubier, we will begin clause-by-clause consideration, all right?
Mr. Yvan Loubier: No problem.
[English]
Clauses 1 to 31 inclusive agreed to on division
.1650
Mr. Barry Campbell: Mr. Chairman, for guidance, you'll be inserting the...
[Translation]
The Chairman: The first amendment is on clause 32.
[English]
The first amendment is G-1.
Clause 32 as amended agreed to on division [See Minutes of Proceedings]
Clauses 33 to 42 inclusive agreed to on division [See Minutes of Proceedings]
[Translation]
Mr. Yvan Loubier: Mr. Chairman, we will be tabling certain groups of amendments to clause 42 at report stage.
The Chairman: Thank you very much for that notice.
[English]
Clause 43 as amended agreed to [See Minutes of Proceedings]
Clauses 44 to 46 inclusive agreed to on division [See Minutes of Proceedings]
Clauses 47 to 51 as amended agreed to on division [See Minutes of Proceedings]
Clauses 52 to 54 inclusive agreed to on division [See Minutes of Proceedings]
On clause 55
The Chairman: Mr. Schmidt, this is your amendment.
Mr. Werner Schmidt: I think members have received the amendment. I think there are some reasons we ought to bring into the discussion on the amendments here. The whole issue in proposing these amendments to clause 55, that is, the deletion of proposed new subsections 459.1(2) and (3), is the protection of the Canadian consumer. That is what the whole issue is here. Why is that the case? Well, proposed new subsection 459.1 clearly states that tied selling is prohibited. It reads that
- 459.1(1) A bank shall not impose undue pressure on, or coerce, a person to obtain a product or
service from a particular person, including the bank and any of its affiliates, as a condition for
obtaining a loan from the bank.
The bottom line is that while proposed new section 459.1 attempts to be clear in saying that tied selling is prohibited, proposed subsections 459.1(2) and (3), I submit, Mr. Chairman, at worst annul the intentions of proposed section 459.1 and at best make the matter of tied selling unclear.
I would go on to suggest that in fact the implications of proposed new subsections 459.1(2) and (3) are farther-reaching than that. The first consideration here has to do with financial assets. Under 459.1(2) and (3) the banks can place conditions on the cost and availability of products and services to the consumer. Under this pressure customers will be induced to engage in the unsound business practice of consolidation, which is the placing of all of one's financial assets with one institution. The implications are that prudence regarding a customer's portfolio relies completely on the viability of one bank.
Secondly, the banks could precipitate a change in loan status, credit lines, and so on based on customer information available to itself and information available through its affiliates, including health information. For example, if it were determined that an individual had contracted a terminal disease, the banks could access that information and call in any outstanding loans.
There's also the matter of access to capital for small business. Where small business is concerned, there are several more serious implications due to consolidation. First, the bank is in a position to shut down access to capital completely for the small business. Second, the bank is in a position to exert pressure on the management and operation of the affairs of the small business. Third, in the case where an individual has both personal and business accounts with the banks and in the event the business meets with failure or difficulty, the bank could draw on the personal accounts of an individual's RRSPs, savings, pension funds, and so on in order to pay down the business debt.
.1655
This is particularly difficult if a bank knows, for example, that the total value of the RRSPs and savings accounts is still less than what the business difficulty is. Therefore, all of these assets could be wiped out and still not be there...so the personal thing and the business equity go down the drain at the same time.
Then there is a much graver concern, and that deals with the whole economy of our country. At that level the economic activity can be implicated through these two subclauses. Can other institutions be expected to compete with the rates offered by the banks through tied selling? Is there true competition? These are the big questions. Price fixing is possible due to hidden pricing. If products are bundled or tied, would the specific prices of components be obvious? Would the banks be required to disclose pricing? But more significantly, I refer not only to disclosure of pricing but to the disclosure of specifics as to the components within the bundling that has taken place. Indeed, a customer who is being asked to bundle these things can compare accurately and effectively the composition of these components.
Once the banks dominate market share, they are in a position to set rates at levels that influence the economy. Could the banks determine in which sectors to lend, in which regions of the country to lend? For instance, we know that banks have been averse to lending in knowledge-based industries due to risk and intangibility of assets. Would Canada's achievement of an innovative economy be determined completely on the lending practices of the banks? Would that mean that the banks, not elected governments, would dictate public policy? It seems to me, Mr. Chairman, we must avoid at all costs the possibility of the intrusion of a certain sector in the financial sector to determine public policy.
Mr. Chairman, these are issues that the Standing Committee on Industry worked hard to bring to the floor in its study of access to financing by small business. What we discovered is that banks do not, unless pressured, put the interests of the consumer first. These concerns are secondary to the interests of the bank itself and its profits. How can we, given this history, allow this legislation to include a clause on tied selling that virtually gives the banks carte blanche to pressure and coerce the consumer into consolidating their financial interests under one roof or that permits the banks to dominate in the selling of financial services and/or products?
Further, are we prepared to barter with the interests of the consumer? Are we prepared to grant the banks this kind of power? Are we prepared to let self-regulation determine what is fair and competitive? Are we prepared to let one sector of Canada's financial institutions dominate, to grant them control over the marketplace and still maintain that we are doing so in the best interests of the consumer? I don't think so.
Mr. Chairman, there's another point I'd like to make, and that is this. This tied selling should be illegal not only for banks but for all financial institutions. Tied selling is simply wrong. This particular clause, clause 55, deals only with banking, but it should be noted that tied selling is wrong whatever the institution is.
Finally, Mr. Chairman, I would say to you, and to all members of this committee, that if we are against coercive or pressured tied selling, as we see in proposed section 459.1, we must delete proposed subsections (2) and (3) in this legislation. I urge the committee to pass the following amendment in order to ensure that the customers' interests are respected.
I would like to read the amendment. The amendment is that Bill C-82, in clause 55, be amended by deleting lines 12 to 25 on page 31.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Schmidt.
Monsieur Loubier.
[Translation]
Mr. Yvan Loubier: With regard to clause 55, we would also have an amendment to propose, since, in our opinion, as was the case for financial planning at clause 42, financial planning and consumer protection under clause 55 are two areas in which the federal government should not interfere since they are clearly under provincial jurisdiction. These are not purely financial services. They are professional services. As such, they come under provincial jurisdiction.
.1700
We have already discussed that here, and you sided with me, if I remember correctly. I hope that you will support my amendment when I table it in the next few days. Thank you, Mr. Chairman.
The Chairman: As always.
[English]
Yes, Mr. Campbell.
Mr. Barry Campbell: On Mr. Schmidt's amendment, just to respond, tied selling is something we're all concerned about in this committee and we've spent a great deal of time talking about it.
In response to his suggestion that we tinker with the content of proposed section 459.1 by deleting subsections (2) and (3), I'd just remind Mr. Schmidt, as I said in my earlier remarks, that as a result of an amendment that we'll be voting on later, at the very end of the bill, in fact proposed section 459.1 will not be proclaimed in force along with the other clauses of the bill, but will be suspended so that this committee can get on with studying this very complex area.
I'm beginning to sound like a broken record, that everything is complex, but unfortunately many things are, and tied selling is one of them. It doesn't seem to me to serve any particular purpose to spend time amending a clause of the bill that the government is not proclaiming in force at this time so that the committee will have time to study it and come back with detailed recommendations about the proper content of a tied selling provision.
My response, Mr. Chairman, on behalf of the government is that we reject the amendment that has been proposed by Mr. Schmidt, as it is entirely unnecessary in light of the mandate this committee is going to have to study the entire area of tied selling in detail and to come back later with recommendations to the government.
Thank you.
Mr. Werner Schmidt: There's a pretty obvious response to that. While I respect that very much, and I think it's an interesting comment, the other point is that there's no assurance that in fact this will be the case. I agree with the member when he says this is what the government's intention is, but probably before this comes to the committee the second time there will indeed be an election. At that point, all kinds of things could be happening. We don't know what that would be.
At the same time -
The Chairman: If you like his proposition, you might consider voting Liberal.
Mr. Werner Schmidt: I might like to vote Reform and make sure it does come before the committee.
I think we're in agreement that the matter ought to be studied in depth. I don't think there's any difficulty there. First of all, we don't have assurance that it will come before the committee, except a word, and while I'd like to trust the member, I know there are a lot of things that can happen between now and then.
The second point is that if it is a matter to be studied by the committee, why not leave both clauses 45 and 55 intact, as they are at the present time, and make this suggestion so that it can be introduced into legislation later?
The Chairman: Is there any further discussion on this particular matter? Mrs. Brushett.
Mrs. Dianne Brushett: Tied selling has been a very critical issue for my constituents as well. I'm concerned that perhaps we should just delete clause 55 at this time.
Mr. Werner Schmidt: I would support that. I think you can't do clause 55 without clause 45. If we delete one, we have to delete the other also, because clause 55 deletes this whole section of tied selling. The two are tied together.
Mr. Barry Campbell: Mr. Chairman, I'd like to reply. What we have in fact, in the words of Candide, is the best of all possible worlds, because what you have is an extensive period of time for this committee to study a complex area that is of interest to constituents in all of our ridings. By not proceeding to proclaim into force this clause at this time or when the rest of the bill is proclaimed into force...
This committee has been invited to study this area in depth, and knowing the way we do our work, that is exactly what we will do. So you can reassure your constituents, as I will my constituents, that this committee is going to take a full and hard look at this entire area and come back with its recommendations to the government.
In the meantime, we've also proposed that the existing section of the act, which was going to be repealed - the existing and somewhat limited section of the act, which currently deals with tied selling - will remain in force. But I think all concluded that a further look by this committee was necessary and welcome, and what we're proposing, which is an amendment at the end of the bill to defer the proclamation into force of this clause, will give this committee time to do that very important work and that that is the best way to proceed.
.1705
The Chairman: Ms Whelan.
Ms Susan Whelan (Essex - Windsor, Lib.): I was just wondering when the clauses that are deferred for discussion will eventually come forward. I'll just pass now.
The Chairman: Is there further discussion on clause 55?
Mr. Monte Solberg (Medicine Hat, Ref.): Yes.
The Chairman: Mr. Solberg, it's good to have you here.
Mr. Monte Solberg: It's good to be here.
I don't quite understand what is being proposed by the government.
Mr. Barry Campbell: It won't be the first time.
Mr. Monte Solberg: Yes, I know, it won't be the first time.
What the government is proposing is that we go ahead and allow this to pass as is with the other amendments the government is making but in the interim study this, knowing an election may be imminent. In other words, we would have very little time, I trust, to study it. Is that the idea? I don't understand exactly when we would be studying this thing. Can you make that clear to me?
Mr. Barry Campbell: Mr. Chairman, the committee procedure is in your hands and in the hands of your members.
The Chairman: I think the proposal is that we would have a year from March 31, 1997, to hear representations from the industry and from all institutions. At the end of that year the various institutions would come before us and present to us their experience on tied selling. We would also have witnesses come before us, people who had notified either the Minister of Finance or the committee that they had concerns about the issue, not only with banks but with any financial institution.
What we are basically saying is we don't know if there is a major problem, and if there is, we don't know the extent of it. We know we don't like the idea of tied selling, but we're very agnostic about the issue of whether it is really a major concern for consumers, whether an abuse of power or coercion has been exercised. So we would have a year to find out and then to make recommendations on where we go from there.
Mr. Swedlove.
Mr. Swedlove: Further to Mr. Solberg's question, the government has suggested that proclamation could be on September 30, 1998, but before that proclamation date they would want the views of this committee on whether to proceed with the proclamation of this proposed section or any parts of the section.
Mr. Barry Campbell: Mr. Chairman, I think I could add to that comment. A section on tied selling - I want to clarify - will be proclaimed on that date, but it will reflect the recommendations of this committee, which the government looks forward to in all seriousness.
The Chairman: We now give the government due notice that they should accept our recommendation, whatever it might be.
Amendment negatived
Clauses 55 to 57 inclusive agreed to on division [See Minutes of Proceedings]
Clause 58 as amended agreed to on division [See Minutes of Proceedings]
Clauses 59 to 113 inclusive agreed to on division [See Minutes of Proceedings]
Clause 114 as amended agreed to on division [See Minutes of Proceedings]
The Chairman: If we skip by any of these we can go back and pick them up.
Mr. Werner Schmidt: Mr. Chairman, on clause 71, it's a curiosity thing...and if you don't mind, I'd like you to look at this particular one about the insurance companies as well, which is a very interesting clause. But we can go on, Mr. Chairman. I just want us to put this particular clause in reserve. I want to raise it later on, because there are three clauses that deal with the same subject in different places in this bill.
The Chairman: You can bring them up any time you want.
.1710
Clauses 115 to 131 inclusive agreed to on division [See Minutes of Proceedings]
Clause 132 as amended agreed to on division [See Minutes of Proceedings]
Clauses 133 to 141 inclusive agreed to on division [See Minutes of Proceedings]
[Translation]
Mr. Yvan Loubier: Mr. Chairman, please do not go so fast. The interpreters cannot keep up any more, and neither can I.
The Chairman: Okay, if it will help.
Mr. Yvan Loubier: I have a question on clause 102.
[English]
Mr. Barry Campbell: We are having difficulty keeping up in the other official language also, Mr. Loubier.
[Translation]
Mr. Yvan Loubier: Why will the Bank of Canada be able to charge for its service under clause 102?
[English]
Mr. Werner Schmidt: Which clause are we on?
Mr. Yvan Loubier: Clause 102.
Mr. Werner Schmidt: I want to go back to clauses 98 and 73 as well.
The Chairman: Okay, go ahead.
Mr. Werner Schmidt: We'll go on to clause 73. It has to do with margin loans. This is for the department officials. What do you define as a margin loan?
[Translation]
Mr. Yvan Loubier: Could I have an answer on fees to be levied by the Bank of Canada?
[English]
Mr. Barry Campbell: I think, Mr. Chairman, Mr. Loubier had a question about fiscal agents, and we should come back to it. I guess we've gone back to clause 73 because it's the earlier clause, but let's not lose Mr. Loubier's question.
The Chairman: Okay. Which one do you want to deal with first, Mr. Campbell?
Mr. Barry Campbell: Well, let's deal with clause 73, because they've now opened up the bill to it.
The Chairman: Okay.
Mr. Barry Campbell: We'll go in order of clauses.
Mr. Gingras: The stipulation about margin loans was there in 1992. A margin loan is a loan to an officer that would allow the officer to buy securities, so the company is financing the purchase of securities by one of its officers.
Mr. Werner Schmidt: In its own company?
Mr. Gingras: Yes. I'm not a professional in the field, but that's what I understand.
What we want to change in that proposed section is that now we will restrict that to senior officers, who are more prone to be able to influence the company than just any officer.
Mr. Werner Schmidt: I understand that.
This is a very interesting amendment. It now goes to the senior officer. It is a margin loan to buy securities in the company of which he is the manager. Then I'll tie this back to the earlier clauses I mentioned before, clause 70 and ones that are coming up.
[Translation]
The Chairman: The next question dealt with clause 102.
Mr. Yvan Loubier: In the previous version, subclause 24(1) read as follows:
- 24. (1) The Bank shall act as fiscal agent of the Government of Canada without charge
- In the new clause on page 60, the proposed subclause 24(1) reads as follows:
There is also a proposal to add a new subclause 24(1.1) that reads as follows:
(1.1) With consent of the Minister, the Bank may charge for acting as fiscal agent of the Government of Canada.
Why are we allowing this possibility?
[English]
Mr. Barry Campbell: I'm going to let officials elaborate on what some of the obligations of the fiscal agent on behalf of the Government of Canada might involve. I think the fundamental basis is that the bank will be performing functions for the Government of Canada, so I'm sure the shareholders of the bank would want to know the bank was doing that on some sort of fee basis for the effort and the work being done.
I don't know if the officials want to comment on what some of those activities as fiscal agent would be. Mr. Swedlove?
Mr. Swedlove: The Bank of Canada does, of course, represent the government in the selling of Canada Savings Bonds, for example. With the expansion of the retail bond activity recently there's more of this activity and different kinds of services are provided. This provides an opportunity to recognize the costs associated with the selling of these instruments.
Mr. Werner Schmidt: Mr. Chairman, I think that's true. But by the same token, the Bank of Canada has acted in this capacity earlier as well. This is not a new function for the Bank of Canada. In the past it did this without charge. Now it suddenly it may charge. Why may it now charge? Isn't this just taking money out of one pocket and putting it in the other?
.1715
Mr. Barry Campbell: In effect, there are two answers. One is we're seeing another example of cost recovery. The second answer is that it's coming back to the same people in the end. But it is recognizing the services performed, as the Bank of Canada itself also has to operate in a conventional business-like manner. But at the end of the day it does come back to the same place.
Mr. Werner Schmidt: But in the meantime you have all this additional record keeping to pay for.
The Chairman: [Inaudible - Editor]
Mr. Werner Schmidt: Not exactly. That's not the point. I think they should be real jobs, not made jobs. I think that's the point.
Clause 98 deals with the same question, Mr. Chairman, but it is not services; it's now as interest on those deposits. The Bank of Canada may accept deposits from the Government of Canada and pay interest on those deposits. In the past the Bank of Canada took those deposits but without interest. Now it must pay interest. It's the same principle involved here, I think. So what's the answer?
The Chairman: Mr. Swedlove.
Mr. Swedlove: Mr. Chairman, unfortunately I don't have with me my experts from the Bank of Canada to respond directly, but my understanding of this provision is that it does provide an opportunity for better and clearer operations of the new large-value transfer system that is being established by the Bank of Canada in order to increase the efficiency of movement of large values from one institution to another.
Mr. Barry Campbell: I'd also like to add, Mr. Chairman, that sometimes members of this committee express concern about the status of the Bank of Canada as to whether or not it is independent. I think a question such as this would be best put directly to the Bank of Canada. We are fortunate to have the governor appear before us from time to time, and members may wish to put these questions directly to the Governor of the Bank of Canada as to why the bank has moved over time to these more business-like and conventional ways of conducting its affairs rather than the more tightly knit relationship that existed in the past.
Mr. Werner Schmidt: That's all after the fact, after the horse has left the barn. If we pass this legislation, it's done. Let's face it. Let's get real here.
The Chairman: Are there any further comments?
Clause 142 as amended agreed to on division [See Minutes of Proceedings]
Clauses 143 to 186 inclusive agreed to on division [See Minutes of Proceedings]
Mr. Werner Schmidt: Before we go that far, I'd like to go to clause 117, proposed paragraph 35(1)(c). A very interesting new phrase has been introduced that says:
- (c) that is the same as or, in the opinion of the Superintendent, substantially the same or
confusingly similar
Mr. Barry Campbell: Mr. Schmidt, the sad fact is it already exists in most corporate legislation dealing with names.
Mr. Werner Schmidt: That doesn't make it any better.
Mr. Barry Campbell: It's a term that has been in laws for a long time. I didn't draft it, and I never met the person who did. But unfortunately, ``confusingly similar'' is a phrase we ran into in other statutes dealing with corporate names. It's a way of -
Mr. Werner Schmidt: I'm sure you did. I'm not suggesting you didn't, but it doesn't make it any better.
Mr. Barry Campbell: It's not unusual.
Clause 187 as amended agreed to on division [See Minutes of Proceedings]
Clauses 188 to 231 inclusive agreed to on division [See Minutes of Proceedings]
Clause 232 as amended agreed to on division [See Minutes of Proceedings]
Clauses 233 to 256 agreed to [See Minutes of Proceedings]
[Translation]
Mr. Yvan Loubier: Mr. Chairman, you are going so quickly that our poor interpreters are having a lot of trouble following you. I know you are concerned about being efficient, but I would nevertheless ask you to slow down.
I have a comment on clause 226. We will also be moving an amendment in light of the discussions we had this morning with Mr. Gagné on the transfer of insurance policies within Canada.
The Chairman: Clause 226, okay. Thank you very much.
.1720
[English]
Mr. Schmidt.
Mr. Werner Schmidt: With regard to clause 138, Mr. Chairman, I would like to know the rationale behind this change. It says that the personnel involved may ``provide management, investment...advisory, educational'' services and so on. The key words here are ``management'', ``investment'' and ``advisory''. What kinds of qualifications do these people have to enable them to provide investment counselling? The Canadian securities legislation is rather specific when it comes to providing advisory services on financial matters, yet under this Financial Institutions Act we have a provision that will allow personnel employed by that association to provide advisory, management, and financial counselling to clients. I'd like to know what this does. It seems to me this opens the door rather widely so that all kinds of things can happen.
Mr. Gingras: Mr. Chairman, I'd like to answer the question. This power was requested by the co-op association. They don't provide advice to ordinary people in the street. They provide investment advice to local credit unions. Of course, if there's provincial legislation governing this service, it will apply. But here they are not given the power to provide advice to the people at large. It's only to the members of the co-op movement. Consequently, it's restricted to that.
Mr. Werner Schmidt: That's fine. Thank you, Mr. Chairman. I'm happy to hear that.
How far have you gone now?
The Chairman: We're up to clause 256.
Mr. Werner Schmidt: I'd like to go to clause 153, please.
If you don't mind, I'd like to ask you to do one of those little gyrations here. I want to take you through a very interesting exercise that I found to be very curious. First, put your fingers on page 43. Then turn to page 168 as well. We'll look at page 43 first. You'll discover there that a bank may lend to its -
The Chairman: Are you referring to clause 35?
Mr. Werner Schmidt: No, it's subclause 71(2), which deals with proposed subsection 496(2).
The Chairman: It's at the top of page 43.
Mr. Werner Schmidt: Yes. You'll notice there that the bank may lend to its senior officer at a preferred rate up to twice the annual salary to a maximum of $100,000.
.1725
Look at page 93. Here we're dealing with senior officers of credit unions. Here a senior officer may be granted a loan that does not exceed the greater of the annual salary of the related party and $50,000. For insurance companies, on page 168, it goes to twice the annual salary, $100,000.
First of all, I'm terribly surprised there's this kind of detail in this bill. Secondly, I wonder why the discrepancy between co-ops and banks and insurance companies.
The Chairman: Who would like to venture a guess? Who would like even to give us the reason?
Mr. Werner Schmidt: Yes, why is it in there?
The Chairman: It obviously has to do with representations made to us by each of the three industries.
Mr. Barry Campbell: Mr. Chairman, the only comment I can make is that these are provisions that currently exist in all those various statutes. The only change in each of these cases is to restrict these kinds of loans to senior officers. The range has been narrowed, and you may have some comments on that, but in fact the discrepancies that exist on the formulae are pre-existing and have not been changed, and they are not new in these changes at this time.
Mr. Werner Schmidt: I won't comment any further on that. It's just an interesting exercise. But I find there are times, Mr. Chairman, when you begin to wonder what we are doing in our legislative provisions.
The Chairman: It makes my fingers tired, Mr. Schmidt.
Mr. Werner Schmidt: Well, good, because I think we should stop this kind of nonsense.
Clauses 257 to 259 inclusive as amended agreed to on division [See Minutes of Proceedings]
Clauses 260 to 265 inclusive agreed to on division [See Minutes of Proceedings]
Clause 266 as amended agreed to on division [See Minutes of Proceedings]
Clauses 267 to 290 agreed to on division [See Minutes of Proceedings]
Clause 291 as amended agreed to on division [See Minutes of Proceedings]
Clauses 292 to 307 inclusive agreed to on division [See Minutes of Proceedings]
Clauses 308 to 310 inclusive as amended agreed to on division [See Minutes of Proceedings]
Clauses 311 to 313 inclusive agreed to on division [See Minutes of Proceedings]
Clause 314 as amended agreed to on division [See Minutes of Proceedings]
Clauses 315 to 367 inclusive agreed to on division [See Minutes of Proceedings]
Clause 368 as amended agreed to on division [See Minutes of Proceedings]
Clauses 369 to 377 inclusive agreed to on division [See Minutes of Proceedings]
Clause 378 as amended agreed to on division [See Minutes of Proceedings]
Clause 379 agreed to on division [See Minutes of Proceedings]
Clauses 380 and 381 as amended agreed to on division [See Minutes of Proceedings]
Clauses 382 to 387 inclusive agreed to on division [See Minutes of Proceedings]
Clause 388 as amended agreed to on division [See Minutes of Proceedings]
Clauses 389 to 411 inclusive agreed to on division [See Minutes of Proceedings]
Clause 412 as amended agreed to [See Minutes of Proceedings]
The Chairman: Before we go to passing it out of committee, are there any other questions members would like to ask of our parliamentary secretary or officials?
Going back to a question raised by Mr. Schmidt - you didn't have a chance to deal with it in detail - I would just like to ask you why it is that we are dealing with a consumer protection measure, tied selling, vis-à-vis banks and not vis-à-vis other financial institutions. If tied selling is presumably wrong for banks, why wouldn't it be wrong for insurance companies or co-ops or trust companies or any other financial institutions?
Mr. Swedlove: Mr. Chairman, I think we would agree that abuse of tied selling is wrong for all financial institutions. That is why we have asked that all financial institutions consider establishing procedures to deal with tied selling and complaint-handling mechanisms to deal with tied selling.
.1730
In terms of provisions in the legislation, of course, it does only refer to proposed section 459.1 of the Bank Act. We've only put it in the Bank Act because of advice from our constitutional authorities that while it would be permissible to put it in the Bank Act, it would be difficult to put it into our other financial statutes.
Mr. Barry Campbell: I would also add that of course the Competition Act does itself have tied selling provisions that apply generally.
The Chairman: Do subsections 416(5) of the federal Trust and Loan Companies Act and 381(5) of the federal Co-Operative Credit Associations Act...? They have provisions against pressure on a borrower to place insurance for the security of certain things. Now, does that mean these are ultra vires?
Mr. Swedlove: No, Mr. Chairman. Again, I'm far from being a constitutional expert, but the view of Justice officials was that what was being proposed under section 459 was far more extensive than was in the previous legislation and involved the ability to make regulations that could be quite detailed in its application.
The Chairman: Okay.
As well, in terms of consumer protection we are amending the Insurance Companies Act and the Trust and Loan Companies Act to deal with the disclosure of cost of borrowing. The opinion, I take it, is that this is intra vires, but to do something for tied selling would have been ultra vires. Is that your opinion?
Mr. Barry Campbell: Mr. Chairman, I don't agree with the first part of your observation. As I said in introducing the amendments, they are reflective of federal-provincial agreement in the area of consumer disclosure.
The Chairman: So there's not a constitutional problem, then.
Mr. Barry Campbell: None whatsoever.
The Chairman: Good. Thanks.
Mr. Werner Schmidt: Mr. Chairman, just one other question. It's a matter of interpretation. If I remember correctly, the first time I raised the issue on prepayable mortgages, I believe the answer I received from Department of Finance officials was that this was covered under the Interest Act. If that is true, which act takes precedence?
You see, in this act it's very clear that a financial institution may issue non-prepayable mortgages. There's no condition. It simply says an institution may issue these.
Then I was advised that this is covered under the Interest Act. At the time, I was satisfied, but now my question is, which act takes precedence when one is in direct conflict with the other?
Mr. Swedlove: I don't believe there's any conflict between the acts. The Interest Act does cover the issue of prepayment of mortgages greater than five years. The financial institutions legislation deals with disclosure provisions, and they are not in conflict.
Mr. Werner Schmidt: No, I'm sorry, sir - my apologies, Mr. Chairman - but it says very clearly, if you want to read the section here:
- (1) A society shall not make a loan to a natural person
- (2) Subsection (1) does not apply in respect of a loan
that is made for business purposes and the principal amount of which is more than $100,000 or such other amount as may be prescribed.
So it's very clearly stated that it does not apply to those kinds of mortgages, which means a society ``may'' issue those kinds of mortgages. It may.
Mr. Swedlove: I'll ask Annette Gibbons from the Department of Finance to respond.
Ms Annette Gibbons (Policy Analyst, Financial Sector Division, Department of Finance): What this section you're referring to does is simply prohibit making a loan if you don't allow prepayment of it. It prohibits making a non-mortgage loan if you don't allow prepayment. But it doesn't say you cannot make a mortgage loan and not allow prepayment.
So there's no inconsistency between what's in the Interest Act and what's here. This section only deals with non-mortgage loans. It does not speak to mortgage loans.
.1735
Mr. Werner Schmidt: It says a loan ``secured by a mortgage''.
Ms Gibbons: You're talking about the Interest Act.
Mr. Werner Schmidt: No, I'm talking about this act right here, on page 176, dealing with proposed section 542.12.
Ms Gibbons: That's right. This provision, which deals with prepayment of loans, does not apply to mortgage loans. It does not speak to mortgage loans at all. It simply says that if you're going to make a loan that is not a mortgage loan, you cannot prohibit prepayment. That's what it says.
Mr. Werner Schmidt: So the term ``secured by a mortgage'' simply means that the mortgage is a security against another loan?
Ms Gibbons: This says you cannot make a loan and not allow prepayment, but then it says this does not apply to a mortgage loan, which means, basically, mortgage loans are carved out. This section deals only with non-mortgage loans.
Mr. Werner Schmidt: Well, what is a loan that is secured by a mortgage?
Ms Gibbons: It's a mortgage loan.
Mr. Werner Schmidt: Exactly.
Ms Gibbons: This would deal with, say, a car loan. That's the type of loan this would apply to.
Mr. Werner Schmidt: No, but it says -
Mr. Swedlove: Mr. Schmidt, I think what happens here is that proposed subsection 542.12(1) states the principle that you must permit prepayment. Proposed subsection 542.12(2) says:
- Subsection (1) does not apply in respect of a loan
- i.e., a mortgage loan.
Mr. Werner Schmidt: Exactly. I understand that. But proposed subsection 542.12(1) says ``shall not'' make such a loan, which means, then, that if proposed subsection 542.12(2) says it does not apply, it means they can, obviously.
Ms Gibbons: They can...?
Mr. Werner Schmidt: Issue a non-prepayable mortgage.
Ms Gibbons: That's right.
Mr. Werner Schmidt: Well, that's exactly what I said, that they can issue a non-prepayable mortgage.
Ms Gibbons: There's nothing here that prevents them -
Mr. Werner Schmidt: Okay. That's what I thought.
Ms Gibbons: - but then the Interest Act says that if the mortgage term is greater than five years, after five years you have to allow prepayment with a three-month penalty.
Mr. Werner Schmidt: So that means an institution may issue a non-prepayable loan if it is less than five years in length.
Ms Gibbons: Yes.
Mr. Swedlove: If it's a mortgage, yes.
Mr. Werner Schmidt: In order to change that you'd have to change the Interest Act?
Ms Gibbons: The Interest Act speaks to prepayment of mortgage loans. That's the place.
Mr. Werner Schmidt: It doesn't make it right.
Mr. Barry Campbell: Mr. Chairman, I wonder if I can come back to something. When you were speaking about changes with respect to consumer information and I said that I disagreed with the premise of your question, I didn't get a chance to come back to your question, a very important one, on the issue of tied selling within the sector beyond banks.
On reflection, nothing precludes this committee over the course of the next year in its deliberations on tied selling from hearing witnesses who may come forward to talk about examples of tied selling in the insurance business or among investment dealers, if such exists. One of the reasons the committee wanted to take the time to study this was just to find out to what extent there is a problem. Certainly nothing precludes the committee from looking at the entire financial services sector.
The issue of whether or not recommendations from the committee, if it were to find a problem and then recommend changes, were or were not within federal jurisdiction is a question we can leave to Justice lawyers at the end of the day.
So I think the investigation you engage in, Mr. Chairman, in this committee's jurisdiction can be as broad and far-reaching as members wish it to be.
The Chairman: Thank you, Mr. Campbell.
Mr. Schmidt.
Mr. Werner Schmidt: I have two other questions, if I might.
The Chairman: Perhaps I first could respond to Mr. Campbell.
Mr. Werner Schmidt: That's fine.
The Chairman: As I responded earlier to Mr. Schmidt when you suggested that I respond to his concern about this, I hope we would be looking at all financial institutions.
Mr. Barry Campbell: Mr. Chairman, I want to clarify this. From the tenor of the comments and perhaps the exchange, perhaps it could be misinterpreted to mean that we were going to restrict ourselves -
.1740
The Chairman: No. It will be up to the committee at the time, but certainly I would recommend that the committee look at all our financial institutions.
Would you agree, Mr. Schmidt?
Mr. Werner Schmidt: Yes, absolutely.
[Translation]
The Chairman: Mr. Loubier also agrees.
Mr. Yvan Loubier: No, no, I do not agree at all, because tied selling, Mr. Chairman, like everything dealing with consumer protection, is under provincial jurisdiction; you have no business being involved. At any rate, we will move an amendment in that regard. Don't include me in your agreement. You were playing the same game that I was trying to play with you earlier on; it doesn't work.
[English]
The Chairman: Okay.
Mr. Werner Schmidt: Does that mean the federal government doesn't care about consumers? Boy, what a guy you are.
Now, clause 318 has to do with the repeal of the qualifications of actuaries. Is there a reason why we would suddenly not demand qualifications of actuaries? Why was that repealed?
Mr. Gingras: Section 2 of the Insurance Companies Act now states that an actuary must be a fellow of the Canadian Institute of Actuaries. In 1992 we had not put that requirement. Having put the requirement that the person must be a fellow of the Canadian Institute of Actuaries, there now was no need to have qualifications of actuaries as long as the actuaries are fellows of the institute.
So it's just a consequential amendment.
Mr. Werner Schmidt: That's fine.
Clause 336 refers to the Superintendent of Financial Institutions. It reads:
- The Superintendent may delegate any of the Superintendent's powers, duties and functions
under this Act to a Deputy Superintendent.
- Well, ``any'' means everything, so he could in fact delegate to his deputy everything that was
his responsibility. What's left to call the Superintendent of Financial Institutions to account for
if he has delegated it all to his deputy?
Mr. Werner Schmidt: There is nothing further to delegate if you give him all this. There is nothing left. I thought that was a little bit broad. ``Any'': that's everything.
Mr. Barry Campbell: In fact, Mr. Chairman, while your Latin pronunciation is not very good, you do state a fundamental principle that ensures that the delegatee cannot further delegate. He must carry out the duties that have been delegated to him.
More importantly, Mr. Schmidt, and more responsive to your question, the superintendent is not relieved of the superintendent's responsibilities. He is fully responsible notwithstanding the delegation.
The Chairman: I hope that's clear to you, Mr. Schmidt, because it certainly is to everybody else in the room.
Mr. Werner Schmidt: Well, I'm so glad everybody has so clearly understood. When will we bring the superintendent before the committee to ask him how he does this?
The Chairman: Suppose he took a holiday, which he probably doesn't do; he would want somebody here in Ottawa to look after things.
We're just about out of here, and I'm very grateful. After we pass this bill, I'd like to talk very briefly about future business. But what I take out of this meeting, for the record, is
[Translation]
the issue raised by Mr. Loubier, Mr. Gagné and the insurance industry,
[English]
that we have a certain lack of harmonization and a lack of parallelism in what can happen among our financial institutions. I think the issue is important enough that as a finance committee, as a government, and as officials we should address it, become more familiar with it, and try to respond to the concerns they have raised, remembering always that the most important consideration is the protection of the policyholders and the institutions themselves. So I would urge that we give this priority consideration.
.1745
Secondly, the big issue that was raised today by Mr. Schmidt is tied selling. I am concerned that not all our financial institutions, if they are brought under a regime of tied selling, will be under the same regime. I'm not sure consumers always differentiate among a bank, a trust company, a loan company, or even necessarily an insurance company or a co-op. I think as federal regulators and as provincial regulators we owe it to them to have a regime that is harmonized and consistent.
Surely in conjunction and cooperation with our provincial counterparts we can find a way to achieve this end, which after all is to do nothing but serve consumers and get rid of the incredible overlap and duplication that plague the Canadian system. I'm not going to try to prejudge whether it's the provinces or the federal government that should give up or adopt the other rules or withdraw from regulation or delegate its regulation to other bodies, but surely we as politicians at the federal and provincial levels owe it to our constituents to make this a priority item so the plague of being Canadian is not being overgoverned in such a needless fashion.
Thirdly, I would like to follow up on what we have already discussed. Although this committee may not be in existence for much longer, or I might not be associated with it much longer, the regime that has been proposed here, dealing with tied selling, is really slightly agnostic. As I stated earlier, as a committee we don't know for sure whether or not there is a major problem. This was reflected in the report we brought out last fall. But we said we should look at it. We know if there is tied selling that is coercive, we don't want to see it in any institution.
Therefore we urge all financial institutions over the next year to adopt their own codes of conduct, to look at this issue, and to educate their employees and their customers. We would urge at least in the case of banks that if there are complaints from customers or persons affected indirectly by tied selling, they can go to the bank ombudsman or to the industry ombudsman. In the case of the insurance companies we do not have such a mechanism, so far as I am aware, for complaints; nor for the non-banks and other financial institutions. I would urge that people who feel aggrieved about being subjected to undue pressure or coercion in the area of tied selling feel free to contact the Minister of Finance or the House of Commons finance committee.
I propose that in one year's time we hold hearings on this issue in public to assess whether there is a problem, and if so the extent of that problem, and then make recommendations. It is my wish, after some reflection on the matter, or my hope, that there will not be a problem, and if there is a problem, that the institutions themselves will have regulated it and looked after it.
.1750
I would much prefer to see evolving out of this process a regime of self-regulation, because if we proscribe or make illegal coercive tied selling, the fear I have is that although we can in certain cases come up with examples of what is and what isn't coercive tied selling, as legislators we'll never be able to cover the myriad of examples of relationships that take place among financial institutions and their customers. To proscribe it by law could lead to an incredible amount of legislation that would prove to be costly in terms of time and money as the courts endeavour to sort out whether or not particular activities are coercive tied selling. So it's my hope that after this one year of introspection and of dealing with the issue, a regime will emerge whereby the institutions themselves have been able to deal with it by their conduct and using their own codes.
On behalf of all members I would like to thank our witnesses who have appeared before us and all the members who have done so much work on these particular issues. There will be room for amendments at report stage and third reading.
Shall the title carry?
Some hon. members: Agreed.
Some hon. members: On division.
The Chairman: Shall the bill carry?
Some hon. members: Agreed.
Some hon. members: On division.
The Chairman: Shall the committee order a reprint for use at report stage?
Some hon. members: Agreed.
The Chairman: Shall I report the bill to the House?
Some hon. members: Agreed.
The Chairman: As soon as possible.
Again, thank you all very much.
We'll now turn to future business. Mr. Campbell.
Mr. Barry Campbell: First of all, on behalf of the government I want to thank members for their work on this bill. We've had two opportunities to look at the financial services sector, one in responding to the white paper and now in dealing with this bill. These are complex issues and involve a number of statutes. The work of this committee is much appreciated.
We do have other work ahead of us, and I just wanted to alert members to that. There are two major bills that will need to be considered by this committee, probably in the course of next week. Mr. Chairman, those bills are the Budget Implementation Act, with regard to the 1997 budget, and the 1996 Income Tax Amendments Act. They're both substantial bills, and they contain a number of provisions that the members will want to study. Notice has been given that those matters will be referred to this committee before second reading. So after a very short debate in the House, hopefully later this week, this committee will be considering those bills in the course of next week.
The Chairman: Thank you very much, Mr. Campbell. Do you think we might receive those bills by Thursday?
Mr. Barry Campbell: They would not be able to be before the committee before the end of this week, Mr. Chairman.
The Chairman: The committee is prepared to act quickly on them as soon as the House can deliver them to us, Mr. Campbell.
I'd also like to announce that the committee will be meeting Wednesday afternoon to hear from witnesses, if any, and to discuss the bill dealing with five international tax treaties. This bill received second reading in the House last June, I believe. It deals with Tanzania and some former Soviet states. Some businesses are asking us to get these treaties passed, so I would hope we could deal with them on Wednesday afternoon, with your permission.
This meeting is adjourned to the call of the chair.