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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 13 - Evidence

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OTTAWA, Thursday, May 10, 2001

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-8, to establish the Financial Consumer Agency of Canada and to amend certain acts in relation to financial institutions, met this day at 11:00 a.m. to give consideration to the bill.

Senator E. Leo Kolber (Chairman) in the Chair.

[English]

The Chairman: We are here to continue hearings on Bill C-8, to establish the Financial Consumer Agency of Canada and to amend certain acts in relation to financial institutions.

Our first witness is Mr. Claude Garcia, Chairman, Canadian Life and Health Insurance Association and President, Canadian Operations, Standard Life Assurance Company. We will also hear from Mr. Mark Daniels, President, CLHIA and Mr. J.-P. Bernier, Vice-President and General Counsel, CLHIA.

[Translation]

Mr. Claude Garcia, Chairman, Canadian Life and Health Insurance Association and President, Standard Life Assurance Company: I want to thank the Standing Senate Committee on Banking and Commerce for this opportunity to contribute to their study on Bill C-8.

Since I have already been introduced by your chairman, I simply would add that I have with me Mr. Mark Daniels, President, CLHIA, and Mr. J.-P. Bernier, General Counsel.

[English]

Mr. Chairman, the committee has before it copies of the industry submission on Bill C-8. My opening remarks will provide you with an overview of the industry perspective. First, I would like to say that the Canadian Life and Health Insurance Association, CLHIA, represents about 75 companies, which account for more than 90 per cent of the life and health insurance business in Canada. Our members protect more than 20 million Canadians and millions more worldwide.

I would like to begin by noting that the Senate Banking Committee has played an important role in the development of financial service policy, generally, and more specifically, this legislation. Obviously, the committee's major report on the MacKay task force recommendations contributed substantially to the development of this legislation. Indeed, the MacKay task force's own mandates and priorities reflected the strong imprints of this committee's extensive prior contribution to financial services policy.

Our industry appreciates the many opportunities provided by this committee to contribute constructively to its deliberations, including this opportunity today.

[Translation]

Our industry has assessed Bill C-8 with respect to its consistency with three broad objectives which have been acknowledged as very important by most or all of those who have contributed to its lengthy development process. First, does Bill C-8 provide Canada's financial services players with the greater flexibility that they need to face competition? Second, does Bill C-8 offer enhanced protection to Canadian financial services consumers? Third, does Bill C-8 strike a fair and appropriate balance among the many and diverse suggestions for change which have been advocated over recent years?

[English]

With respect to the first objective, there are many specific ways in which Bill C-8 will provide a competitive flexibility for life and health insurers. The new insurance holding company provisions provide new opportunities for organizational flexibility. Bill C-8 will make life and health insurance companies - as well as money market mutual fund and security dealers - eligible to apply to participate in the payment system, permitting greater flexibility and customer convenience in terms of making payments to the industry's customers.

These examples above are by no means exhaustive. Rather, they illustrate and substantiate the industry conclusion that Bill C-8 provides extensive additional competitive flexibility in keeping with the intensifying competitive demands of the 21st century.

[Translation]

Concerning the enhancement of consumer protection, three aspects of Bill C-8 have been found noteworthy by the industry players in relation to this important goal: the creation of the Financial Consumer Agency, the broadening of the customer complaints handling mechanisms which insurers are required to have and which must include all products and services, and the requirement that life and health insurers participate in at least one third-party consumer complaints organization.

[English]

Finally, with respect to appropriate balance, the consultative process leading to Bill C- 8 has been unprecedented in terms of its depth, breadth and inclusiveness. One result has been that many suggestions for change have been put forward. Bill C-8 strikes a fair and appropriate balance among these suggestions by providing all of the financial services players with what they need - if not everything they want - to compete effectively in the markets of the new century.

In summary, Bill C-8 is highly consistent with all three of the important public policy goals of enhanced competitive flexibility, enhanced consumer protection and appropriate balance.

[Translation]

The life and health insurance industry believes that Canada's financial services sector needs that the new "rules of the road" offered by Bill C-8 be put in place as soon as possible for three principal reasons.

[English]

First, the financial services marketplace is shifting and changing at a rapid pace, leaving Canada's current legislative and regulatory framework - the bulk of which was put in place in 1992, and only fine-tuned five years later - increasingly inappropriate.

[Translation]

Second, we must keep in mind that some other countries, including the United States, have modernized the legislative framework which governs their financial services sector. It is therefore important that we move quickly to similarly equip Canadian financial services providers for the 21st century.

[English]

Third, because financial services industry is highly regulated, clarity and certainty regarding its legislative and regulatory environment are extremely important to the sector. The industry has also examined Bill C-8 with a view to identifying opportunities to better achieve the bill's intended results. Based on this review, we have identified one significant opportunity.

In several areas relating to life and health insurers, the proposed activities of the financial consumer agency closely parallel activities already undertaken by the provincial and territorial superintendents of insurance. For example, the FCA will have a mandate to assess the extent to which life and health insurers have in place appropriate procedures for handling consumer complaints. As it happens, the provincial superintendents of insurance are currently evaluating the extent to which companies have appropriate consumer complaints processes.

[Translation]

In that context, it would be quite appropriate that the Financial Consumer Agency closely coordinate its activities relating to consumer complaints with those of the Superintendents of Insurance to take full advantage of their extensive efforts.

[English]

Correspondingly, the industry urges the Standing Senate Committee on Banking, Trade and Commerce to recommend that the financial consumer agency closely harmonize its activities relating to life and health insurers with those of the superintendents of insurance to ensure that duplication of effort is avoided.

[Translation]

In conclusion, I would like to reiterate how important and appropriate this bill is for the life and health insurers of Canada.

[English]

Mr. Chairman, my colleagues and I stand prepared to address any questions that this committee may have.

The Chairman: I would remind senators and those who were not here at the beginning that we have allocated one-half hour per group. We have four groups.

Senator Angus: Gentlemen, I am sorry that I was not here at the beginning but I have the advantage of having your brief, which is clear. You would like to see this bill passed.

Let me deal first with your last point on harmonization with the provincial regulators. You ask the banking committee to recommend that an effort be made at the FCA, or equivalent, to have this harmonization. You are not suggesting that there be an amendment to the bill to make this happen?

Mr. Garcia: No, we are not suggesting an amendment at this point.

Senator Angus: You are not suggesting any amendments to the bill?

Mr. Mark Daniels, President, Canadian Life and Health Insurance Association: Not at all. The FCA is a piece of machinery that, in some important respects, is already replicated in the provincial world that we inhabit because our marketplace regulators are the provinces.

Senator Angus: That is quite a phrase, "piece of machinery." This entire bill is quite a piece of machinery. It is difficult for poor little senators like us to get through it. We need your help as experts in the field.

One area that has been profiled highly relates to your industry. That is the continuing prohibition for amalgamation between large insurance companies and large banks. I cannot find any reference to that in the brief, maybe I have missed it. I would like your comments on that.

Mr. Garcia, you are the CEO of a large non-de-mutualized insurance company, Standard Life, a great company, but speaking either personally or on behalf of your association or both, could you give your comments please on that issue? We have raised the question of what is best for Canada and is this the right thing to be deregulating in a vast way while holding back on things like that?

Mr. Garcia: I speak as head of Canadian operations for Standard Life. This legislation will not apply to us because we are a foreign company.

My chief concern is that there is adequate competition. I certainly believe that Canadian life insurance companies and the Canadian life insurance market is extremely competitive right now. Canadian life companies - my competitors - have been leaders in terms have been leaders in their openness to access the rest of the world. There is certainly adequate competition right now.

I cannot speak for my competitors on whether they would like to be bought or buy banks.

Senator Angus: It does not bother you from your point of view or your association's points of view?

Mr. Garcia: No. Some of my competitors are strong competitors. They are active outside Canada. We meet them also outside Canada sometimes. We are quite happy with the current competitive environment. It is very competitive. Standard & Poor's has called our market "tooth and nail competition." If you were to read the annual reports of my competitors, which I do dutifully, they all complain that the life insurance market in Canada is not as profitable as that in other parts of the world. That should be a good indication. It is not as profitable as the banking market in Canada.

Senator Angus: It would not bother you if you found out that the law had been changed to permit Sun Life to merge with a bank? You would not be here saying not to do it?

Mr. Daniels: Senator, may I comment to clarify because I was surprised by your question? As far as I know, it is not in the law. The government stated in the white paper that they want the seven large financial institutions to remain. The government wants that none of the five big banks take over the two big insurers or vice versa.

That is a policy statement; that is not in law anywhere. The industry understood the white paper. As far as I know, there was no collective view. People have views one way or the other, but there has been no position of which I am aware. Most people are comfortable, but it is also important that it is a statement of the government's intention at a point in time. Who knows what we will see as time progresses?

Senator Angus: That is correct. Who knew that this morning we would read in The Globe and Mail that BMO life insurance is being incorporated. Where does it all lead? Certainly, it is a policy as you say, not a prohibition.

I had understood that there is a prohibition, under the law as it exists today, for crossing the pillars in this area. Bill C-8 will open up this kind of crossing the pillars, except in the case of the two big life insurance companies and the big banks.

Mr. Daniels: That is the case. As I read it, all mergers are now possible except for what you have mentioned. There is a process governing what happens to the big banks. That process does not apply to the two big insurers, formally in law. Otherwise, there is only that one policy, which I read as being part of the Canadian-content argument that has been part of this debate all along.

Mr. Garcia: Manulife has a bank that operates here on the Internet. We have no problem with that sort of thing. We do not have a problem with a bank starting an insurance company, CIBC did and then pulled out. If BMO wants to have a go at it, that is their privilege. The market is there for everyone who wants to have a chance at it. We do not have any problem with that.

[Translation]

Senator Poulin: I appreciated your presentation, Mr. Garcia. Your submission is clear enough about your representativeness. It also describes very explicitly your involvement in the study on the Canadian financial industry restructuring, beginning with the task force and the fact that you were satisfied with the consultation process.

As a senator from Northern Ontario, thus representing an area situated far from large urban centres, I am concerned with the balance which the law should strike between the needs of the industry, the needs of Canadians and of small businesses, and the coexistence of provincial and federal legislation and regulation.

How do you see the possibility of maintaining such a balance through that piece of legislation which we are now studying?

Mr. Garcia: What is most important is that the bill gives additional powers to businesses so that they can organize in a more flexible way. At the same time, it creates a structure to protect consumers. We already have structures in place. We have basically nothing against that structure. I think that is a good thing, as long as it allows consumers to obtain satisfaction. However, it does not mean that every complaints we get concerning our services are justified.

For example, we insure people against disability. Sometimes, the beneficiary does not agree with us. If a diverging opinion can be considered as a complaint, we are quite prepared to examine the case, provided there are mechanisms in place to ensure a certain equity between insured people, so that we can be sure to pay only when the claimant is actually disabled. We see no problem with facilitating the recourse to that kind of mechanism. That's why our association adopted a positive attitude towards consumer protection. We are under provincial jurisdiction, and we like sound legislation. We would not want to find ourselves before the Supreme Court debating the constitutionality of federal legislation. We prefer that things go this way. Since we didn't write the Canadian Constitution ourselves, we must operate within the terms of the Constitution. We wish to avoid duplication, because duplication is expensive.

Those major improvements to consumer protection mechanisms represent an extremely important aspect of that piece of legislation. We will now be able to ensure that there is a place where people who need information can get it or where they can be directed to. We already have mechanisms in place. We do not like it when complaints are featured on television. None of us like it, because it's no good for our image.

[English]

Senator Meighen: My question is on the possibility of a Canadian financial services ombudsman. To what extent would the industry be participating in that? I gather the banks will be required to participate. Insurance companies can participate. Would you be participating, for example, in the joint forum of market conduct regulators to work toward creating this comprehensive service which -

[Translation]

To use Mr. Garcia's words, maybe we should avoid duplication.

[English]

Mr. Daniels: With respect to the federal ombudsman, we very much support the intention of the law. In the CLHIA, about three years ago we put in place something we call an "OmbudService," which is an extension of services we have offered in our consumer assistance centre for over 25 years. You could think of this OmbudSservice as an informal conciliation mechanism that is a further step along the road to helping with dispute resolution. When this bill was coming forward we did not want to be compelled to join because the federal government is not our primary regulator on these matters. We had put our OmbudService in at the request of the provincial superintendents of insurance. The Canadian Council of Insurance Regulators, with whom we work and through whom we handle most of our marketplace relations matters, had asked us to consider putting in a somewhat more extensive dispute resolution mechanism, which we had done. We were, therefore, not about to down tools and join the federal side because the result would be entirely predictable. In addition, as senators are aware, the Government of Ontario already has an ombudsman in place.

We have made it very clear that we will participate and cooperate with the CFSO when it gets into place. For the time being, we are keeping the mechanism that we have, but not because we think it is somehow better. We will see that consumers are afforded at least comparable service. As for the very important joint forum initiative, I should explain that this joint forum is an interprovincial committee of securities, pension and insurance regulators who set up to start coordinating their activities better across provincial boundaries. They have taken on a whole lot of projects - one of which is to set up a common dispute resolution mechanism across Canadian provinces for those elements that are in their jurisdiction, which includes our products. The good news is that the federal government has a couple of representatives sitting on that committee.

It comes back, senator, to the point Senator Angus asked us about. We would like a good strong suggestion that the industry in general does not become the meat in the sandwich in all this outpouring of goodwill on the part of Canadian consumers. We are in the business of taking care of consumers. We are anxious to do it and we need a coordinated mechanism.

Senator Meighen: Your last words raise the question: One regulator could possibly fit all?

Mr. Garcia: No, because of the Constitution. It is quite clear that the banks are regulated by federal jurisdiction. We are under provincial jurisdiction. Contracts of insurance are also under common civil law.

In my company we have a mechanism to handle complaints as well and we ensure that people are treated fairly. That does not mean that they win all the time, because that is not the way it works, but we do not want something that will go against the Constitution. If we were writing the Constitution today, we might write it differently, but we have to live with the one we have.

Senator Meighen: That was not my question. Within the confines of the Constitution, are you prepared to work toward one-stop shopping vis-à-vis ombudsman?

Mr. Garcia: Yes.

Mr. Daniels: Absolutely, and the good news is that it is not unachievable. It certainly is achievable.

The Chairman: You do not think it is the impossible dream?

Mr. Daniels: Not at all. In fact, it would be outrageous if we could not make it happen.

The Chairman: Thank you very much.

We will hear from Mr. Bill Podmore of Insurance Consumer's Group.

Mr. Bill Podmore, President, Insurance Consumer's Group: I am delighted to have the opportunity to appear before your committee again to offer our commentary on Bill C-8.

I am a graphic designer, essentially. I started the Insurance Consumer's Group as the result of the class action that I took against Sun Life Insurance regarding vanishing premium products. Since then, I have become aware of more grievous issues regarding financial institutions' abuse of consumers.

I would like to address a number of concerns, but my primary concern is that we are talking about a framework for the financial services sector without the major players involved. In my view, so that the framework can succeed, all the players must be in the game. Given that insurance is not in the game, I do not see why the discussion is taking place.

We believe that the financial consumer protection bandwagon will not provide Canadian consumers with the most effective, efficient and simple structure through which they may address their complaints and seek real assistance. This concern has risen out of recent initiatives of the Canadian Life and Health Insurance Association and the Canadian Council of Insurance Regulators in cooperation with the Insurance Commission of Ontario and other organizations. As we noted in our submission to the MacKay task force on October 10, 1997, while numerous governmental and non-governmental consumer interest groups are acting in good faith for the beleaguered consumer, they are unfocussed and prone to creating a counter-productive situation causing duplication of effort, great cost inefficiencies and ineffective achievements. We fear that without a clearly defined plan and strong federal motivation to harmonize both the consumer protection efforts and the role of the agency, the interests of Canadian consumers will not be appropriately served.

Let us not have confusion within the financial sector or with consumer protection initiatives, as exist now. It would become an unnecessary waste of human and financial resources.

As described in the bill, the objectives of the agency are to supervise, promote and monitor: supervise financial institutions for compliance and consumer provisions, promote adoption of consumer provisions, promote consumer awareness of the provisions, and monitor implementation of voluntary codes.

We believe that these provisions are totally inadequate. We suggest, once more, that the agency be independent of government to ensure there are no seen or unseen conflicts of interest. As well, the agency should have much greater enforcement powers, and should establish an appropriate and effective system of providing Canadian financial consumers with access to no-cost, efficient and capable legal support.

Given the complexities and length of time that may be required to achieve harmonization of financial services between the provinces and the federal government - if it occurs at all - we suggest that a national legal action group be established. This group should be funded initially through government assistance so that it represents exclusively the legal interests of Canadian financial consumers working in close association with consumer groups of record.

One of the numerous reasons for that suggestion is to ensure that there continues to be capable, legal counsel that will represent consumers. We have been advised that some law firms - that have excelled at representing financial consumers - have been contracted by financial institutions. Thus, they have created a conflict of interest situation and have effectively eliminated consumers' access to knowledgeable, competent legal representation.

Additionally, in class action litigation, plaintiffs' counsel - such as my own - are not compensated until after the final judicial decision is rendered. They must often bear unreasonable financial burden to carry a case, while defence counsel are paid on a monthly basis. This imbalance further discourages lawyers and consumers from proceeding with legal actions.

Fourth, we concur with the comments made by Senator Kolber as reported in the Financial Post of Thursday, June 22, 2000, that the division of this financial services Bill C-8 is inadequate and that it fails to set out a broad vision, or blueprint, for the unfolding financial services industry. Our group views the proposed legislation as essentially a bank merger blueprint, rather than a blueprint for the financial services sector.

Fifth, as we see it, the proposed legislation does not adequately address the issues of full, plain and adequate disclosure to consumers, fair reasonable and non-abusive transaction practices and adequate redress mechanisms to resolve disputes, as recommended by the task force recommendation number 53.

Sixth, we see a major opportunity, which will likely be missed, for the coordination of efforts between consumer advocacy groups, industry and government. The task force recommendation number 56 urged the creation of a financial consumers' organization. We believe that such an entity, with support mechanisms as described in the task force report, including a legal action network, would greatly assist the agency in its work. It would also serve at local levels as resource centres for consumer information and education.

Seventh, in terms of violations, the $100,000 limit on a penalty for a violation is, in our view, totally insufficient. We urge that there be no limit on the amount of penalty. We believe that the penalty should more fairly fit the violation. I know that Mr. Nystrom tried to have this penalty increased, but he was unsuccessful. We also think that more serious penalties, including suspension of operating licences, should be considered, as they are in the United States.

Eighth, with regard to rules and violations, I have read that due diligence is a defence in a proceeding in relation to a violation. I am concerned that that may be an escape clause to avoid further action.

Ninth, we urge that tied selling and privacy protection regulations be included in this bill and that special attention be given to the whole area of privacy and protection of genetic information.

The Chairman: I do not believe there are any questions, so we thank you for your time. We will note your comments.

The next group is from the Insurance Bureau of Canada.

Mr. Anderson, do you have an opening statement?

Mr. George Anderson, President and Chief Executive Officer, Insurance Bureau of Canada: Thank you for inviting us to be with you this morning. I am here with Paul Kovacs, Senior Vice-President and Suzanne Sabourin, our Executive Director of Government Relations, here in Ottawa.

As many of you know, the Insurance Bureau of Canada is the national trade association of property and casualty insurers. We are responsible for about 90 per cent of all the sales of automobile, home and business insurance in the country.

Last year, the industry paid out about $15 billion in claims to repair homes and vehicles, replace stolen goods and rehabilitate injured accident victims. Our industry employs approximately 100,000 people across the country in all manner of large cities, small towns and villages.

I want to acknowledge the leading role that this committee has played over the years in serving as a forum for debate and resolution of the major issues concerning financial services in Canada and its proper functioning to respond to the best interests of Canadian consumers.

This latest round of consultation, Bill C-8, is the culmination of some 40 months of detailed study and discussion about financial services in Canada. IBC and our member companies have been involved in this debate every step of the way since 1987.

We are confident that the legislative framework before you contains a fair and balanced package of reforms that will benefit Canadian consumers and financial services as a whole. Moreover, we are particularly pleased that the legislation brings a pause, if not a total closure, to the many years of debate about bank powers in insurance.

We support this bill, and we urge the committee to ensure its passage.

Allow me to focus some remarks today on the current and emerging issues that will help consumers enjoy the benefits of a healthy and competitive financial sector in Canada. We have been making the case for a number of years now - we have made it before this committee, and everywhere that we are asked to speak - that the property and casualty insurance industry and its product is not a financial product like the others. We have been gratified to see that most senators agree with this.

The committee's report in 1998, "A Blueprint for Change," noted the distinctiveness of our industry. That report stated:

Property and casualty insurance is essentially "a pure risk protection product". It has none of the investment or wealth management characteristics of life insurance.

We naturally agree with that. Property and casualty insurance is not an investment in the traditional sense; it is a pooling of resources to protect consumers against the risk of accidental loss.

The industry, because of that, requires higher capital requirements. Underwriting obviously is subject to a much greater broader range of risks. For example, think of the prospect of a devastating earthquake in lower mainland British Columbia. That event will occur - hopefully not soon, but according to geologists and seismologists, it will occur.

We have market cycles, characterized as hard and soft, that swing more dramatically than most others. Also, in its claim settlement functions our industry's work is highly labour intensive. In contrast, investments by banks, trust companies, securities firms and life insurance companies focus largely on wealth management. Such investments are made on the common assumption that losses will only occur at the margin of their investment activities.

A second point about our industry is that this industry is highly competitive. First Marathon Securities - while not using the tooth-and-claw analogy that Mr. Daniels used - nevertheless, has called us the most competitive of the financial services industries in Canada. Two hundred and thirty companies actively compete to meet the changing insurance needs of Canadian from coast to coast.

All of these companies operate in a highly regulated environment - most prominently regulated at the provincial level, but also regulated at the federal level. I will come back to that because I see that as an issue going forward and one that this committee should consider.

Our industry is the least concentrated of the main financial services industries; it is not dominated by any one company or any group of companies. In fact, the top 10 companies represent only about 50 per cent market share. No single company in our industry has more than 11 per cent market share.

This means that small insurers can compete effectively with mid-sized and large insurers in the Canadian market. Competition often focusses on price. Consumer service standards are high, and property and casualty insurers provide a very wide range of products.

The industry's regulatory framework has long allowed foreign competition and foreign companies to compete on equal terms with domestic suppliers. Consumers have access to products and services offered by the world's major international groups, all of which operate inside Canada. With hundreds of active competitors and the property casualty insurance industry, there is a lot of choice for customers - not only in the range of companies but also in the growing number of distribution channels that are used to distribute the product.

The unrestrained functioning of the free market is no guarantee that consumers will always be satisfied with the service they receive. Bill C-8 recognizes this. It includes stronger provisions dealing with tied selling - something that was advocated before. It also plans to strengthen consumer protection through the establishment of the financial consumer agency and the financial service ombudsman's office. We have heard talk of those two organizations this morning.

In order to comply with the legislation we are currently working with the joint forum of financial market regulators, as are all the other trade associations and industries, to design a national framework to establish an alternate dispute resolution system and best practices for the financial services sector.

Looking forward, I think Bill C-8 also highlights the importance of a couple of other item that are perhaps directly dealt with in the bill, but about which senators and others involved in public policy in Canada ought to be concerned. For this legislation to work in financial services, we need supportive taxation and regulatory regimes that enable consumers to take advantage of the new competitive environment. We encourage committee members to seek opportunities as we go forward from this bill to make further refinements and improvements to the business-operating environment for Canada's financial institutions.

A continuing concern is the level of taxation. According to a leading expert on tax in Canada, the property and casualty insurance industry is the most heavily taxed industry in Canada's financial services sector.

The Chairman: Is that relevant to this bill?

Mr. Anderson: I think that it is relevant to how well the bill will function when it comes out of committee and gets passed.

The Chairman: I think that we are going beyond our mandate here. Proceed.

Mr. Anderson: Let me talk a little about regulation then, if I may, briefly in closing.

We and all the participants in the financial services sector support regulation to ensure solvency and confidence in our financial services domestically and world-wide. Striking an appropriate balance between public regulation and reliance on market forces will help maintain confidence in the financial system, safeguard consumer interests and help to ensure the future health and prosperity of firms in the sector.

It is important for Canadians to keep pace with regulatory developments in other jurisdictions. It is equally important to be mindful that excessive regulation threatens capital flow into Canada.

This is an important consideration where layers of regulation are a systemic by-product of our political structure, and where no one body seems situated to accept accountability for the aggregate cost of compliance of financial regulation in Canada.

The organization of competition becomes increasingly important because of the potential for the inevitable resurgence of interest in bank mergers. In the coming world of "banks without borders," we must be mindful that the regulatory and tax burdens remain fair and competitive for banks, insurers and other financial institutions.

In conclusion, we are encouraged with the policy direction of Bill C-8 and we applaud the government's foresight in protecting consumer interests and ensuring a healthy industry and healthy competition in Canada. By encouraging new entrants in the market and introducing consumer safeguards, the federal government is working to provide Canadians with more choices.

The legislation contributes to correcting the growing competitive imbalance among Canadian financial services industries. We believe that this is good news for Canadian consumers. We encourage this committee to support this legislation.

The life and health insurance people have a consumer protection plan for the policyholders. Does such a plan exist for your policyholders?

Mr. Anderson: It is called the "Property and Casualty Compensation Insurance Corporation." It operates in a manner similar to the CompCorp, to which you are referring.

Senator Kelleher: Has it been functioning reasonably well?

Mr. Anderson: Yes, and for many years.

Senator Kelleher: The banks have CDIC. People who have been harmed could call upon, in a sense, Crown resources.

Mr. Anderson: Yes.

Senator Kelleher: Would this be beneficial for your group? Do you have any desire to have a similar protection, or would you like to stay away from CDIC?

Mr. Anderson: As you know, senator, it is a double-edged sword. Whenever you approach the government for help, you might get it.

Senator Kelleher: That is the most fearful knock on the door: "I am from the government and I am here to help you."

Mr. Anderson: We have concluded that the prospect that the federal government would step into this field, being it largely provincially regulated, is very slim. Our plan has worked on an industry-funded basis satisfactorily. There is no strong feeling among our membership that we need to rely on the resources of the Crown to make sure that our customers are protected in the rare event that a company fails.

Senator Kelleher: Is there any monitoring whatsoever by the federal government of your fund and how it operates?

Mr. Anderson: The provinces monitor the makeup of the funding of the Property and Casualty Compensation Insurance Corporation. The federal government, through OSFI, monitors the solvency and risk of the various companies doing business. There is a close relationship between officials at OSFI and the head of our Property and Casualty Compensation Insurance Corporation, so they are well aware of situations that may require some assistance.

Senator Kelleher: I see. Thank you.

Senator Finestone: On page 6 of your presentation, you talk about the Personal Information Protection and Electronics Document Act with respect to the rights of consumers to privacy. I was interested to hear your comments in this regard. You indicate there is a need to recognize and give effect to approved sectoral or organizational codes of practice. Would you elaborate on that? Would you also clarify what you might see as a concern with respect to this protection of privacy?

Mr. Anderson: We take the question of individual privacy seriously. I think that all insurers do. I have always taken the approach that in some respects confidentiality of information is the currency of our business. The greatest constraint on improper handling of personal files of individuals is the business loss that would occur if it were to become widely known that a company was improperly handling its personal files.

That has not been an issue in our industry, though we did participate openly in the development of that piece of legislation. Prior to that, we worked for three years with the Canadian Standards Association in the development of their criteria and guidance in what constitutes a proper code and system for protection of personal information of individuals.

We have adopted that code in its entirety. We were the first financial industry to receive full compliance acknowledgement by the compliance body of the Canadian Standards Association. That documentation is now written for our industry. It is distributed to every company, and there is a system in place from coast to coast to protect personal privacy.

Senator Finestone: I recognize that the Canadian Standards Act is the guiding principle behind Bill C-6, and it is an important undertaking. The question regards the application, given the enormous technological change and the interaction of computer information, the data gathering and data matching that is occurring.

There was a serious concern about tied selling. Although everyone seemed to think as the economists said, "privacy is dead, get used to it." It is not. Privacy is an issue in the 21st century, and we better get used to it and determine how to deal with it.

You made the observation that the Canadian Standards Act works. You pointed out that are you good at observing that. You have implemented within your own structure certain standards to meet certain challenges at the provincial level because it is uneven. Is that what you meant when you talked about the key issue in the financial services is to ensure that power to grant credit enjoyed by Canadian financial institutions is not used against consumers? Is it related to tied selling? Is it related to shared information?

If I have an inherited potential disease, and I become insured and then I need a loan or I need to insure certain parts of my assets, will I have a problem because you have information about me that you had no right to have in the first place?

Mr. Anderson: I will answer that as best I can, but I will duck part it have because it is a question for the bankers. We are concerned about tied selling. There is quite effective regulation against tied selling at the provincial level for our products - property and casualty insurance products. There are regulations prohibiting tied selling. The act deals with tied selling, I think in section 491.

The government does its best to say that tied selling should not be done. Even at the time when that legislation was being considered as an improvement over prior legislation this matter, 16 per cent of Canadians reported feeling pressured because of credit applications to buy other products from financial institutions.

I do not know how far the government could go in regulating the day-to-day thousands of discussions that go on at the individual level between a banker, as an example, and a client wanting a mortgage or a car loan. We are not convinced that that legislation will prevent that practice.

Senator Finestone: Mr. Chairman, this is a serious concern. We have heard it from people across the country that they are being forced through tied loan undertakings to change where they take their loans, or they are being impacted by the fact that they cannot get a loan depending on what the insurance policy shows on their health.

The Chairman: I am not sure what this committee could do in reference to Bill C-80.

Senator Finestone: It was in this brief.

The Chairman: I know that it is your pet project, and I am not derogating it; I am just not sure that it is on track here.

Senator Finestone: That is fine, as long as your colleagues around this table will keep it in mind in the course of your discussions.

The Chairman: We will.

Senator Finestone: Thank you.

The Chairman: There is a difference between tied selling and coercive tied selling, but we will get into that another day.

Senator Oliver: My question is for Mr. Anderson and it deals with regulation. When I read through the act I have the impression that the act contains excessive regulation and excessive ministerial discretion throughout. On page eight of your presentation, you talked about regulation, and you made one interesting remark that I would like you to elaborate on. I would like you to lay before this committee the proof, or substantiation for that. When you talked about the importance of regulation - you mentioned that solvency and confidence are certainly part of it - you stated that it is important that Canada keeps pace with regulatory developments in other jurisdictions. Could you provide us with some information as to just how competitive we will be, compared with the United States and European countries, with the number of regulations that we have for your industry in Bill C-8.

Mr. Anderson: It is a worry, senator. Mr. Kovacs, our chief economist, has been looking at this question extensively. If you will permit him to answer that for you, he will.

Mr. Paul Kovacs, Senior Vice-President, Policy Development, and Chief Economist, Insurance Bureau of Canada: I will begin by qualifying my comments. We do advise that the bill should pass. We have problems, but we advise that it should pass.

Senator Oliver: Why is that? So many people are afraid to come before this committee and those who do come before us say that they will hold their noses and ask us to pass it. Why are people afraid to comment on something if there are major strategic and public policy issues to be addressed?

Mr. Kovacs: It is our view that we have had extensive discussions and we recognize the role that this committee has played, as well as our ability to participate in these discussions and other discussions. We believe that much has been put on the table and we are now in a position to make some progress. This is a helpful bill, so our counsel is to move on this.

However, we are advising that our biggest concern is the operating environment for the financial services industry - for the insurers that we are talking about - is not as healthy as it can be.

Senator Oliver: It is too controlled; too regulated.

Mr. Kovacs: Regulation and taxation are parts of that. There is a range of issues, some of which can be influenced by the government. To use a specific example to the question that you have asked, we are exploring with the regulatory authorities the fact that there are demands, in terms of amount of capital required, for a company to be an insurer in Canada. That seems to be quite a bit out of line compared with other countries. So as an individual operating your company, you ask yourself just how much money you need to run your business, from a business point of view? Then you ask yourself just how much the government is demanding that you have in place?

If the demands are excessive, it is hard to make money. How do you make the kind of profit that you expect when you only need a certain amount, and yet you are required to hold much more? If those demands in Canada are excessive relative to other countries, investors will bypass Canada; they will not create jobs in Canada; they will go to other jurisdictions. These are issues that take time to research properly, set out on the table and do adequately and well. That is one of the cluster of issues on the business environment, from a regulatory point of view.

We still do counsel, overall, the bill is good and it moves us forward.

Senator Oliver: I have that point.

Mr. Anderson: To give another example, international accounting rules and how they apply inside Canada. There are discussions on international rules for how books ought to be represented. It is a worthwhile discussion given the globalization of investment. Investors ought to be able to look at one set of books in one country and have confidence that it looks like another set of books from a different country.

We are currently faced with a situation where it is possible for accounting rules to be adopted for Canadian companies, or for foreign branches in Canada that are out of sync with the rest of the world. They have to be unwound so that the home company can understand its operations in Canada. The more radical may say that they will simply leave the country if that happens.

However, when our CEOs argue for capital for their businesses, they are told that the jurisdiction is too complex and the tax regime is too heavy. They do not want their capital trapped there. These, in the global world, are things that we will have to start worrying about.

The Chairman: Is it a fact that most other countries allow banks to sell insurance?

Mr. Anderson: In Europe that is a fact.

The Chairman: What about in the United States?

Mr. Anderson: Yes, they can sell insurance.

The Chairman: It seems to me that you cherry-picked the parts that Canada is no good at, but if you wanted full merging of equality, that is what we would have to do, would we not?

Mr. Anderson: I do not think that the two points relate.

The Chairman: If you want to be totally international, I would think they do relate.

Senator Oliver: Do you want to answer that?

Mr. Anderson: Both this committee and the MacKay task force report acknowledged in many places that there is no natural synergy between our business and the banking business. Indeed because of the concentrated nature and market power of banks in Canada, which is completely different than it is in Europe or the United States or just about anywhere else in the world; for example, Germany has 3,000 banks -

The Chairman: That is not so. There are many European countries that have massive concentrations of banks, such as Holland and Switzerland.

Mr. Anderson: Those are the two examples.

The Chairman: You are making statements that are not accurate.

Senator Meighen: Switzerland has second-tier and third-tier banks.

The Chairman: They also have dominant banks like we have.

Senator Meighen: We do not have second-tier and third-tier banks like they have.

The Chairman: I do not know that it makes a difference.

Mr. Anderson: Senator, this debate clearly is not resolved for all time. It will come back in the next round of legislation as it has in every round. We are satisfied for our part that it has been well heard for the last six years. The government has had three opportunities to consider what it ought to do and it has decided to move forward with the current structure, which is not locked in all time.

My point about regulation is: Irrespective of the structure of financial services in the various countries, we have to be mindful that we have a particular difficulty in Canada with the way in which we regulate our financial institutions because every province has a go at all these companies, as well as the federal government. That creates a drag on competitiveness.

I was at a dinner the other night with the Superintendent of Financial Institutions, along with the representatives of the banks and Mr. Daniels and many others. We were asked to table the issues for the future, this was the issue that was talked about.

Senator Oliver: Regulation?

Mr. Anderson: Yes.

The Chairman: We agree with you. We are not sure what to do about it.

Mr. Anderson: I am not sure either.

Senator Oliver: When you talked about capital requirements, is there a difference in the capital requirements between Bill C-8 and the United States of America? If so, how severe it?

Mr. Kovacs: Many of the issues that we are raising are not necessarily part of Bill C-8. There is a large regulatory structure - provincial as well as federal - that is taking place outside of what is in Bill C-8. It is our view that knowledge about the rest of the world is critical for us to make decisions. In some cases, it could be that it is important for the decision to be consistent with the rest of the world; there will be cases where we will decide that we should take a different path here in Canada. There are specific areas where differences are logical.

We are proud of the role that this committee and others played when we talked about preparing for an earthquake and about having an approach in Canada, which has since become a leadership role in the world. We have one of the most advanced systems.

There are some areas where being out of line with the rest of the world is dangerous. It sends the wrong signals. We miss out on jobs and others things. Bill C-8 touches on this.

There are elements that change, mainly in consumer protection. Other areas are not formally part of Bill C-8 and need to come up in a different round of exploration.

The capital requirements around the world for insurance companies, for example, are not formally part of this. The discussion that we are involved in about the accounting practices and the proposal to have Canada step out of line with the rest of the world, did not come out of Bill C-8. It came out of a different set of discussions. The benefit that we question and the costs that we identify have not been part of a broader debate thus far.

Senator Oliver: It seems to me, based upon what you have both said, that you are making a major mistake if you have concerns about excessive regulation that you are not bringing forward now. I know that you and many other companies desperately want this bill passed. However, you only get so many kicks at the can.

If there are problems with regulation in Bill C-8 that you are afraid to address for reasons of your own, when do you think they will be addressed? Will it not be too late once the bill is enshrined? Why not lay your concerns before the committee now so that we could start thinking about them?

Mr. Anderson: I do not think that our comments, as the chair has reminded me twice now, bear directly on Bill C-8. In other words, we are talking about the larger picture. For example, we are talking about how the provinces behave in concert, or some times in conflict, with the federal government when legislation like this is implemented.

The regulatory environment around Bill C-8 is not a huge concern to us except in one respect. We are concerned about the consumer alternate dispute resolution provisions of the bill. We are engaged in a joint forum that is discussing how that will roll out. We are advocating strongly that industries be left to work out their own consumer complaint resolution systems under a framework of principles designed nationally.

We would all operate, as we did under privacy, with a national set of standards that we must meet. Consumers could call a single number with a banking or insurance problem and be directed to the right industry.

Senator Oliver: How many of these would you envisage - one for banking, one for insurance?

Mr. Anderson: As many as there are financial service sectors in Canada. The alternate model - which worries me a great deal - is a national organization staffed with people who could not possibly have the expertise to deal with all of these issues. This national organization would be encouraging business that flows out of the jurisdiction in which it ought to be settled to a central system somewhere where it languishes for years in file that is never get settled. That is what we are very worried about.

We support "one-stop shopping" when it comes to complaints. We support a system designed to which everyone must adhere. We do not support another federal Crown corporation mucking around in everyone's business.

Senator Angus: There is one point that I think is worth reviewing from Senator Oliver's questioning.

I understand you to be saying, apart from the taxation issue, that there is an excessive regulatory burden in Canada for the P and C industry vis-à-vis the regulatory burden in other countries with which we do business. It is your submission that these regulations are an impediment to P and C companies from other jurisdictions coming to Canada or ones that are subsidiaries of foreign companies starting up here. Our regulatory burden is not standardized or in sync with those in the U.K, Germany or in Italy. Is that correct? Is that your point?

Mr. Anderson: Yes, I would not go so far as to say that we are significantly out of step now; I worry that we are becoming significantly out of step. The mechanisms that we have in the country to bring us in step are very difficult to operationalize.

For example, we think a harmonized insurance act in Atlantic Canada would be a good idea. There are 2 million people there. A single set of insurance rules and similar business registration processes would be good. Everyone agrees.

Senator Angus: We have addressed in this committee the security commissions, the blue skying. Is this a similar thing?

Mr. Anderson: Yes. With all due respect to the premiers, it is now five years later and we do not have this.

Senator Oliver: Everyone agrees, you said.

Mr. Anderson: It has not happened because every jurisdiction has something special that they want to keep out of the act. Consequently, we ended up with no act. We ended up with a statement that we ought to harmonize.

We applaud that, but if it takes that degree of time and difficulty to do that, what happens in an international world where we are trying catch up and harmonize our country with competitor countries? That worries us. I do not want to come here and say that the burden is so excessive that we cannot do business around the world. That is clearly not true, but I worry for the future that it may become true. We have examples of it happening now.

Senator Angus: OSFI is the federal regulator of your industry but the problem is not so much OSFI or the federal regulatory environment. It being a provincial matter, it is all these non-harmonized rules in the provinces. Is that correct? Is the federal government bad too?

Mr. Anderson: We are quite supportive of the work that OSFI has done. Now that the current superintendent is approaching retirement, we no longer fear him as much. We have begun to admire him.

Senator Angus: He is totally hands off the P and C industry.

Mr. Anderson: We have issues with OSFI. The difficulty is the relationship between what OSFI does and what the Province of Ontario does when it regulates car insurance. Who adds up the aggregate burden of this regulatory drag on our ability to do business? With the structure of our system, nobody does. An opportunistic regulation and compounding effect results. I worry that we are not only regulating across borders in Canada but across borders throughout the world. We must be careful.

The Chairman: You should have that in your brief. That is good stuff.

Senator Meighen: Mr. Anderson, would your members be the ones to offer financial guarantee insurance if one could do so in Canada? Why cannot we do so in Canada? Are you making efforts, as OSFI indicated to us yesterday, to undertake discussions with OSFI to see about offering it in the future?

Mr. Anderson: Thank you for asking the one question for which we prepared.

Senator Meighen: You told me to ask it!

Mr. Kovacs: Financial guarantee insurance is available to people in Canada who want it. However, by and large it is bought from companies outside of Canada. Most of the companies in Canada who have tried this product did not have a satisfying experience. They lost money.

It is very difficult product to offer. Most of the companies of which we are aware that tried to get into this field were from the property and casualty part business. It is extremely different than most property and casualty products. It is a challenging product.

It is a guarantee about finance as opposed to a guarantee about fires and accidents and things that are more commonplace. There are property and casualty companies in the world that are interested. With some urging, we have gone to our membership and asked who might be interested. Part of stepping up is the need to build the capacity within the insurance company. There would also be a requirement for a regulator to develop the kind of processes that a regulator would need to supervise because they have a history of supervising auto insurance and property insurance and other things, but they have not been supervising financial guarantee insurance in Canada.

The dialogue is taking place. We are encouraging companies to think about this. The foremost reason why, at this time, there are not many companies actively pursuing this is because it has not been profitable in Canada. It is a risky product.

On a larger scale, there are some companies in the world who offer Canadians these products from elsewhere. It can be done. Some of these companies are making money, but the experience was negative for the ones that have tried it in Canada.

Senator Meighen: It is being done in the United States, is it not?

Mr. Kovacs: That is correct.

Senator Angus: Does not Lloyd's, for example, prohibit doing financial guarantee insurance in its bylaws and its constitution?

Mr. Kovacs: I cannot speak to that specific company, but that is a result that would not surprise me. I have heard some companies say that they tried a business and have decided never to try it again. Lloyd's may be one of those companies who have tried that. If a company in Canada would like this product, it could be purchased.

The Chairman: Thank you very much for being with us. The last witness today will be from the Canadian Banking Ombudsman.

I would like to welcome the Canadian Banking Ombudsman. Have you an opening statement?

Mr. R. Michael Lauber, FCA, Ombudsman and Chief Executive Officer, Canadian Banking Ombudsman: We distributed our paper to you earlier, and we have left a couple of other background documents with the clerk.

I am the Canadian Banking Ombudsman. With me today is Dr. Peggy-Anne Brown from Vancouver, the Chair of the Board of Directors of the CBO for the past four years. I want to thank you for inviting us to participate in your review of Bill C-8.

Today we want to talk to you about the proposal for the creation of the Canadian Financial Services Ombudsman, known at the CFSO, and the need for more comprehensive redress system.

In the interest of time, I will highlight the overview of the Canadian Banking Ombudsman that is in the document that you have before you. I invite you to read that.

The CBO is a corporation led by a board of directors, the majority of whom are independent of the member banks. I report to that board of directors. We deal with small business and consumer interests. We cover the affairs of the entire bank financial group, which means that we are dealing with banking issues, securities, mutual funds, and insurance, both life and property casualty. We do not deal with systemic issues such as service charges, bank closures, and situations like that. Those issues would likely fall to the Financial Consumer Agency.

Not that these cases are representative but our largest recommended settlement over the years has been $260,000. I also mediated a settlement of $500,000. We are dealing with meaningful cases, however they are not representative. The range of $5000 to 10,000 is probably more representative.

I would like to speak to you about the proposed CFSO that is under Bill C-8. In its June 1999 white paper, the Minister of Finance indicated that the federal government would work with financial institutions to establish an ombudsman independent of government and industry. They called it the CFSO.

Under Bill C-8, the banks and their designated affiliates will be required to be members of the CFSO once it is established. Other federally regulated financial institutions may join the CFSO, but they would be required to join some sort of a third-party dispute resolution system.

The bill permits the minister to appoint a majority of the board of directors. The CBO supports this CFSO initiative in that it is independent of the both industry and government. It will likely only have banks as members, as you have heard earlier. As a result, the CFSO will merely replicate the Canadian Banking Ombudsman.

We believe that the CFSO model falls short of the recommendations of this committee in its 1998 report on the review of the MacKay task force. The committee concluded that the ombudsman service should include all financial services institutions and be independent of the industry, but not be created by legislation.

Doctor Brown will discuss an alternative solution.

Dr. Peggy-Anne Brown, Chair, Board of Directors, Canadian Banking Ombudsman: The board of directors of the CBO has consistently supported the idea of a single independent ombudsman providing seamless coverage for all consumers of financial services. We made this recommendation to the MacKay task force in 1997.

Considering the convergence taking place in the financial sector, the need for this kind of one-stop service has never been greater. Following the passage of the this bill, it will be increasingly difficult to distinguish between the services of a bank, a life insurance company, a credit union or an investment dealer. Consider the jurisdictional issues involved when CIBC and Great West Life/Investors Group are cross-selling products, or a financial planning group is issuing a MBNA credit card and Merrill Lynch and HSBC have an investment joint venture.

Dispute resolution schemes on a silo basis - banks, insurers, investment, et cetera - could leave large gaps for consumers. That is why the MacKay task force stated that, "It would be a step backward to establish separate ombudsman offices for each of the former pillars."

Consumers will find it confusing if they must choose between a variety of slightly different dispute resolution processes or if they must use more than one process in a dispute that crosses jurisdictional lines.

The idea of a comprehensive Ombudsman dealing with all financial service sector consumers has been endorsed by the MacKay task force, by members of this committee, by the House Finance Committee and, most recently, by Secretary of State Peterson when he introduced Bill C-8 in the house of Commons for second reading.

Consumer groups - and I believe that you heard from CAC yesterday - also support the concept of one national ombudsman that would provide a single avenue for dealing with all complaints. This option would be easy to use for consumers, and eliminates gaps in coverage and jurisdiction. The single national ombudsman is also the direction being pursued in the United Kingdom. Australia is also moving, albeit slowly, in that direction.

Currently there is an initiative to create a comprehensive national ombudsman for financial services. The Joint Forum of Market Conduct Regulators is an association of provincial insurance, securities and other regulators formed to try to harmonize financial service legislation across Canada.

The joint forum created a task force with representatives from the federal government and the financial industry. The goal is to establish a national dispute resolution process to cover all financial services from banks, insurers, and investments to individual financial planners, along the lines of recommendations of this committee in 1998. The task force has met twice.

We urge this committee to encourage the government to continue its efforts with industry and the provinces via the joint forum on a priority basis. It would avoid a patchwork and confusing system of different ombudsman schemes throughout the country. In particular, the government should defer proceeding with the CFSO pending the outcome of the Joint Forum Task Force - probably until the end of this year.

There is no cost and no risk in deferring action on the CFSO and allowing time for the comprehensive national scheme to develop. This would have no impact on the progress of Bill C-8. The government could proceed to the CFSO model if the joint forum fails.

Mr. Lauber: Meanwhile, the CBO will continue to operate and provide support for consumers and small business people. Once again, I would thank you for inviting us here. We would be pleased to answer your questions.

Senator Angus: Mr. Lauber and Dr. Brown, thank you for your submission. I have one question, which may flesh it out a bit.

Could you give example that would illustrate the problem inherent in having different ombudsman covering different financial service institutions?

Mr. Lauber: One example used in the papers that you have is a marketing agreement between the Great West Life/Investors Group and the CIBC. Let us take the situation where I am a customer of CIBC and buying an insurance product. After a few years, there is a problem. I go to the bank. The bank reviews it and claims that it not their problem, it is an insurance problem. I go over to the insurance ombudsman. He says no, it is not an insurance problem this is a selling problem and the seller of the product was the bank. You go back to the bank.

You could get the same thing in the HSBC-Merrill Lynch situation. If the ombudsman only had jurisdiction over HSBC and there are problems on the Merrill Lynch side, how would one deal with that? There are all kinds of seams and cracks.

As the industry converges, there will be more of these difficulties and more problems for the consumer. Whereas if you had one ombudsman organization that had jurisdiction across the sectors, it might transfer between two people in the same organization, but there would be one ultimate decision-maker.

Dr. Brown: I would like to stress that this would not only be more efficient but it would be speedier for the consumer. This is a real need.

Senator Angus: You were in the room I noticed when the Insurance Bureau witnesses were responding to questions from Senator Oliver. They made the point that the staff of this ombudsman's office would need to have an incredibly broad knowledge of the different sectors to be able to make rational and intelligent judgments. Do have you an opinion on that?

Mr. Lauber: That is true. Particularly in insurance and in securities, there is a lot of legislation and regulatory rules. In the U.K., they had eight financial services ombudsman. They are bringing them together into one organization. They established their office with a chief ombudsman. They have three divisions: banking, insurance, and investment.

Obviously the people in each of those groups would have expertise and develop expertise. It is more of a staffing and hiring management issue no matter how it is set up. If it were on a silo basis with five organizations, you would still need to bring the knowledge to bear.

Senator Angus: It would be a costly operation.

Mr. Lauber: While knowledge is very important, ultimately you analyze the situation and it often comes down to a fairness situation. You do not need to be an expert to determine fairness in most cases.

Senator Angus: I am sure that Senator Hervieux-Payette is sorry that she could not be here this morning. She has developed a particular expertise in what you people are doing. I was sorry that I could not attend the meeting the other day. I had another commitment.

Some other witnesses have said what I think that you folks are saying, namely, that it would be premature at this time to go ahead with the CFSO, so long as the joint forum of market conduct study is going on. You are asking us to do whatever we can to delay the implementation, if the implementation must happen. How do you suggest that we do that?

Mr. Lauber: The legislation is permissive. In other words, the legislation says "the minister may." From a legislative point of view, there is no requirement to proceed immediately. It is into a judgment issue as to whether you proceed.

We believe on a public policy basis that both the consumer and the industry would be better served by a single national scheme that the joint forum is trying to put together. If the CFSO is put into place, I think that would take the momentum out of that scheme. That is the danger of moving ahead. You would not put it in place and then unwind it in six months. Once it is in place, it would tend to have a life and it would take some time to disassemble. Our view is to give the joint forum an opportunity.

Senator Angus: Is it your view, so I fully understand it, that if indeed the government in its wisdom withholds the implementation and these other events take place, would it be your prediction that ultimately there may never be a CFSO?

Mr. Lauber: Yes, there would not be the need. You would have one national comprehensive body including all financial service sectors. You would not need the federal body.

There is an interesting side that I see to this from a public policy perspective. We have tried to rationalize some financial services operations over the years without very much success. We had the National Securities Commission a couple of years ago; more recently we have had licensing of financial planners, which is sort of shattering a little as it goes along. It would be nice to have a success on the federal-provincial basis within financial services.

This is a non-threatening item. It is not legislated. It is not regulatory. It does not write any laws. It does not have regulations or anything. It is merely an organization set up by a body. It is independent of the industry. It is independent of the government. Its sole function is to deal with disputes between a financial institution and a customer.

It is below the regulatory horizon - it is not a regulator. Perhaps there could be federal-provincial agreement to do this. It would be nice have a success.

Senator Angus: Would that not be nice?

Mr. Lauber: Yes, maybe based on a small success you can have some bigger successes.

The Chairman: You will need federal-provincial agreement.

Mr. Lauber: The regulators who make up the joint forum, together with representatives of the ministry of finance, are attempting to bring the industry together and to resolve some differences and have a body emerge that would be a non- government body.

The Chairman: Is the answer yes or no?

Mr. Lauber: I think that it is not so much approval, but just acceptance from a federal-provincial point of view.

The Chairman: It sounds the same to me.

Senator Furey: My question is brief.

You indicated in your remarks that the CBO does not deal with systemic issues. I think that you used, as examples general pricing and products, interest rates, branch closures, that sort of thing. You stated that these issues would likely fall to FCA as a regulator.

If you saw a merger of the CBO and the CFSO, would you see those things coming under one umbrella or remaining separate?

Mr. Lauber: No, I would see them remaining separate. Once again, the ombudsman is dealing with the problems of an individual client with their financial institution. It is not really the role of an ombudsman to deal with the broad systemic issues. That more properly is the royal of a regulator.

Senator Furey: Does that apply even though the general public would probably find it difficult to differentiate?

Mr. Lauber: That is an issue, but we do not have problems with people who approach us and hear our explanation. People understand that we cannot solve every service charge issue in the country.

Senator Furey: Thank you.

Senator Kelleher: Mr. Lauber, you are advocating that the implementation be delayed for six months, which is fine. Have you had occasion to discuss this proposal with finance? What is their attitude towards your proposal?

Mr. Lauber: At this point I am unclear about where they intend to proceed with it. There have been some indications that the joint forum process is a better mousetrap, so to speak, and we would be silly not to wait for it. However, I do not think that the position is clear.

Senator Kelleher: In light of that attitude by finance, you are then saying, I gather, that it would be helpful if this committee could recommend that proposal?

Mr. Lauber: We always welcome the support of honourable senators.

The Chairman: One final question. Did Mr. Peterson say that he would actually do this or recommend this? You quoted him in your brief.

Mr. Lauber: I do not have the longer version of the text, but I can send it to you. Basically, Mr. Peterson spoke in terms of the national dispute resolution system being a desirable objective. He went on to actually congratulate Dina Palozzi, Superintendent and CEO of the Financial Services Commission, Ontario, and Doug Hyndman, Chairman, B.C. Securities Commission, who are leading this, to congratulate them for their leadership on the issue.

The Chairman: Is it your guess that he would agree to postpone?

Mr. Lauber: Yes, I would think so.

The Chairman: Would that be until the forum has completed its work?

Mr. Lauber: That would be the case for a reasonable period of time.

The Chairman: Thank you for a good presentation.

The committee adjourned.

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