Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 16 - Evidence of March 26, 2003
OTTAWA, Wednesday, March 26, 2003
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:20 p.m. to examine and report upon the present state of the domestic and international financial system (Canadian perspective to the Enron collapse).
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, our witnesses this afternoon are from the Department of Finance. They are Mr. Charles Seeto and Mr. Timothy Bishop.
The major purpose of our meeting this afternoon is to have the witnesses brief us on Sarbanes-Oxley and related matters.
Mr. Charles Seeto, Director, Financial Sector Division, Department of Finance: Honourable senators, in preparing for this briefing we have provided the clerk of the committee with three documents. They are entitled: ``Summary of Sarbanes-Oxley Act of 2002''; ``Key Elements of U.S. Reforms and Canadian Context,'' which was updated March 24, 2003; and ``Fostering Confidence in Canada's Capital Markets,'' which was also updated March 24, 2003.
I also had the opportunity to see the committee's itineraries for New York and Washington. I think it is a good program. You will be meeting with key players who were involved in the corporate governance reforms in the U.S. last year. In New York, you will be meeting with officials from the New York Stock Exchange and the office of Elliott Spitzer, the Attorney General of New York. In Washington, you will be meeting with Senator Sarbanes, Congressman Oxley and Federal Reserve Board Chairman Alan Greenspan.
As you well know, the U.S. passed sweeping legislation in July 2002 in response to the collapse of Enron and other financial scandals. The goal was to promote investor confidence, which has been shaken in the U.S. The Sarbanes- Oxley Act strengthens auditing oversight, audit independence, disclosure standards, corporate governance and enforcements of corporate and securities offences.
The major U.S. stock exchanges, namely, the New York Stock Exchange and Nasdaq, also introduced new corporate governance rules.
The key elements of these reforms are listed in the document we provided entitled, ``Key Elements of U.S. Reforms and Canadian Context.''
The U.S. Securities and Exchange Commission is implementing many of the measures in the Sarbanes-Oxley Act. This regulator has had the enormous task of issuing new, complex rules while having to beat the short deadline set out in the Sarbanes-Oxley Act.
On this front, the SEC has about another four months of intense work and will be engaged on audit oversight issues in conjunction with the new Public Company Accounting Oversight Board and on developing new conflict of interest rules for security analysts.
In Canada, for the past year, federal and provincial governments have worked closely with key players in the Canadian financial system to review and, where necessary, improve the framework governing Canada's capital markets. Our capital markets were not immune to the events in the U.S. and concerns were raised about capital market integrity in Canada as well.
Last July, Minister Manley and Secretary of State Bevilacqua outlined five principles that must be part of the Canadian reforms. They are: improving financial reporting and disclosure; enhancing the credibility of the audit process; strengthening corporate governance; ensuring management accountability; and toughening enforcement.
Since that time, private sector regulators and governments have made significant progress in strengthening these checks and balances. For more details, I would refer you to the document that we provided entitled, ``Fostering Confidence in Canada's Capital Markets,'' which we maintain and update on the Department of Finance Web site.
For its part, the federal government committed in the Speech from the Throne to change laws and strengthen enforcement, where necessary, to ensure governance standards for federally incorporated companies and financial institutions remain of the highest order.
The 2003 budget responds to this commitment with funding of up to $30 million annually for a coordinated, national enforcement approach involving the creation of integrated units in the key financial centres of Canada. The new enforcement model will strengthen linkages between investigation and prosecution and involve close coordination with securities commissions and local and provincial police.
The government also plans to introduce new legislation to modernize offences, permit target evidence gathering and signal the seriousness of corporate fraud offences through tailored sentencing structures.
The government also announced in the 2003 budget that it would propose actions in the coming months to strengthen its laws to ensure that the government's standards for federally incorporated companies and financial institutions remain of the highest order. These proposals will have to take into account what is being done elsewhere, particularly by the provincial governments, securities commissions and stock exchanges, as well as the work of this committee.
Senator Tkachuk: How will the changes you have outlined come about? Will it be in the form of an omnibus bill or a series of amendments?
Mr. Seeto: Are you referring to the legislation dealing with corporate fraud?
Senator Tkachuk: Yes.
Mr. Seeto: The Department of Justice is in the process of gaining cabinet approval to go ahead and draft that legislation. According to Mr. Cauchon, they are planning to table this legislation in June.
Senator Tkachuk: Will there be changes to the Canada Business Corporations Act as well?
Mr. Seeto: I do not think that will be included in this legislation we are talking about. Our view is that it has to take into account the changes that the exchanges are undertaking. The securities commissions will also be amending their rules. The OSC has indicated we will not see that until June.
I think we should wait for the report of this committee before proceeding with looking at those changes.
Senator Kroft: My question concerns timing. How have you been working or exchanging information with American authorities? Can you tell us if there has been any kind of a working group? Since we are going to New York and Washington, I am wondering what familiarity we should assume on the part of the people we will be meeting with what we are doing and what we are looking at. Or are they simply not aware of what we are doing?
Mr. Seeto: I would say it depends on to whom you speak in the United States.
The Department of Finance has a finance counsellor in Washington who has been active on this file. He has been filing regular reports on what is happening in the U.S. For example, when they were working on the Sarbanes-Oxley bill, we raised the issue of audit oversight and that we had created the Canadian Public Accountability Board. The Department of Finance has written to the SEC. We have written to the U.S. Treasury raising issues that we think impinge on our institutions.
The Chairman: Could I make a suggestion, honourable senators? Are you willing to move that the committee proceed in camera, Senator Tkachuk?
Senator Tkachuk: I so move, Mr. Chairman.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The committee continued in camera.