Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 12 - Evidence - Meeting of May 4, 2005
OTTAWA, Wednesday, May 4, 2005
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-25, to amend the Act of Incorporation of The General Synod of the Anglican Church of Canada, met this day at 4:20 p.m. to give consideration to the bill; and to examine and report on consumer issues arising in the financial services sector.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Honourable senators, I am delighted to continue our committee's study on consumer protection items arising out of the financial services sector. We are delighted to have our first two witnesses. As you know, this is broadcast from coast-to-coast-to-coast via television and also will be seen on the World Wide Web, which goes beyond the borders of Canada, and that is all to the good because we have been getting tremendous response. Thousands of people are now watching it.
We are delighted, Mr. Kovacs and Mr. Harries, to have you here to present your case. I would hope that you follow the admonition of the clerk that we would like your comments to be as brief as possible, because the committee has read your material and we are most eager to ask you some questions.
Mr. Paul Kovacs, President and Chief Executive Officer, Property and Casualty Insurance Compensation Corporation: Thank you for the invitation and the opportunity to be here today. One of the priorities that we identified as an organization was to make ourselves as available as we can to this committee. Some of our experience working with consumers in the insurance industry could be helpful, and we are delighted to be here today.
I want to talk briefly about our organization. I am not certain committee members will be familiar with what we do. I will then talk about two things that we have done recently dealing with governance and our overall preparedness as an organization.
The Property and Casualty Insurance Compensation Corporation — PACICC — was established in 1989; we have been in place for 16 years now. Our role is to look after insurance consumers in the very unusual circumstances when an insurance company fails. We cover a broad range of insurance, dealing with auto insurance, home insurance and insurance for small business. CompCorp looks after life insurance and health, so we do not deal with those, but we would look after most other consumer issues related to the insolvency of an insurance company. Typically, the government regulator, whether federal or provincial, would identify an insurance company that was in serious jeopardy. Again, this is very rare, but if the government does identify a company that needs to be shut down, the government would work with the court and appoint a liquidator, and our role is to be there for the liquidator to ensure that there are sufficient funds to pay all the consumers costs. We pay the claims and ensure that, coming from the surviving insurance industry, there are sufficient funds so that all consumers are looked after in a timely way. This has similarities to the role that CDIC and ComCorp play for the banking and the life industry, but we look after home insurance, auto insurance and small business insurance.
Over the 16 years that we have been in operation, 12 small insurance companies have failed. We have paid out $100 million of claims to 100,000 Canadians. Compared to a $35 billion a year industry, this is very small. This is unusual. This is not something that makes the headlines very often. We are there, and our role is to ensure that consumers get looked after so it stays a non-issue, and hopefully we are doing that job well. We are not well known, and that is part of our mandate. We just look after the public so that these things do not become an issue.
Over the past year, we identified two priorities that we wanted to deal with. One was governance of our own organization, and the second was preparedness.
On the governance side, we carefully looked at our procedures, because we had not done had that since we were founded, and how we operate. We decided to slim down the size of our board. Instead of having fourteen insurance companies guide the organization, we now have six. We appointed three outside public directors to give broader representation around our board. We came up with a clearer mission and guidance in terms of what our role and approach was and looked at our committee structure. All the things that good governance has required, we have now brought to the organization, and we feel comfortable with how we are now operating. The 10-part plan that was discussed by our organization is all now complete and in place.
The other part of our work over the last year was to ensure that we were properly prepared. We had dealt with a dozen insolvencies over the last number of years, all smaller companies, and our concern was this: What if a larger insolvency should occur, or what if multiple insolvencies occurred? We had identified that some of our historic practices got out of line with what was happening in other countries. We discussed this with our member insurance companies and significantly changed our preparedness. We have now better operational capacity and better financial capability to look after a problem should it arise. All our practices in Canada are completely in line with the rest of the world.
For us, today is an opportunity to be available to talk to you about what we do with insurance companies on behalf of the consumers, and we hope that will be helpful guidance today and going forward. We are proud of some of the recent developments with respect to governance and preparedness as an organization.
Mr. Jim Harries, Vice-President, Operations, Property and Casualty Insurance Compensation Corporation: Mr. Chair, I have nothing further to add, but I am available to answer your questions.
Senator Angus: Gentlemen, you have been following our hearings up until now, and you understand what we are trying to find out. I understand that P&C companies are your members. Therefore, I have concluded that when you use the phrase “consumers,” you mean the policyholders of those policies issued by those companies.
Mr. Kovacs: Correct.
Senator Angus: It is not liability insurance where there might be third parties who have claims against the company's policyholders.
Mr. Kovacs: I hope my explanation is clear. If there is a claim made by any Canadian against an insurance company the government has declared incapable of continuing and has put into liquidation, our role is to ensure that the liquidator has appropriate money to pay that company or that individual, liability, home insurance, auto insurance.
Senator Angus: So it includes liability?
Mr. Kovacs: It absolutely does. We ensure that the funds are available so that it gets paid immediately.
Senator Angus: I have what may seem to be an elementary question. A homeowner has a fire. The individual that owns the house has a policy and wants a claim. He also might have a third party suing him. Is the third party covered as well, as long as they are Canadian?
Mr. Kovacs: Correct.
Senator Angus: How many members are in your organization?
Mr. Kovacs: We have 211 insurance companies.
Senator Angus: How are you funded? Is it a percentage of net assets?
Mr. Kovacs: It is based on the premiums of the insurance company. We have three categories: Large, mid-sized and small insurance companies. All large companies pay the same amount, all mid-sized pay a smaller amount, and all small insurance companies pay a smaller amount.
Senator Angus: Does it come off the top? Every time an insurance company collects a premium, is an amount set aside and sent to you, say, once a month?
Mr. Kovacs: We would collect money from insurance companies for two reasons. One is to manage the organization. We have a staff of four. Our annual budget is $1 million. The insurance industry is a $35-billion industry. We charge them $1 million, which is not meaningful to them. The second charge would be if there is a failure. We have had to charge as much as $45 million for a large failure. That is unusual. That depends on whether there is a problem. However, if there is a failure, we might have to give them a larger charge. That would be one of the expenses of the insurance company that they would have to deal with somehow.
Senator Angus: It is my understanding that when these companies are starting up business they have to get a licence. I realize it is a provincial matter and they go through the regulatory agency wherever they want to write business. Usually, they have to put up a deposit of some kind. Is that separate money from the money we are talking about here, or do you have access to that money?
Mr. Kovacs: For an insurance company to get a licence, as you correctly identified, it is a provincial matter. Part of getting a provincial licence is that they must be part of our organization. They do not give us a deposit. They just pay an annual amount. Where there is a deposit with the government, we do not have access to that money.
Senator Angus: That is an element of solvency, correct?
Mr. Kovacs: Correct.
Senator Angus: I have always understood that the policyholder, in the event of a failure, has recourse to that money. Is that in addition to your corporation?
Mr. Kovacs: Correct. If the government declares an insurance company incapable of proceeding and goes to court for wind up, it is turned over to a court-appointed liquidator, who would have access to all kinds of money. Included in that is access to us. Our role is to look after the consumer element. Later on in the process, we would become part of the broader resolution, in that we would try to recover some of what we put into that process, if there are assets in the estate. That is all to be invisible to the consumer. The consumer gets paid. Any payments to the consumer we make available to the liquidator immediately. Over time, usually several years, if there were funds in that company, whether a deposit with the province or in some bank account, all of those with claims on the failed company would try to ultimately recover their monies.
Senator Angus: You have been operating for 16 years. You were established under certain legislation. Now we are reviewing that. Is there some element or any issues that, if you could wave a magic wand, we could recommend that would help you — either where you do not have the tools you need to do your job properly or where there are things that are in place that are sort of an annoyance, red tape that impinges on the efficiency of your operation?
Mr. Kovacs: There is only one area where we have some specific advice, but I do not think it is in the role of this committee or the federal government to act upon it. Something like 85 per cent of all the consumers we deal with are with insurance companies supervised by the Office of the Superintendent of Financial Institutions, OSFI. Fifteen per cent are supervised by provincial governments. However, the majority of the problems we have had to deal with have been provincial. The greatest areas where we are looking for changes going forward are at the provincial level. We have examined the role of the federal supervisor with respect to international standards and have found that federal supervision is meeting best international practices, but provincial supervision sometimes does and sometimes does not. We have been having dialogues with some provinces asking them to improve the quality of their insurance supervision or, alternatively, decide not to do it and defer all of the provincial business to OSFI. We think OSFI is doing a good job.
Therefore, the single area where we are looking for changes are changes we would like the provinces to make.
Senator Angus: Having, I thought, established that these corporations that are your members are under provincial jurisdiction, I am surprised at the large OSFI number. Why is that?
Mr. Kovacs: One hundred per cent of the insurance companies in Canada are under provincial supervision for consumer or market conduct. Eighty-five per cent are under federal supervision for solvency and 15 per cent under provincial for solvency.
Senator Angus: What is the break down? Why is one in the 15 per cent and not in the 85 per cent?
Mr. Kovacs: It is part of our federal provincial statutes that states that all are done provincially. Therefore, the requirement that we are there to help out is a provincial requirement. However, solvency supervision in Canada is largely done by OSFI, but not entirely. It is a choice of the insurance company. The company can select. It must choose one. Either they want to be supervised by the federal government — which most companies choose — or by their local province. Sometimes they choose because they only intend to operate in one part of the country. There is a variety of reasons why some companies choose to operate provincially. In some provinces, the supervision process is done very well. However, we have had a few examples where it was not and where it contributed to the problem.
Senator Angus: I will leave it to one of my colleagues to ask which of the provinces are not doing their job properly.
The Chairman: Why do not we ask the witnesses that? Who has better practices?
Mr. Kovacs: Mr. Harries and I are newer to the organization, so we are bringing some new features to the organization. We have commissioned research looking at one province and looking at OSFI's practices, and found that OSFI met all the international standards. We were looking at the province of Newfoundland — and it did not meet the international standards of what a solvency supervisor should do. We have not yet completed research on the other provinces.
Senator Angus: That is very interesting. Even though, as you say, we are part of a federal Parliament, it is quite open to us to put in our report a recommendation or a finding that there are issues that are within provincial jurisdiction. You can just imagine this whole business of securities regulation in Canada. It is of great interest to us and the federal government, even though there are jurisdictional issue. Feel free as our colleagues ask you questions to talk about the provincial issues as well.
The Chairman: I wish to emphasize what the senator has said. We consider our mandate to look at consumer issues in the financial sector. We will be careful about our jurisdiction, but we are free to comment on other jurisdictions where their regulation does not harmonize or is counterproductive or costly or inhibitive. We are here to see how the system is working and where there are defaults and how those defaults can be corrected in the interest of the consumer. We only have one consumer in Canada — it is a Canadian consumer. It is not a Newfoundland consumer or a Quebec consumer, it is a Canadian consumer. We are here to protect the Canadian consumer.
Mr. Kovacs: Thank you. I am new to PACICC; this is only my second opportunity to testify. The first was in Newfoundland, and it was challenging to speak about a process that was not working well. I am proud of what OSFI is doing. Many of the federal systems are serving property and casualty consumers very well. We have a good federal system. However, of the 12 insolvents we have dealt with, 10 were failed companies and two were process issues. Three were in the province of Newfoundland, which is disproportional. Therefore, it was challenging to look at the data and the evidence that we were seeing. We had one jurisdiction that was repeatedly having problems. We did formal background and found out the procedures that were identified worldwide that were appropriate for a supervisor were not happening in that province. OSFI is aware of this and has tried to be supportive in provinces — Newfoundland being one, but there are others we have not studied but are concerned about. OSFI is trying to find the right role. We tried to present it in Newfoundland as either make the right investment and have a professional system or decide not to supervise provincial companies and encourage them to sign up federally.
The Chairman: Are there any specific recommendations that are site specific, either relating to the federal government practices or the provinces or the lack of harmonization? Please let us have those in writing and we will consider those as part of our recommendations. I am not suggesting that we will accept your suggestions, but we are open to looking at them.
Senator Moore: I wanted to follow up on the example you mentioned to Senator Angus. In the event of a company failing, there is a $45 million loss. Is that an actual case?
Mr. Kovacs: We have dealt with 12 failures since we organized, the largest being $45 million.
Senator Moore: Where do you get the $45 million to pay those consumers.
Mr. Kovacs: We have an arrangement with all of the other insurance companies in Canada.
Senator Moore: There are 211 of them.
Mr. Kovacs: It is based on the size of the company. A company is 10 per cent of the business, we would ask for $4.5 million. To complicate our approach, the commitment we made when we were founded is that we do everything on a regional or provincial basis. If there were a failure in province A, we would look at the business in that province and divide it among the companies proportional to their business in that province.
Senator Moore: Let us say one of these companies in Newfoundland fails and that $10 million is lost. You go to the other companies that are doing business in Newfoundland only?
Mr. Kovacs: Correct.
Senator Moore: You get from them the $10 million to settle the outstanding claims?
Mr. Kovacs: Correct. As you are aware, a lot of national companies are in Newfoundland and those companies would pay based on their Newfoundland business.
Senator Moore: You have had 12 companies fail in your 16 years. In each of those situations, you only go to the companies that are doing business in their respective provinces to get funds to settle the claims of those.
Mr. Kovacs: Correct.
Senator Moore: It is not a national appeal.
Mr. Kovacs: A minority of the companies that failed operated in more than one province, so it was slightly more complicated to follow through but, again, we applied a provincial approach.
Senator Moore: With regard to the governance issue, you said that you just reduced your board from 14 to six. Are those six all employees or connected with your member companies?
Mr. Kovacs: I apologize if I misspoke earlier. We reduced the board from 14 people from the insurance industry to six people from the insurance industry, plus an additional three people who are independent. I, as president, make the tenth member of the board. Therefore, six of the 10 members are people who are active in the insurance industry.
Senator Moore: How are the independent members selected?
Mr. Kovacs: They are identified by our nominating committee and presented to the membership at our annual meeting.
Senator Moore: How often does the board meet?
Mr. Kovacs: It meets formally twice a year, and it meets if there are issues in between. It meets four or five times in a typical year.
Senator Moore: What is the compensation for a board member?
Mr. Kovacs: For people from the industry, there is no compensation; it is done on a voluntary basis. For independent board members, it used to be $1,000 a year.
Mr. Harries: We recently approved a retainer for board members of $10,000 a year for our public directors only.
The Chairman: You may have heard other testimony about other organizations on self-regulation. There has been a movement afoot to have a majority of directors, when it comes to consumers, that are not related to the industry. Have you given any consideration to changing your governance structures? Are you still studying that or is this a fait accompli?
Mr. Kovacs: When we were brought to the organization about a year ago, the first priority identified was studying our governance procedures, and that was one of the items we dealt with. For property and casualty insurance guarantee funds, we did not find a fund in the world that was run by independent members. In part, we identified that property and casualty was quite different from some of the other financial industries. In property and casualty, if there happens to be a failure, if the government closes down a company, individuals normally move to one of the other several hundred companies and take up insurance there. That is quite different from life insurance, where you have a policy for your life and you have to move the policy.
There were issues that could be identified as sensitive that could come to a board if it were not property and casualty. In property and casualty, our experience throughout the world is that it is typically run by industry people. Having three independent members is fairly progressive and has moved us ahead of American, British, French and other practices around the world.
Senator Oliver: You said there are two key things that you are interested in — governance and preparedness. I want to ask about preparedness.
Mr. Kovacs, are you the chairman of the board?
Mr. Kovacs: No. Our bylaws preclude the president from ever chairing the board.
Senator Oliver: That is good governance.
In addition to the $10,000, do the board members get a per-meeting fee?
Mr. Harries: Yes. It is $1,000 per day of meetings.
Senator Oliver: So it averages out at $14,000 a year?
Mr. Harries: That is probably fair. However, having just put these policies in place, we cannot comment factually on that.
Senator Oliver: In terms of preparedness, you told us that 12 insurers have become insolvent since 1988. You told us that you get money from the 211 companies, and you told us that you have paid out up to $45 million.
Have any consumers not been made whole or fully indemnified in any of these 12 insolvencies?
Mr. Kovacs: No. We have been able to pay in full.
Senator Oliver: In terms of money that you have in the bank, do you get money from your 211 members after a default? I know you have a line of credit now. Do you also have money in the bank in anticipation of a default? If so, what amount do you have?
Mr. Kovacs: We collected $30 million from the industry a few years ago, and that has now grown to $35 million, so we have that amount in a bank account in addition to a line of credit of about $10 million. That allows us to handle most issues, but we can typically collect money fairly quickly from the industry.
Senator Oliver: What is the total reserve you have now to meet a default?
Mr. Kovacs: As per a change we made this year, there is a cap in all countries around the world on the amount you can ask of your membership in a given year. Our cap at the beginning of this year was $250 million. We asked the industry if they would raise that cap, and they did, to $500 million. The maximum assessment that we can do of our industry in any year is $500 million. The largest call we have ever had was for $45 million. Having $35 million in our bank account along with the ability to ask the industry for up to $500 million in one year positions us in line with all other industries around the world to be able to handle events that could occur.
Senator Oliver: Twelve insurers going insolvent since 1998 is a lot. You said that they were small. What risk protections do you take to ensure that does not happen? Do you do spot audits?
Mr. Kovacs: In the United States, about 50 fail every year. To have 12 over 15 or 16 years is a much smaller risk than most other countries have.
Our role is to ensure that funds are available when the government steps in and appoints a liquidator. We do not participate in the identification of troubled companies. That is the role of the government regulator. We ensure that funds are available so that the consumer gets paid.
Senator Oliver: When you use the word “preparedness,” that means you have the money to ensure that the consumer is made whole?
Mr. Kovacs: Yes. An example of preparedness exercises that we implemented for the first time in the last year is a simulation done a couple of times a year within the office. We assume a company failed today and ensure that everyone knows what their job is. We have documented our practices.
Senator Oliver: Like a fire drill.
Mr. Kovacs: Yes. That was not documented before; we simply did the right things at the right time, but now we are more prepared. The most significant improvement in our preparedness was getting the agreement of the industry to double the funding that would be available to us.
Senator Oliver: As the key payer, have you been called in on any risk discussions to determine what better things can be done to avoid insolvencies?
Mr. Kovacs: As I said earlier, our analysis of the federal supervisor indicates that the supervisor is following best practices in doing that job. We are very much directed not to duplicate work that is being done very well at this point. We have a good informal dialogue with the federal and provincial supervisors. Even in jurisdictions where we are questioning the quality of the provincial supervision, we still have a constructive dialogue, so there is an informal sharing of information.
In terms of formal processes, we are counting on the government supervisors to do their job, and we think they are doing it very well.
[Translation]
Senator Massicotte: You can go up to $500 million in order to pay your members' debts. Does that not cause a moral problem in cases where customers could not care less with which insurance company they deal? They will choose the lowest premiums and a company that is not financially strong enough to fulfil its obligations knowing that there are $500 million in the industry to fill the need?
[English]
Mr. Kovacs: I apologize for answering in English. I trust I understood the question correctly. You have correctly identified the risk for the business we participate in of moral hazard. It is a real risk. It is something that is of concern to insurance companies from time to time.
It is our belief that the risk of a failed insurance company is very low. This is not a common occurrence. This affects relatively few Canadians. Therefore, we have chosen over time to err on the side of consumers. We pay the claim in full. We pay it early.
It does perhaps add some moral risks that consumers may choose a slightly riskier company, but it is our understanding that this is not a large part of their thought process. They are looking for many other issues rather than the health of the company when they choose the company they want to be insured with. We do have some concern that there is moral risk, and our practices are perhaps contributing to that, but we do not think it is a large risk at this point in time.
[Translation]
Senator Massicotte: With regard to the moral hazard, you are talking about the consumer, but we are talking about the investor. There is always a cash surplus for these companies and the shareholder must decide if he or she wants to invest in Canada Savings Bonds or in tech company shares. The investor can say that he has nothing to lose, that he cannot lose more money and that it is not his money anyway. If I make a humungous profit with other people's money, then it comes back to me, but if I lose, I am not the one who is losing anything. What is there to prevent the adoption of a very aggressive capital and debt structure to the advantage of the shareholder, given that there is no reverse risk for him?
[English]
Mr. Kovacs: If I understand the question, your focus was on the behaviour of the insurance company given the regime we have in place. I think it is an appropriate question. I do not know that there is a simple answer.
It is my belief that the primary organization that is addressing the question is the supervisor. In most cases, the federal supervisor is OSFI, and OSFI is very appropriately and cautiously looking at the financial management of all of the insurance companies in Canada. Should OSFI see behaviour that is not consistent with a well run company, it has a lot of authority and tools in place and so could act upon that.
We believe that the supervisor is watching for some of these risks and has appropriately been dealing with them, should they arise. I do not know of a specific example I could identify where I thought there was evidence of this kind of behaviour.
You are asking me about life insurance, and I apologize. My experience is property and casualty, and it is somewhat newer although I have been watching from a bit of distance for 16 years. I have not been with the organization all of that time. However, there have been issues that arose in some other industries that are still being discussed.
[Translation]
Senator Massicotte: If one of your members fails, you are there to see to it that there is no lack of funds to fulfil customer need. Is the liquidator in charge of managing the company responsible for ensuring that claims before the court are dealt with properly?
[English]
Mr. Kovacs: If the insurance regulator determines that an insurance company cannot continue to operate and the regulator closes down that insurance company, the court then appoints a liquidator and the liquidator runs that company. He will choose which claim gets paid, and the amount of the payment. Our role is to ensure from a consumer point of view that all the monies are there so that payment happens in full and completely. However, the liquidator has all of the authority about what the payments are and how the liquidation is managed.
[Translation]
Senator Massicotte: You are very familiar with the industry and very well informed. We see that over the last twelve months, the profits of your members have increased considerably. As we read in the paper everyday, in some provinces consumers consider that the increase is too high. The industry's response is that it is a normal profit level, but this brings up two questions. The profit level is perhaps too high, and is there therefore sufficient competition within the industry? Perhaps there is not enough competition to control prices.
[English]
Mr. Kovacs: From our perspective, we are watching solvency risk in the insurance industry.
[Translation]
Senator Massicotte: I know that it is not your responsibility, but you are very well informed. We trust that you will give a good answer.
[English]
Mr. Kovacs: I would be delighted to share the part I am familiar with. In terms of the risk of an insurance company getting into difficulty or failing, two of the indicators we watch carefully are the capital the companies have and the reserves they have put aside to make payments that are required.
We did see a period of time where the Canadian industry was struggling quite a bit, and many were talking about concerns about whether the reserves were going to be sufficient and whether there was enough capital for the individual companies to each feel comfortable going forward. As has been identified publicly by OSFI and the provincial supervisors, there was a growing list of troubled companies — property and casualty companies — that were showing more of these disturbing numbers as several years went by of poor results.
In the last two years, the results have improved, in part because prices changed. For what we are watching, two years ago capital did not improve, but one year ago capital improved; and this year it looks like capital will improve more. That is good from a solvency point of view.
Also, as we looked at reserves, two years ago, reserves improved and last year reserves improved. I do not know if they will again this year.
The two elements that reduced the risk of a company failing to continue have both started to be addressed. This is absolutely related to the fact that insurance companies raised their prices. Consumers did not enjoy having higher prices, but it took away a growing concern we had about the risk of failure.
We had five rough years in a row; there was an increase in the risk of failure. We are now into our third year of trying to build out of that. We are not to the capital strength and reserve strength that we saw as recently as 1999, but we are better than we were two years ago.
From our perspective, we would identify many of the changes recently as progress toward reducing the risk of a failure.
[Translation]
Senator Plamondon: I am not in complete agreement with one of Senator Massicotte's questions. I understand his concern, but the consumer does not have the means to evaluate the financial health of an insurance company. When we are shopping around for an insurance company, no one will come and tell us that such and such a company gets the go- over every six months rather than every year. That would damage the company's reputation and it would then be in real difficulty. Insurance companies are capable of getting information on their clients, but we are not capable of getting enough information so as to be able to be sure to choose a solid company. I am in complete agreement that the moral hazard is a responsibility and not a risk given the fact that as consumers we are in no position to do an evaluation.
I would like to talk about the new risks that have given rise to lesser coverage under certain policies. For example, after the ice storm, we saw companies remove certain clauses from their standard policy. It is true that the rates have gone up.
What role do you play when a company starts to weaken, when there is a natural disaster, a terrorist act, an earthquake or some other thing? Do you advise companies, telling them to stop covering all of this because of the risks? Do you have a role to play with the Insurance Bureau of Canada and the insurance companies? On the one hand, you want them to be solvent, and at the same time you want to compensate consumers. Do you advise insurance companies?
[English]
Mr. Kovacs: Our role is narrow. We have a staff of four individuals. You have identified the insurance bureau as a national organization that speaks to a broader range of issues. We try to focus on ensuring that if there is an insolvency there are funds available to the liquidator and that consumers are dealt with immediately and paid in full for their claim.
In the course of pursuing our role, we have regular dialogues with insurance supervisors. We may hear information about an insurance company and we talk to the insurance supervisor, OSFI, or the provincial supervisor. It is their job to follow through, but we may have information that helps them and we would share that with them informally.
[Translation]
Senator Plamondon: It is therefore the intermediary. The intermediary is the insurance company supervisor. It is the intermediary between you and the insurance companies. You talk, they talk to you, you say how things should be and they then relay the information to the insurance companies?
[English]
Mr. Kovacs: It is definitely the role of the insurance supervisor to work directly with the insurance company, especially if they have difficulty. If they are pursing practices such as moral hazard, the supervisor plays that role. We may have information that the supervisor could use and we share that when we can.
I share your view that the public at large do not have readily available information about what is a strong, healthy insurance company and what is a weaker one. In the last few years, some progress has been made there. The leadership on that was offered by OSFI. Through the Internet, it is possible to get considerable current financial information about all the companies supervised by the federal government. That is available to everyone. There are some analysts, like insurance brokers, who are working for the consumer and have the capacity to understand the information. It was an attempt by the federal government that was not in place previously. This makes available all the information about the federal companies.
The federal government has shown leadership through OSFI. Our organization would welcome more provincial governments putting the same kind of information on their websites, such as the current financial health of the companies they are supervising. In Quebec, there is partial information; in the other provinces, there is not yet any information.
[Translation]
Senator Plamondon: Is it something you would like to see everywhere?
[English]
Mr. Kovacs: Yes, we would like to see that everywhere in Canada. This would be of benefit to insurance consumers, who would understand this information, or to those who work on behalf of insurance consumers, such as brokers, agents and other analysts, who would understand this information. This information could be also available to the general public.
[Translation]
Senator Plamondon: Are there key questions that are emerging with regard to consumer protection and that you would like to recommend to us? Are there new things that should be of concern to us?
[English]
Mr. Kovacs: We are here to share our expertise in the area of insolvency. We have less expertise in some of the other evidence presented to you to date. The committee played a very active role in the last round of reform. There was a great consumer focus in that round, and you have heard testimony that there were actions taken to move this forward since the last time this was brought up.
At a general level, we are making progress, and I have appreciated an opportunity to see some of the testimony. In the more narrow area that we know well, we have some provincial concerns that we will be pleased to put in writing, but in the very unusual circumstance of a failed company the consumers are looked after well.
[Translation]
Senator Plamondon: You talk of some provincial concerns you have. Could you name us a few?
[English]
Mr. Kovacs: We will do our best. We would prefer to name specifics from a research base. I have only done research in one province and the federal agency. I do not know how much time we have in terms of your timetable to give you specific advice about other provinces at this time. We do commit that we are going to be doing research on the other jurisdictions, but I do not know if it will be timely. However, we will share that as it becomes available.
The Chairman: When you give us the Newfoundland model, it would be useful to know where you consider the flaws to be. We can extrapolate that across the country.
You say the authority for membership in your organization is compulsory. What is the authority? Is there a legal authority or is it by agreement? How is it that your members are bound to do what your corporation bylaws provide? Is that voluntary or is that by some law?
Mr. Harries: Every property casual insurer who writes business in lines that PACICC covers is required to be a member under the insurance legislation or regulations.
The Chairman: Membership is mandatory, but where do you get the authority for the compulsory payments? Is that by agreement or by federal or provincial legislation?
Mr. Harries: Through our bylaws.
The Chairman: Essentially, the governments mandate your membership to be members of your organization. Therefore, once they become members you mandate this and you have the authority under your bylaws to do that. So it is enforcement. What happens if someone refuses to pay?
Mr. Harries: Thankfully, we have not had that experience. Our authority would be to have a discussion with the insurance regulator and bring that information to their attention and pursue that as vigorously as we could.
The Chairman: The consequences might be the loss of their authority to conduct business in the province or under the federal statute, whatever is it. Is that the idea? That would be the ultimate consequence.
Mr. Harries: They would not want to run afoul of the regulator.
The Chairman: You say that your independent members are separate and distinct from the stakeholders, and they do not form a majority, but they are a large plurality on your board. I understand that. How are they appointed or selected?
Mr. Harries: We have a governance and human resources committee of our board and we seek to get nominations from all of our board members. We make those discussions as wide as possible to seek well qualified individuals.
The Chairman: Is there some methodology wherein you ensure no conflict of interest — in other words, they are truly independent and do not have any direct or indirect interest in the insurance side of the board?
Mr. Harries: Yes.
The Chairman: What are the rules? Are there independent directors' rules to govern their independent conduct?
Mr. Harries: Our main rule is that a public director of PACICC cannot be associated in any way with a member insurance company.
The Chairman: Is that in your bylaw? Where do we find that, so we can check the wording and see how independent they are?
Mr. Harries: It is a practice that we follow, but it is not written into our bylaw.
The Chairman: We are trying to wear the hat of the consumer. Your organization has gone a long way to fill a gap, but there are still lots of gaps in the consumer protection mechanism. We are interested in how to fill in the gaps. The representatives from the banking organizations told us that, had this happened sooner, things would have been better a lot sooner. They have confirmed the work we are doing in advance of the work we are doing. We would appreciate any specific recommendations in order to improve the process.
We have Option consommateurs, represented by Ms. Isabelle Durand and Mr. Jacques St-Amant. We also have Mr. Kyle here. We would ask you to take as little time as possible to present the key arguments. Mr. Kyle has presented a well drafted brief and we will want to explore that with him. If you can be brief in your presentation, this will allow our senators an opportunity to cross examine you. They have your material and they will be familiar with it.
[Translation]
Ms. Isabelle Durand, Counsel, responsible for budget services, Option consommateurs: Mr. Chairman, access to quality banking services is indispensable and this is why we are pleased to see the importance you are attaching to this sector. We wish to thank you for having invited us to participate in your study of consumer issues arising in the financial services sector.
Option consommateurs is a consumer association based in Montreal and which has been actively following, among other things, the financial services sector for more than 15 years now.
We offer individual budget counselling services where we are involved with over-extended consumers. Our legal information service every year serves more than 4,000 consumers, a quarter of whom call upon us because of problems they are having with their financial institutions.
Since 1990, we have published some twenty briefs or research reports relating to financial services and we have often appeared before your committee and other parliamentary groups.
Although our main concern is with low-income consumers, we have a broad general interest in consumers overall and their relationship with their financial service provider. Today we will limit ourselves to the relationship between consumers and their banker. Every week we see that all is not well in the area of service quality, accessibility and complaint review and that there is much room for improvement.
With regard to credit, we are frankly worried about certain practices, and on the electronic payment side, it is a complete mess. Let me attempt to give you an overview. In the area of credit, we see a paradox: on the one hand, bankers too easily grant too much credit to already heavily indebted consumers who thus find themselves at the mercy of any hiccup that might rise in their lives such that they will not be able to make their payments.
[English]
The Chairman: You cover a lot of ground quickly, but if you could go more slowly it would help our interpreters.
[Translation]
Ms. Durand: The processes used by institutions to appraise the ability of a consumer to repay are in our view weak. At the same time, banks hardly ever grant loans of less than $5,000, which pushes households whose refrigerator finally gives out towards wage buyers and pawnbrokers. We are presently involved in a micro-credit initiative in Montreal in collaboration with the Desjardins movement. This initiative is going well, but it cannot fill all of the demand that is out there.
Bank practices in the area of credit combined with the closure of many branches and other forms of service reductions account for a large part of the success that Money Mart and other such cheque cashing services and wage buyers are having these days.
Neither consumers, nor bankers, nor the economy as a whole are coming out winners with this trend that is encouraging a growing number of consumers to rely upon parallel financial services. In the area of basic banking service accessibility, it must however be noted that some progress has come with the 2001 reform. The legal requirement to open an account for any person fulfilling certain identification requirements has greatly improved the situation. All of the problems have not been resolved, but there is noticeable progress.
However, the situation is not improving in the area of electronic payments. We regularly receive complaints, most notably with regard to debit cards. We are also seeing that merchants are simply refusing to be paid in cash. In the case of unauthorized electronic payments, the rights and recourse mechanisms granted to consumers vary according to whether it is a preauthorized debit, a payment by debit card or a payment by credit card or by telecheque. Consumers, merchants and bankers no longer know which end is up.
It is high time that Canada do what the United States did a long time ago: develop a cohesive legal framework for electronic payments so as to reduce the risks for all participants.
Some of these risks could be mitigated by the complaints review process. We have however seen that consumers are not very aware of this process and that it does not always function very well. Consumers are leery of mechanisms that are controlled by banks and the process is sometimes very lengthy.
The attitude and decisions of banks' in-house ombudsmen are not always imbued with the necessary impartiality. And even though things run more smoothly with the investment and banking services ombudsmen, consumers sometimes tire too quickly before reaching this stage in the complaints review system.
The establishment of the financial consumer agency did however go well and its dynamic approach has been much appreciated. We would like to see its mandate extended and its resources increased. The establishment of the agency and the positive impact of the regulations with regard to the opening up of accounts prove that well designed regulations do improve the operation of the Canadian financial services market, which remains highly regionalized. We would invite the committee to draw upon existing examples in its study of the numerous problems that consumers are still having with their bankers and that we have but touched upon here. We would be pleased to answer any questions you may have.
[English]
The Chairman: Mr. Kyle, the reason I am asking both witnesses to proceed is that we intend to go to 6:10 or thereabouts. If you can be brief in your comments, this will allow senators to choose who amongst you they wish to question.
Mr. Robert Kyle, as an Individual: Is five or six minutes fine?
The Chairman: Five or six minutes is fine. Take your time; go a little bit slower than the previous witness.
Mr. Kyle: Thank you for inviting me to participate in these hearings. Senator Plamondon's inspiration to undertake this study is an opportunity for the federal government to look closer at the impact of how such important provincially regulated industry affects all Canadians.
As a 20-year veteran of the financial services industry, the past executive director of the Small Investor Protection Association and a current director of the Consumers Council of Canada, I have the opportunity to listen to unending complaints for years from both brokers and investors alike with respect to the current system of securities regulation.
When I was reviewing some of the speakers that have presented to this committee, I found it interesting that, while you have heard from the private regulators, industry lobbyists, industry associations and investor consumer organizations, you have not heard from individuals who make a living as a financial advisor, broker or dealer. This is not surprising, however.
The Chairman: Just pausing there. We have been meticulous in trying to proceed to hear from the government, then to hear from those members that are part of the self-regulation group, and now we are open to hearing from the public and from people such as yourself. If you think we are deficient and other people can bring evidence to the committee that we have not heard, we are open to that.
Mr. Kyle: I appreciate that. To make my point, it was that I have asked several of those brokers who have come to me with complaints if they would make their complaint in writing to this committee. They have refused to do so. Their reason, the fear that they may become the target of an investigation by the industry lobbyist regulatory body themselves or that they might lose their employment with their firms. They do not want to be whistle-blowers.
Neither the regulators nor the SRO members will tolerate whistle-blowers that are critical of the system by which they are regulated. One only has to look to Alberta to see how the securities commission there has dealt with whistle- blowers within their own organization, so what chance does a registrar have?
John Grisham, author of novels such as The Firm and The Client, would probably have a bestseller on his hands if he wrote one entitled The Club, much the same as Canadian John Lawrence Reynolds did with his book, The Naked Investor: How to Even the Odds with the Investment Industry, a book about why almost everybody but you gets rich on your RRSP. This is not meant as a plug for Mr. Reynolds, but his book is a timely warning to those who rely on our current regulator framework for protection.
My personal submission to this committee, “Self-Regulatory Organizations in the Canadian Securities Industry,” illustrates several of the major legal, operational and logistical problems that negatively affect investors and brokers across Canada. It is by no means exhaustive. Our fragment securities industry is fraught with pitfalls and now, in my view, ceases to work properly at all for the investor.
In August 2004, the Ontario finance committee held hearings similar to these, where Ontarians and residents of other provinces had the opportunity to speak directly with government. Their concerns were made loud and clear. These hearings resulted in a 59-page report containing 14 recommendations agreed to by all political parties being tabled to the Ontario Legislative Assembly for implementation. The following is an extract from that report. “The testimony received by the standing committee revealed a deep-seated scepticism on the part of the investing public. They simply are not confident that complaints will always be handled in an objective manner and under a system of self-regulation. We believe the question of whether SROs should be given more powers or indeed whether they should have any powers at all should be the subject of further review by a task force established to examine the specific issue.”
Why is this so important? I will try to provide a simple example. When Canadian citizens witness what they believe to be a crime, they will call the police. When an investor feels they have been victimized, they will logically contact the organization empowered to enforce securities law, in this case the securities commissions.
Well, forget logic. The statutory regulators will send the aggrieved investor to either the Investment Dealers Association of Canada or the Mutual Fund Dealers Association of Canada — in other words, the government regulator. For example, the Ontario Securities Commission, which is responsible for administering the province's securities legislation, will direct the investor to a trade association — the very same association that represents the securities dealer that the investor has a complaint against. It is then that the association will make a determination as to whether the investor's claim has merit.
In all cases, their determination will not result in any charges being laid for breaches of securities legislation or the Criminal Code by either the IDA or the MFDA. The reason is simple. The SROs do not have the ability to administer securities legislation or the Criminal Code, nor can they interpret what constitutes public interest. They are private- natured organizations. This results in retail investors never having a proper determination of their complaint by a public body statutorily charged to protect their interests.
The fox guarding the hen house, the emperor has no clothes, the Wild West, these are phrases Canadian investors are familiar with.
I thank you for the opportunity to speak to you today. I have placed my submission, as well as others, for the public to access at www.regulators.itgo.com. I look forward to your questions.
[Translation]
Senator Plamondon: Have the bank mergers been beneficial to consumers? Some witnesses have told us that the credit unions could take up the slack in the wake of the closing of bank branches. I do not believe that they will offer all of the services a bank might offer. There has been some consolidation in Quebec and certain credit unions have closed. They were replaced by outlets and then by automatic teller machines. And when these ATMs are not profitable enough, then they are simply shut down. Will these bank branch replacement options be beneficial to consumers?
Mr. Jacques St-Amant, analyst, Option consommateurs: We at first blush see no advantage to the prospect of bank mergers, and for several reasons. The first one is that the vast majority of local markets are extremely concentrated. A CROP opinion poll in 2001 asked consumers what reasons guide them in their choice of financial institution. The most frequent were quality personalized service and proximity. Consumers essentially choose their banker within a local market. We however did research in 1997, the results of which were published in 1998, indicating that in 58 per cent of Canadian communities there is just one deposit-taking institution and that in close to 20 per cent of communities there are only two. Overall, three quarters of Canadian communities have at the most two deposit-taking institutions. In large cities, where there is more competition, one must look at each neighbourhood.
In low-income neighbourhoods, the banks are not very present. If the market becomes even more concentrated with a reduction in the number of banks, then clearly there will less competition with all of the negative effects that might have on the market, which is already not in the best of health. We a priori see no worthwhile reason, both in the interest of consumers and in that of small businesses and the economy overall, for there to be mergers. Bankers on the other hand often tell us that if there were mergers, that would allow us to become important players on the international scene.
If you have the opportunity to look at a recent issue of Forbes Global 2000, you will find in it the list of the 2,000 most influential corporations in the world. The Royal Bank is ranked 89th, which is not that bad at all. On the list of the large deposit-taking institutions that exist in the world, the Royal Bank is 38th. If we wish to play within the select club of the 12 or 13 very large banks that have assets of more than a billion US dollars, then we will have to merge at least four of our major banks, including the Royal Bank, into a single institution. If we want Canadian banks to become players on the world scene, we will have to resign ourselves to having but one bank in Canada, which is not necessarily a prospect that thrills us.
As for the possibility of the cooperative movement in someway substituting itself for the banks in a merger scenario, one must remember, as Senator Plamondon was saying, that in Quebec that was not a very common occurrence, even if there were bank branch closures. I am thinking in particular of the Hochelaga-Maisonneuve neighbourhood in Montreal, a very low-income neighbourhood, where we have witnessed numerous closures over the last few years and where the number of Caisses populaires Desjardins has also dropped off because of concentration and a reduction in the number of outlets. The quality of the services has certainly not increased. If, for example, Desjardins or credit unions bought back a certain number of outlets, that might maintain a certain local presence, which is already very concentrated, but it would not increase competition. It would only amount to replacing one banner by another in an already highly concentrated market. We see no advantage to there being mergers. We do not believe that credit unions will in the medium term be playing a more important role in the market place.
[English]
The Chairman: I have allowed a lot of leeway in the response to this question, but it is somewhat out of the field of our study. To be fair to Senator Plamondon, the Governor of the Bank of Canada was here several weeks ago and he talked about mergers in a positive way.
This committee is not as yet seized of this issue. We have not made up our mind as a committee about whether we will recommend renovation of the present banking system. We all believe that there should be more competition.
I would like to get back to the issues currently before us.
[Translation]
Senator Plamondon: Since we have already accepted to hear the bankers talk to us about mergers, I believe it is appropriate to put similar questions to consumer representatives. I would like to discuss the matter of debit cards.
[English]
The Chairman: If we do have a specific hearing on bank mergers, you will be welcome to come back and talk to us again.
Mr. St-Amant: We would be delighted to do so.
The Chairman: If you do not mind, could we get back to the subject matter of our study, which is consumer protection within the financial sector as it appears today.
[Translation]
Senator Plamondon: Some witnesses have told us that there is no serious problem with debit cards. We however read in the newspaper that in the medium term the plan is to replace debit cards with smart cards. It is not because debit cards are completely fraud-free. What problems do you have with debit cards?
Mr. St-Amant: We would be tempted to invite those who are saying that there is no problem to come and give answers to consumers. We regularly receive complaints from victims of unauthorized debits. These people go to their financial institution and are given answers that too often are not in compliance with the Canadian code of service for debit cards. They call upon the complaints service of the institution, when they are aware of its existence, and are told that they will cut it down the middle. Yes, problems are relatively frequent. Institutions reimburse without difficulty in cases of systematic cloning. However, in more individual cases, it is more difficult to obtain compensation. However, as you mentioned, the industry is aware that the mechanism that is presently in use with magnetic strip cards is not secure.
Senator Plamondon: It is mostly cash withdrawals without the consent of the card holder that are the problem, correct?
Ms. Durand: Yes.
Senator Plamondon: You talked in your brief about bankers who refuse to cash cheques that have been double endorsed. This is not the first time I have heard such a comment. Several consumers have had this happen to them. You send someone to a financial institution, the person is asked to endorse the cheque and all of a sudden you have trouble cashing it. Could you tell me what types of complaints you receive in this regard?
Mr. St-Amant: Over several years now we have seen cases where bankers categorically refused to cash cheques bearing two endorsements. For people who have no bank account and for those whose accounts are systematically frozen for clearance purposes and who could in this way have quicker access to cash, it is a major obstacle.
Senator Plamondon: Is it possible to refuse a government cheque, for example, that has been endorsed? Why would the bank refuse such a cheque?
Mr. St-Amant: When one looks at the Bill of Exchange Act, logic has it that the very essence of a cheque is that it be negotiable, endorsable. If it were not so, the Interbank Netting Scheme would not work, given that it is an endorsement system. Unfortunately, the only practical recourse for consumers is to call upon the courts. They have the right to cash their cheque, but the practice is rather laborious.
Senator Plamondon: What is consumers' greatest problem at the present time in the area of financial services?
Mr. St-Amant: There is a series of problems. With regard to credit, there is a double problem. First of all we find that access to credit is too easy for certain consumers and that there is insufficient access or refusal of access for others, which is paradoxical. Secondly, the rate of electronic payments is a more and more striking phenomenon. We are presently in quite a mess with archaic laws.
A little while ago, I attended a conference at which there were representatives of Visa international. It is clear that the Visa movement has a global policy aimed at developing electronic payment services as much as possible. Consumers, states and governments are assaulted with advertising promoting these modes of payment. We are not at all opposed to electronic payments, but there must be an adequate framework in order for everyone to be well served, from the banks to the merchants and to consumers. We are still at present far from the mark here in Canada.
Senator Plamondon: Mr. Kyle, you were saying that the small investor is leery — which is true — and does not know how to go about evaluating a risk. What would you recommend to small investors, who have saved throughout their entire life and who do not wish to take risks but who do not want to leave their money sitting in an account at 0.5 per cent interest? What advice would you give him or her? What precautions should the retail investor take in order to protect him or herself?
[English]
Mr. Kyle: Everyone should do due diligence into finding out the nature of the broker that he or she is dealing with and whether the broker has a past record, a history, and the history of the firm itself. What is the registrant licensed to do? Look into their background. There is an onus on the public as well.
Senator Plamondon: How do you do that?
Mr. Kyle: The regulators do have a website where you can look into the background of individual registered representatives. Unfortunately, what you will not find on there is when there are simple reprimands made by the private regulator. It becomes difficult to do due diligence. It is difficult to find information from private authorities. If you wanted to go as far as the Information Commissioner or the Privacy Commissioner of the different provinces to get that information, you cannot obtain it.
Senator Plamondon: Then you cannot do due diligence.
Mr. Kyle: It becomes very difficult to do that, yes.
Senator Plamondon: Then what can you do?
Mr. Kyle: This is a very difficult question. You can put it in the bank and get your 1.5 per cent, I guess. I do not know what choice Canadians really have. Where can they invest outside of the current system we have? There is really nothing there for them. There is real estate, I suppose. I am not an adviser.
Senator Plamondon: You were saying that people are distrustful.
Mr. Kyle: They are distrustful of the system the way it is set up for them, yes.
Senator Plamondon: How can you make the system trustworthy?
Mr. Kyle: You can make it better. I do not know what system people will trust. Ultimately, a system run by the banks and the dealers themselves is not one people will be comfortable with. We looked at some type of mechanism to achieve restitution for a client. The federal government a few years back set up CFSON for this purpose, but ultimately, they were overtaken by the banks. Once an investor has been burned, they are reluctant to have anything to do with that bank or dealer or their close affiliates. The system is not set up for the investor. It is set up for the industry. In my view, every aspect of it is co-opted by the industry. It is full circle. They have captured it. It is difficult for the investor to get out of that circle. Court is one avenue, but it is a very expensive route that most cannot afford.
Senator Massicotte: The question is very applicable. One solution to all this is to ensure adequate competition. You cannot control the provider of services or products. What you are implicitly saying is that there is not enough competition, and I presume that is the answer. How do you create more competition?
Mr. Kyle: We have a system where governments have downloaded or, to use a word I choose, abrogated their responsibility from the securities commissions themselves to the private authority. The private authority is, generally speaking, in four or five provinces across Canada, given the ability to do the registration process for the securities commission. This could be your first barrier to entry. For example, annual fees at the IDA back in 1997 were $5,000. I understand them now to be $25,000. I also understand that there is an acceptance fee of another $25,000. Then you have your risk-adjusted capital, which is that capital you have to put up in case of fraud within the corporation or within the dealership. These in themselves are barriers to entry. They are not set by government. They are set by private industry.
With respect to IDA, it is a lobbyist for its members registered in Ottawa. It is made up of its members. We have seen American banks come into Canada over the last 10 or 15 years, and within two or three years most have gone back. I cannot tell you why that is, but I am certain that this is an industry run by the banks and the dealers from these associations. They are the regulatory bodies to which they must look. Unfortunately, for the investors, their only avenue as well is to look to these private associations. They cannot get a legal determination of their issues by going in front of a private associate regulator. It is impossible. They do not have the authority to do that.
If investors feel that they have been victimized and that it might be contrary to the law — the law being the Criminal Code or the securities legislation — who determines that for them? They never get the opportunity, because the private authority does not have the authority to do that. I am sure there would be many more charges under the securities legislation across this country if we had a body that had the proper authority and exercised it properly. You cannot expect the MFDA and the IDA to regulate our industry. It is unfair to expect them to do it when you do not give them the tools required to do it. One of them is the lawful authority. Legislate them. If you do so, there will be protections that come with that, such as the Statutory Powers Procedure Act in Ontario, the Evidence Act, or in cases of investigations, sections 7 and 8 of the Charter. These are important protections that consumers need. We do not have them under the current system.
Senator Oliver: My question is for Ms. Durand. When you were giving your evidence, you had a long list of problems, complaints and concerns for consumers in relation to the financial services sector. When you were giving your evidence before the committee this afternoon, you were talking about the granting of credit and the problems associated with it, with the use of electronic payments to pay bills and the problems associated with that. You were concerned about consumers' ability to repay money once advanced from a bank or lending institution. You were concerned about debit cards and some problems associated with the use of debit cards in our modern age. You were concerned that banks are often too quick to extend credit to people and individuals.
It seems to me that when we had the moderation of the Bank Act under Bill C-8, there were many new things brought in under that statute designed to give more protection to consumers and to answer many of these concerns that you have outlined today. For instance, the Financial Consumer Agency of Canada and the Centre for Financial Services OmbudsNetwork were brought in. They were supposed to be effective and efficient agencies for protecting consumers. Have they not worked? If not, what is wrong and what would you recommend this committee do to strengthen them so that you would not have the concerns you expressed about electronic banking and banks giving too much credit? Are these not the organizations we should look at strengthening? Should we not do some things to create more awareness on the part of the consumers you represent so they would know more fully how to use those organizations?
Mr. St-Amant: That is an interesting question. As we mentioned, we are satisfied with what the Financial Consumer Agency has been doing since its inception; however, its mandate is much too narrow. Basically, the agency's mandate is to provide for the application of specific provisions and legislation. It does not have a broad consumer protection mandate.
Senator Oliver: Should it?
Mr. St-Amant: It should, in our view. There is nothing in the Bank Act or any other legislation that properly frames lending criteria. That is an issue that has been left entirely to the industry. In our view, the criteria being used currently are not sound.
Regarding e-banking or electronic payments in general, there were some changes made to the law to create the Canadian Payments Association. Unfortunately, a lot has been left on the table and has yet to be tackled. The area of electronic banking has evolved substantially over the past five years. Much of what needs to be done can be accomplished fairly easily. Does that answer your question?
Senator Oliver: What about heightening awareness? Do the consumers you represent know about the two agencies I just mentioned? Should something be done to create more awareness of the agencies out there that assist with these problems?
Mr. St-Amant: The short answer is no. Unfortunately, consumers are generally not aware of what is out there. I know the Financial Consumer Agency has launched a significant outreach program, but it takes time and resources that they do not quite have. As for the complaints resolution mechanisms and the ombudsman, I think our main concern is that too many consumers come out of those processes so unhappy with the way it worked that it does not give very good publicity to that type of system.
Banks could clearly do a lot more in terms of making these processes known. We have had quite a few complaints from consumers who went to the bank and did not get a proper answer. When they came to us, they were not aware that the bank had a complaints mechanism system or an ombudsman.
Senator Oliver: So you directed them to the ombudsman?
Mr. St-Amant: Of course we did. They were then sent back to the branch manager, and then to the vice president, and then eventually to the bank ombudsman, and then eventually to the banking ombudsman. By that time, they are ready to forget about it and accept just about any offer they get.
Senator Oliver: I appreciate your answer to that.
Senator Kelleher: I am totally confused. I do not understand what this organization does. The only documents I got are in French. That is fine. I know it is a normal complaint from people who speak French that the only documents they get are in English. I am not about to complain, because I know this happens to you more than it happens to me.
I do not know what you do. Who are you acting for, and who pays for you?
The Chairman: About the translation, the briefs came in on Friday. If people give us their briefs in both languages, that is fine. They are not compelled to do so. They can give us their written presentation in one language, and it is then up to us to translate it. The briefs were received last Friday, and we have not been able to get them out of translation. The criticism is well-founded, but it should be directed more to our chair and our staff than to the witnesses.
Senator Kelleher: I am not being critical or complaining.
The Chairman: I welcome the criticism. Quite frankly, we are trying to be on time and deal with consumers issues as swiftly as possible and not to inconvenience members of the public who come before our committee. We should have done our work more efficiently, and we did not.
Senator Kelleher: Anyway, I am confused. I do not know who you are or what you do.
Mr. St-Amant: We are eternal optimists. First, we do apologize for tabling our submission too late for translation to be possible. To answer your concern, senator, Option consommateurs is a Quebec-based, non-profit organization. We are a charitable organization. Our aim is to inform, defend and represent consumers. We do offer services to the public in general. We are funded by Industry Canada, by United Way, and by a number of other programs here and there. We have been around since 1983.
The Chairman: Mr. Kyle, perhaps you should do the same thing.
Senator Kelleher: I have a little better idea of his. He is a private individual, and I have seen his written material.
Mr. Kyle: My wife. That is what keeps me alive doing this right now. I do it all voluntarily, no payments received. I have been in the industry for 20 years, so I have a good idea of what it is about and what it takes to stay in the industry. I keep in communication with a lot of compliance officers at the different firms — primarily in Ontario, but also Alberta and B.C. I take their concerns and weigh them with the consumers' concerns. Lo and behold, a lot of them are the same complaints.
Senator Kelleher: I now understand what this organization is. It is like credit organizations we have in Ontario that are sponsored by the United Way, and they try to help out people who have financial problems. I understand now, but I do not have any questions at the moment.
The Chairman: You have suggested that we should recommend a broadening of the mandate of the financial consumer protection mechanisms. I should like you to be very specific about that and to give it to us in writing. I would like you to say, “Here is what the present terms of reference are. Here is how the mandate can be expanded to be more efficient and more in the public interest.”
Many witnesses attend here and give us general statements. We not only listen to the general statements, but we want some affirmation of those statements to satisfy ourselves that there is some support for your contentions. There is a desire here to ensure we listen to all of the recommendations and weigh them.
Senator Plamondon: May I comment?
The Chairman: Of course.
Senator Plamondon: I know very well Option consommateurs. I have known them for years. They have much credibility in the province of Quebec, outside of Quebec and on an international level. They have been part of committees. Governments are asking for their advice. I know this because I have been on the same committees that Mr. St-Amant has been, whether in Europe or the United States. I know them very well. They are very credible in bringing their concerns here. It is important that they prepared presentations and attended before us, even though they did not have time to have their documents prepared in both languages. Similarly, Mr. Kyle gave his brief to us in English, and we did not have time to have it in French.
Senator Kelleher: I am not questioning the character or authenticity of the organization.
Senator Plamondon: I want to tell you that they are not only a credit counselling service; they go beyond that, because they have made studies, and their research is quoted a lot of time. If they can bring something to this committee like they did to other government committees and international committees, it will be very beneficial to us.
The Chairman: We respect the evidence presented here. We will give it a lot of weight, as we have with members of the industry. However, it is not only what is said, but it is the support for what is said. We will read your documents and any subsequent documents you provide very carefully as we weigh your evidence.
Mr. St-Amant: If I may briefly, I should like to thank the honourable senator for her comments.
The Chairman: For her commercial.
Senator Plamondon: It is not a commercial.
Mr. St-Amant: Unsponsored.
The Chairman: Unsponsored affirmation.
Mr. St-Amant: Absolutely.
We are in the process of refining our recommendations in the context of the process initiated by the Department of Finance and we will be happy to keep you informed of what we are doing.
The Chairman: I will ask a few questions of Mr. Kyle because he has presented a thoughtful brief with many statements.
Let me start with something that has concerned the Senate for some time, and that is the question of whistle-blowers and the protection of whistle-blowers. If you have been following the debates in the Senate for some years, Senator Oliver and others have been involved in the process of protecting whistle-blowers. You have said that one of the reasons self-regulation is not working is that people within the industry are concerned about being whistle-blowers because they would not be protected and secure in their jobs; in other words, they do it at their peril. Do you have any support for that statement?
Mr. Kyle: Yes, I can support it in that — I have to be careful because there are cases going to court shortly. There are individuals who have participated in hearings in Ontario at the finance committee, particularly a gentlemen by the name of Larry Elford out of Alberta, who was a registered representative with, I believe, RBC Dominion Securities. He was basically not promoting some of the products that were contained within RBC Dominion Securities because they were not suitable for his clients. The bottom line was that, by doing so and showing the public that this was not necessarily in your best interests, he was fired.
The Chairman: This is a public hearing, so we will ask the company to respond to that. If you have any other specifics to give us in writing or now, that would be fine. This is a very serious critique of the self-regulatory system. We take your critique seriously, but we have to weigh the support for that critique carefully because we have heard on the other hand that the system in many respects is working well. I am not in any way diminishing what you have said, but anything you can give us will be helpful and we will look at the provincial report. Thank you for bringing that to our attention. If you can give our staff a little more information regarding that, we will sort out that brief. We will look at the submissions, including those made to — I assume the Ontario legislator?
Mr. Kyle: It was at the Standing Committee on Finance and Economic Affairs.
The Chairman: If there are any other similar reports of that nature that you can draw to our staff's attention to, please do so. We will fish them out and we will review them.
Mr. Kyle: I wish to add something. Within the document I provided to you, there are 72 footnotes. By printing this out, you obviously cannot go to the links that are embedded in the document. If you look at it through the PDF format on your computer, it will take you directly to the page I have set up on that website. I do not make any money from that. You can go and see all the recommendations made by the three parties, as well as by the investors, the investor advocates and the associations. You can see their recommendations going forward there as well.
The Chairman: You have given us a lot of material. Our staff will be hard at work trying to source some of this information. If you can direct us to the things that you think are more important or less important, that would be very useful as well. There is a mound of information you have given us; the staff will do their best to go through some of this. However, if you have something that is more cogent we will look at that as well. It will allow us to get to the heart of your concerns quickly. We welcome your assistance here and we are here to look at it from the consumer point of view. We are not here to protect stakeholders, but we want to be fair to stakeholders.
You quoted Mr. Eliot Spitzer, who we have talked about. You have quoted the chairman of the U.S. Securities Exchange Commission about self-regulation and the question about the effectiveness of that. We will look at that information.
You may recall that if you were following the testimony of this committee the question of a unified regulator came up. We will be looking at the Martin Act that was passed in the United States in the late 1920s after the market crash. The Martin Act gave the district attorney in New York State specific powers to deal with egregious problems within the security sector. You will know that we will be examining that; it does not have the same difficulties that we have heard earlier today about federal provincial jurisdictions and so on, because the criminal power is a federal power — unlike the United States where the federal power is state, ours is federal. The basis of Mr. Spitzer's powers comes from that statute. We will be looking at that, as well as the question of whether or not someone who does have a complaint who wants to seek severe penalties against an egregious complaint can do so through the criminal process.
This is a long wind up to a very short question. Having said that, if someone has an egregious complaint about what they consider to be malfeasance within the financial sector, nothing prevents that person from going to the crown attorney in his province or to the RCMP and lodging a complaint. Am I right about that?
Mr. Kyle: Yes, you can go ahead and lodge your complaint. I have the opportunity to speak to the Superintendent Hannaford of IMET, the Integrated Market Enforcement Team.
The Chairman: That is the RCMP team?
Mr. Kyle: Yes. There are a lot of egregious cases posted on the websites of different private regulators. You can see where the broker has admitted to fraud, misappropriation of funds, forgery. I would consider these to be egregious. There is no restitution process for that, where you will get 100 per cent of your money back.
The Chairman: There is a restitution process for that.
Mr. Kyle: Not whereby you will get 100 per cent of your money back, not really. It is hard to say. From what I have heard from investors, it is more like fifty cents on the dollar that you will get on arbitration. It will not be 100 per cent; I have never heard of 100 per cent. The most I have heard is 62 per cent. I have not heard of them all, but of the ones that I have heard of.
The Chairman: Mr. Kyle, we will look at that question too.
Mr. Kyle: That is good because if you look at arbitration in the U.S., they make it public. You will see what it is, but you will not see it here. You will not know if you are getting a fair shake or not.
Getting back to Mr. Hannaford, when I asked him, with respect to these cases that I pointed out to him on the IDA website — the MFDA, I cannot speak to them because they have only been around since 2000; to date they have done two cases, one starting in Nova Scotia and one here with respect to market timing in late 2004. Mr. Hannaford instructed me that they did not have the capacity to look after these.
The Chairman: Excuse me, I do not mean to question that. When you say the capacity, they do not have the funding or the ability? When you say the capacity, that is a capacious question.
Mr. Kyle: Certainly, and I tried to get more information than that from Mr. Hannaford. He was very helpful, but bottom line is the SROs also sit on the committee that determine which cases will be put forward to IMET. The problem here is that this is also a lobbyist registered in Ottawa to represent their members. Do they necessarily want to turn in their biggest fee payer, someone who sits on their boards, someone who sits on maybe four or five different committees within the IDA? I do not think so.
The Chairman: I hear you. We will try to weigh what you say and listen to the stakeholders as well respond to your brief. By the way, I am saying this in a very open way. We are trying to have a transparent hearing. I will take one issue up with our steering committee, and that is the question of whether we should call the IMET for this hearing, to see how effective they are and how it works. That might be useful. This will be a public hearing and we will see if there is support. I think members of the committee are concerned when we look at the model in the United States and we take a look at our model and find that our model of regulations is quite fragmented federally and provincially. It is confusing to the consumer.
Your major point relates to how we can ensure the consumer is fairly protected in a way that is fair as well to the system. We have to balance interests.
You have made an excellent suggestion. I cannot speak on behalf of the steering committee, but I will take up your suggestion about IMET and see whether we can have them before this committee, and then you can respond in writing.
Mr. Kyle: I will follow up on everything you asked.
The Chairman: There is something in your brief that is somewhat different from what we heard from the industry.
By the way, regardless of whether I agree with the information in your brief, it is very clear and very well written. I commend you for that, Mr. Kyle.
On page 43 of your brief, you give the results of a poll done by The Globe and Mail and one done by Investment Executive. Could you give us the date of those polls?
Mr. Kyle: If you open the hyperlink on the Internet, you will find the dates. They were done between 2002 and 2003. I cannot give you a definitive date, but it is posted on the Web.
The Chairman: The second questions are not too different from the concerns we heard from the industry itself. The industry is very concerned that regulation is fragmented. They think it is inefficient, and they would welcome a national securities commission. However, I am afraid that that is not to be in my lifetime because of the constitutional problem. I started working on this 40 years ago, and we have not made a lot of progress except in harmonization.
Having said that, there are other functional ways to satisfy the consumer with a single enforcement power. I take it these polls are saying that the consumer is looking for a central place to protect the consumer interest when it comes to the egregious issues.
Mr. Kyle: I would agree.
The Chairman: You have given a whole series of egregious issues: Bre-X, YBM, Livent, Nortel, repeatedly, Eron and Phillips, then you go on to talk about Enron.
There have been egregious problems within the securities industry. We are trying to come to grips with this issue to see whether the investing public, which is now investing widely in the securities industry, feels comfortable and confident. That is the heart of this inquiry.
We will look at this. This gives support for one of the things we are thinking about, which is: When you are given a lemon, how do you make lemonade? How do you make it acceptable to the consuming public?
Mr. Kyle: The Wise Persons' Committee was appointed two years ago and was chaired by Mr. Michael Phelps. Their final document, entitled “It's Time,” dealt with the issue of regulation across the country to have one national securities regulator. Mr. Phelps referred in that document a number of times to how investor protection was lacking. Yet, within the paper he really made no strong recommendations on how to remedy that. Perhaps we have a greater voice at the table, but we have nothing solid or real.
The Chairman: Again, this committee does not have the answers, but next week we are looking at productivity. The issue we have talked about here of fragmented regulation goes to the question of productivity and competitiveness.
Senator Fitzpatrick has persuaded us to have a separate hearing on interprovincial trade barriers. I consider fragmented regulation one of those, so we will be looking at this question.
We thank you very much for your testimony. If there is anything you would like to add, please do so in writing. To be fair, we will also welcome comments from stakeholders who have a different view.
This is an open and transparent hearing, and we thank all the witnesses for coming forward to help protect the consumer that we are here to serve.
Senator Kelleher: I should like to confirm something that Mr. Kyle said about the Royal Canadian Mounted Police. I want to be clear that it is not a criticism of them. As a former Solicitor General, theoretically in charge of the Royal Canadian Mounted Police, I can tell you that the force is totally overwhelmed in the area of white colour crime. They do not have sufficient qualified people to carry out the investigations. You cannot take a policeman off the beat and suddenly make him or her a forensic investigator.
A former commissioner of the RCMP is now a partner in our law firm. We have set up a separate company that does what the RCMP cannot do. They simply do not have the personnel to handle this. It does not matter whether you are a big bank or a man on the street, if you have a problem, you have to hire your own private investigators to carry out the investigation.
The Chairman: Senator, I would like you to make that pitch to the deputy chairman of the committee. If he agrees, we will call the RCMP and IMET before us for a short hearing in order to get to the bottom of this. If in fact there is no capacity due to financing, that could be part of our recommendations. However, I do not want to pre-empt what the RCMP or anyone else would say.
Senator Kelleher is a Privy Councillor, a former minister of trade and a former Solicitor General, so we welcome his expertise to this committee.
I thank the witnesses for their attendance.
Senators, on consideration of Bill S-25, to amend the Act of Incorporation of The General Synod of the Anglican Church of Canada, our witnesses are the Venerable James Boyles and Mr. Ronald Stevenson, chancellor. Welcome gentlemen, we await your evidence.
The Venerable James Boyles, General Secretary, The General Synod of the Anglican Church of Canada: I will speak very briefly about the Anglican Church, and Mr. Stevenson will talk specifically about our request. I am the general secretary of the Anglican Church, which, in secular terms, means the chief operating officer. The Anglican Church has about 2 million members, according to the census; according to parish rolls, we have about 700,000 members, the third largest church in Canada.
The General Synod of the Anglican Church of Canada, which is the incorporated body, is made up of 30 dioceses across the country, each one headed by a bishop. It forms a rather loose federation of those 30 dioceses. The General Synod meets every three years and is governed by the legislation, which dates back to 1921, and by the constitution and canons of the church.
We have a national office in Toronto with about 115 staff, and this particular request is related to the ways in which we can invest funds. I would ask Mr. Stevenson to speak about the specific request.
The Honourable Ronald C. Stevenson, Chancellor, The General Synod of the Anglican Church of Canada: The General Synod was organized first in 1893, and it was incorporated by act of Parliament in 1921. The act was amended in 1951 in a number of respects. One in particular that we are concerned with here today is with respect to the investments in which the synod may put its funds and in which it may put trust funds that it holds.
The 1951 provision tied us to the investments that were authorized under the Canadian and British Insurance Companies Act, 1932. That was a common benchmark that you will find referenced in a number of federal private acts, and I have seen references to it in provincial statutes as well. At the time, in 1951, it was a lengthy list that ran to some six pages in the statute books.
The origin of that sort of list, which defines and restricts investments in which trustees may put their funds, goes back to South Sea bubble in Great Britain in mid-1800s. Because many trusts lost their money at that time in England, the Chancery Court first developed what became known as the legal list. The British Parliament enacted one in 1859 and that approach came to Canada from England.
In recent years, the trend has been to adopt what is known as the prudent investor rule. The prudent investor rule was first developed in the Commonwealth of Massachusetts in the 1820s or 1830s, but it is now generally accepted in Canada. The Uniform Law Conference has studied it — they prepared a draft uniform act respecting trust investments — and all of the provinces now have in their trust legislation the prudent investor rule in one form or another. The language is not consistent but the substance is the same.
It was accepted by Parliament in 1991 when you revised the laws respecting financial institutions, banks, insurance companies and trust and loan companies. You will find the statement of the prudent investor rule in all three of those statutes.
About a year and a half ago, our committee on financial management and development asked if we needed to have our legislation changed to bring it up to date. My recommendation was that that should be done. The committee agreed, the Council of the General Synod agreed, and the General Synod itself, when it met last year, agreed and authorized the petition to Parliament that is now before you.
The purpose of the bill is simple. It will simply say, in place of the current laws, which you will find in the explanatory note, that we are asking that that be changed to read that the synod may also invest and reinvest any of its funds, including any funds held in trust, in such investments as the synod considers advisable. Because our office is located in Toronto and our investments are made in Toronto, we would be bound by the Trustee Act of the Province of Ontario and follow the prudent investor rule that prevails in that province.
I know there is concern among senators about the number of private bills dealing with this sort of thing. The diocese in the Arctic obtained an amendment some years ago, and I have read the debates that took place in committee. Bill C- 21, the proposed Canada Not-for-profit Corporations Act, is currently before the House of Commons. If it were the law now, we would have followed the route of getting under the umbrella of that act rather than coming with this particular bill.
The Chairman: Mr. Stevenson, the committee is familiar with that. Most of us feel this matter should be something that is not the responsibility of Parliament but could be dealt with by other means. We will welcome that bill if we can get the other place to send it to us. I am not sure we would agree with it in all of its forms, but we would welcome the principle of the bill. Have you anything further to say, Mr. Boyles?
Mr. Boyles: That is fine.
Senator Oliver: I am interested in the financial aspects of this. You obviously have investments now. I should like to know the way in which you have been penalized because of a low return on the investments you have now because of the current policy and what kind of rates of return you are getting. If it changes, what do your officials say will be the likely results if you are investing under the control of the Ontario Trustee Act?
Mr. Stevenson: We are probably in breach of our own act at the moment because we have been making investments beyond what we should be making under our act.
Senator Oliver: So you are happy with your rate of return now?
Mr. Stevenson: I think so, but we want to legalize what we are doing.
Senator Oliver: I do not think I will ask any more questions on that.
Senator Plamondon: Would you mind if there were an addition to proposed section 6A to add “in the interest of its members?” In other words, proposed section 6A would read as follows: “The Synod may also invest and reinvest any of its funds, including any funds held in trust, in such investments as the Synod considers advisable, in the interest of its members.”
Mr. Stevenson: I do not think we would object to that.
Senator Plamondon: I would prefer to add that.
Mr. Stevenson: The language we have used was suggested to us by the parliamentary counsel.
Senator Rompkey: I am a little concerned about time and whether amendments are going to hold up the process. We all know what is happening in the other place. Things are very volatile. It may not delay things a great deal, but it would certainly delay it a day or so. Tomorrow is Thursday, and then we are into next week, and who knows. This has to go to the House of Commons and get through.
Mr. Stevenson: I do not think the words would add very much. I think you have to have good faith that we do act in the interest of our members.
Senator Plamondon: This would be in case somebody in your place does not act in the interest of the members.
The Chairman: I do not want to put words in your mouth, but I think the senator raises an adequate question. I assume your bylaws require directors to act in good faith. These are standard corporate bylaws, an implied duty of good faith. I am not suggesting that I disagree with Senator Plamondon's suggestion, but I have covered this territory several times before. When it comes to the question of duties, you can spell it out, or you can rely on the duties of a director to act in good faith and prudently. That is not a complete answer to the senator, but it might assist.
Senator Rompkey is suggesting that, if we pursue an amendment, it may delay the process. We will consider that question.
Mr. Stevenson: With respect to trust funds, we have to observe the common law duties that are imposed on trustees.
The Chairman: I have a question along the same lines. Senator Plamondon, do you have another question?
Senator Plamondon: I was afraid that maybe new laws would allow you to invest in what I would call risky funds. One might think it is prudent and one might think it is risky. It is a perception. If the legislation spelled out ”in the interest of its members,” there would be security.
Senator Oliver: They will be bound by the Trustee Act of Ontario.
Senator Plamondon: What does it say?
Senator Oliver: I am not a lawyer from Ontario, but there is legislation related to trustees in other provinces as well. That legislation controls and governs the types of prudent investments one can invest in.
The Chairman: Perhaps this question will clarify it. You have told us that the church's investments fall under the trustee legislation. I do not have the provisions of that legislation, but I do have the provisions of the investor rule contained in the Bank Act, the Insurance Companies Act and the Trust and Loan Companies Act. It says that the directors of a bank or company or church shall establish and the church or company shall adhere to investment and lending policies, standards and procedures that a reasonable and prudent person would apply in respect of a portfolio of investments and loans to avoid more risk of loss and obtain a reasonable return. That is the investor rule provision in the Bank Act, the Insurance Act, and the Trust and Loan Act.
My question is similar to Senator Plamondon's and Senator Oliver's. Why did you choose your formula, which seems to be more barren than the more fulsome provision under those statutes? Was this advice you received?
Mr. Stevenson: I do not have the original draft that we prepared. The language that is in the bill is language that was suggested by parliamentary counsel. I have the wording of section 27(1) of the Trustee Act of Ontario.
In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.
The Chairman: I take it then, Mr. Stevenson, that by legal incorporation, since you are supervised by that act, that would be the test you would apply based on your more barren or sparse wording?
Mr. Stevenson: That is correct, sir.
The Chairman: That might satisfy the senator, because I think her concern was that the words were very sparse. We are accustomed to the prudent investors rule. You have answered that question for me.
Does that satisfy you, Senator Plamondon?
Senator Plamondon: Yes, but I guess I am influenced by the testimony we had just previously, that the investor sometimes loses everything and that it is very difficult to know what a good investment is. If the committee thinks that it is enough, that we have been prudent — but at the same time, I am influenced by the testimony we had just before.
The Chairman: Witnesses, what we have been listening to for the last some weeks now have been issues of consumer protection within the financial sector. There is a number of gaps in our legislation that we are concerned with and about which we are going to make recommendations, and I think Senator Plamondon, who is one of the persons who inspired this study, is concerned that the consumer, and in this instance, your stakeholders, are protected from imprudent investments in the desire to increase the return.
Senator Plamondon: They might be prudent, but it is difficult to know a good investment. They would not be blind, but it is difficult to recognize a good investment.
The Chairman: I think one of the added protections here — and forgive me if you disagree with this, Mr. Stevenson or Mr. Boyles — is that, in these circumstances, there are two tests: One is the test that applies to the objective — and we have heard the legislation; the second is the regulatory context of those investments, that is, is the Trustee Act — and we have heard that — which is more protective. The third test is the directors and the people directly involved in the investment process, which is their obligation to act with prudence and care. The fourth test is the management of the fund itself. The employees have terms of reference to ensure that investments are prudent and careful.
Hence, there are a number of measures of application of law at each of the levels that would answer it. It is not in one neat place, but if you looked at it from a common law perspective, I think, Senator Plamondon, the concerns you have would be answered.
Senator Kelleher: We can discuss this further tomorrow morning.
The Chairman: I want hear if the witnesses have anything more to say, because we will look at it tomorrow morning. Have I given a fairly good analysis of the checks and balances within the system as far as you are concerned?
Mr. Stevenson: Yes.
The Chairman: Are there any further questions? We undertake to deal with this first thing tomorrow morning. We will go into clause-by-clause consideration. We have an agreement to do so. We intend to deal with this as expeditiously as possible.
We want to thank you for your patience because this bill has been before the Senate for some time. However, but the efforts of our deputy leader, you would not be here today. We want to thank Senator Rompkey for bring this to our attention and insisting that we get on with our work, which we have done today.
The committee adjourned.