Proceedings of the Standing Senate Committee on
Issue 13 - Evidence - June 28, 2010
OTTAWA, Monday, June 28, 2010
The Standing Senate Committee on National Finance, to which was referred Bill C-9, An Act to implement certain
provisions of the budget tabled in Parliament on March 4, 2010 and other measures, met this day at 1:03 p.m. to give
consideration to the bill (topic: Parts 9, 12 and 13).
Senator Irving Gerstein (Deputy Chair) in the chair.
The Deputy Chair: Honourable senators, I call this meeting of the National Finance Committee to order.
This is the thirteenth meeting of the committee in relation to Bill C-9, the budget implementation act, 2010. Over 12
previous meetings, this committee heard from the Minister of Finance as well as departmental officials who explained
the provisions of each of the 24 parts of this bill. We have also begun hearing from outside stakeholders who are
interested in, or impacted by, this legislation.
This afternoon, we will continue to hear from those witnesses. In the first half of this meeting, we will have two sessions
in relation to Parts 12 and 13 of the bill, which deal with the payment card networks and the Financial Consumer Agency
of Canada Act. In the second half, we will turn our attention to Part 9, which deals with the Pension Benefits Standards
I am pleased to welcome our first two witnesses this afternoon, David Wilkes, Senior Vice-President of Trade and
Business Development with the Canadian Council of Grocery Distributors; and Terrance Oakey, Vice-President for
Federal Government Relations with the Retail Council of Canada.
Mr. Wilkes, I understood that you were to speak first. I turn the floor to you.
David Wilkes, Senior Vice-President, Trade and Business Development, Canadian Council of Grocery Distributors:
Thank you for the opportunity to address this committee. We look forward to continuing the discussion on how to
ensure we have equity and efficiency in the payment card networks.
I am pleased to be with you this afternoon to speak to you about the provisions in the budget related to the
Canadian payment sector and the impact these provisions will have on the members of the Canadian Council of
Grocery Distributors and the customers we serve. As indicated when we appeared before your colleagues on the
banking committee on this topic, CCGD members include large and small retail and wholesale operators, food service
distributors and a series of allied members that provide products and services to the grocery industry.
The grocery industry is Canada's largest commercial sector; association members employ approximately 428,000
Canadians in more than 12,000 communities across the country. Our members process thousands of payments each
and every day their doors are open for business, so we have a keen interest in these provisions.
As honourable senators are aware, for more than a year, retailers, grocers and other service sector businesses have
advocated for government measures to increase clarity, transparency and choice in a payment system that is only
controlled by a few major players. Specifically, we have been calling for a Canadian payment system that recognizes
and supports the following three goals: the need to provide clarity for consumers and merchants; the need to provide
merchants with effective tools to manage costs associated with debit and credit cards; the need to ensure that costs built
into the system through loyalty and other programs are paid for by those who introduce and benefit from those costs.
CCGD members want to congratulate the government on the important steps that have been taken both within the
budget bill and through subsequent announcements on the voluntary code of conduct. We strongly believe if these
measures are implemented as designed they will be an important first step in achieving the goals I outlined earlier.
We are also reassured by, and support, the empowerment of the Minister of Finance to regulate the market conduct of
credit and debit card networks and their participants, if necessary, and broadening the mandate of the Financial Consumer
Agency of Canada to assess the compliance of credit card companies with the voluntary code, and we look forward to that
group's first annual report a year after the introduction of the code this August.
We were also pleased to see a week ago that the minister has struck the payment system review task force, and we
look forward to working closely with Patricia Meredith and the task force to ensure there is a Canadian payment
system built not only for today but for tomorrow. We want to ensure we have a payment system that operates
effectively and efficiently, and reflects and responds to the priorities of all stakeholders that benefit from the services
Again, chair, we thank all members and senators who have played a role in helping to drive these critical steps
towards developing a Canadian payment system that is competitive, fair and provides clarity for both merchants and
consumers. We appreciate the leadership that the honourable senators have shown on this issue, and we look forward
to continuing to work with you to ensure our financial payment system operates effectively and efficiently.
I look forward to your questions and will take the opportunity to thank the chair for allowing us to appear together
with the Retail Council of Canada. We have been co-chairing a coalition of over 250,000 businesses since the beginning
of these debates, and we look forward to continuing the discussion in that regard.
The Deputy Chair: Thank you for your opening comments, Mr. Wilkes. Mr.Oakey, do you have opening remarks?
Terrance Oakey, Vice-President, Federal Government Relations, Retail Council of Canada: I do. Thank you for your
invitation to appear before this committee.
A little more than a year ago, the Retail Council of Canada appeared before another committee of this place calling
for some of the very measures that are now included in Bill C-9, specifically the payment card networks act.
To begin, I again thank the honourable senators for the leadership you have shown, and continue to show, on this
issue. As is often said, the Senate is a "place of sober second thought," but in the case of merchant concerns with
skyrocketing fees and other practices of the credit card companies, a better moniker would be the
"place of sober first thought."
I would be remiss if I did not point out also that Senator Ringuette's original motion started this whole process. We
are appreciative of that initiative. As well, Senator Gerstein has been an advocate for us as well.
RCC has been clear that we are commending the Minister of Finance, Jim Flaherty, and the Government of Canada
for establishing a regulatory framework to deal with card payment networks and for equipping the Financial
Consumer Agency of Canada with the tools it needs to monitor and enforce the voluntary code of conduct.
As you may recall, the Retail Council of Canada was often criticized in some quarters for calling for a regulatory
framework while others argued that a voluntary code alone would address the issue of skyrocketing merchant fees for
both credit and debit cards. As retail merchants, we live every day in an atmosphere of intense competition, and of
course our natural affinity is for less regulation rather than more. However, merchants need this regulatory oversight
because the card payments system has not been functioning properly, with the credit card duopoly dictating prices on
accepting credit products, and with a clear risk in Canada that the same path will be taken as Visa and MasterCard
enter the debit world.
True competition brings lower prices, not higher ones, and that type of market is in the interest of merchants and
consumers alike. The Retail Council of Canada believes the government has recognized this situation in its
commitment to regulate the conduct of credit card companies, banks and processors if they do not adhere to the
The question becomes: Will merchants be out of the woods with the passage of Bill C-9? If only the situation were
that straightforward. The president of RCC, Diane Brisebois, stood at Minister Flaherty's side when he announced the
code of conduct, because our members believe that the code will go a long way toward providing greater cost certainty
in the Canadian payments market. We also did so in the full expectation that the code is but a first step, and ultimately,
regulation likely will be required.
We say this because retailers have long experience with card company practices, both here and in other countries
around the world. Already we are seeing disquieting signs around implementation of the code. Some card payment
players have been pushing merchants to lock into new code contracts before the code takes effect in August, or sending
out contract updates that do not in any way reflect the spirit of the voluntary code.
From the merchant perspective, the voluntary code will be successful if, and only if, all players in the card payments
system accept the code's underlying principles and do not attempt to sidestep them by other means. The Minister of
Finance was recently welcomed at RCC's annual conference, where he clearly stated that the code of conduct is
voluntary until he has reason to make it, as he said, "unvoluntary."
RCC also welcomes the opportunity to participate in the independent task force that the minister recently
announced in Vancouver, which will engage in a comprehensive review of the payments system.
RCC will also continue to advocate for a robust stakeholder-driven framework for the payments industry, applying
the new provisions that are contained in the payment card networks act.
RCC and our members across the country thank this committee and the government for their continued support for
a transparent, fair and competitive payments industry in Canada, and we will be happy to take any questions that you
The Deputy Chair: Thank you very much for your opening statements.
The first question I have is from Senator Runciman.
Senator Runciman: Thank you, gentlemen, for being here today. We appreciate your presence, because if you look at
the list of invitees, it is extensive; however, most of them have declined. We appreciate your continuing interest and
your being here today.
In some respects, we can appreciate the reticence on the part of some of the invitees because of the extensive
consultations that have occurred prior to the announcement of this initiative in the fall of 2009.
Can you tell us a bit about the consultation over the past year and a half, and what roles your organizations have
played in those consultations?
Mr. Wilkes: One thing that marked the consultations is that we established a retail coalition led by RCC and
Canadian Council of Grocery Distributors, as I mentioned in my opening remarks. Over 250,000 businesses were
represented through that coalition. We all shared the same concerns, which were the ones that both Mr. Oakey and I
mentioned in our opening remarks.
The challenge that was accepted by the government was that this type of "ask" of government was different from a
business lobby in that we recognized that the solution could not be part of normal commercial business or transactions,
as we had seen in many other jurisdictions around the globe. This is one where there needed to be a framework where
government demonstrated the right way to have an efficient and effective market.
These features of the consultations were unique, namely, the breadth of the coalition that we brought and the different
type of ask. I venture to say that the government was willing to listen. This issue was a complex one, which people took
time to understand. We are pleased with the outcome that has been achieved to date. However, as Mr. Oakey and I said,
we also recognize that this legislation is a first step. We are even more buoyed by the fact that we have a regulatory
framework as a backdrop.
Senator Runciman: Mr. Oakey, are you suggesting with your appearance here today that you feel the committee
should recommend some kind of change to this legislation, or is the position of your organization: Let us get on with
this bill; we have talked about it for a year and a half now, and let us finalize it; then we will see what reaction or
response there is and we will respond, if necessary?
Mr. Oakey: Our position has been that the measures contained in this proposed act are important. The voluntary
code of conduct comes into effect August 16. It has been our position that this bill is the enabling legislation to ensure
that the officials who are responsible for monitoring compliance and enforcement can be ready, so we do not see any
reason to delay the passage of the bill. However, as Mr. Wilkes has said, we did not see this proposed act as the end of
this issue, either. We are not recommending any amendments to the bill.
Senator Runciman: We appreciate your input. I want to put on the record the extensive consultations that have
occurred, a situation that you have reinforced, as well as the hearings that were held in both the Senate and the House
of Commons and the extensive public consultations. The government, after releasing the code, allowed for a 60-day
comment period as well. Everyone was invited at that point to submit their views on how best to monitor compliance.
The point I am making here is that we are witnessing a Liberal opposition filibuster on this legislation, which has so
many important elements. The legislation is being delayed in terms of moving forward because of the reluctance of the
opposition members around this table to deal with issues that the public agrees, and the members of the government
side agree, are contentious. We are seeing the reaction of witnesses as well, with matters like this, which have been
consulted on extensively for going on two years. Here we have this committee, for political reasons only, I suggest,
dragging out these hearings.
In any event, we thank you for being here and we thank you for your input.
Senator Callbeck: I do not agree that this is a filibuster. We are simply doing our job. We have from 1 p.m. to 2 p.m.
to talk to the witnesses. I do not think anyone can call it a "filibuster."
The voluntary code comes into force on August 16. Will it be monitored by the Financial Consumer Agency of
Mr. Oakey: Yes.
Senator Callbeck: What will that monitoring involve?
Mr. Oakey: The proposed act gives the Commissioner of the Financial Consumer Agency of Canada broad powers.
The commissioner will have the power, under the Inquiries Act, to compel documents and witnesses. The commissioner
will also report to the minister at least once a year. Monetary fines are provided for in the act. I think it is $50,000 for
individuals and $200,000 for an institution, if the commissioner finds them to be noncompliant.
While neither the Office of the Superintendent of Financial Institutions Canada, OSFI, nor the Financial Consumer
Agency of Canada is probably the ideal fit for this issue, we have no issue with the fact that the Financial Consumer
Agency of Canada will monitor compliance and enforcement.
Mr. Wilkes: Not only will there be the formal monitoring that has been a part of the budget bill, you can be assured
that both our organizations and the members of the coalition that we represent will also monitor compliance.
If you look at jurisdictions around the world — Australia is one that was often noted when we were here in the
spring of last year — their governments, as they looked at how to provide a proper regulatory framework for the
payments industry, did so through an evolution. That is why both Mr. Oakey and I have characterized the provisions
in the bill as being a first step.
To be clear, we support the provisions in the bill and we encourage their passage.
Not only will the provisions within the bill need to evolve, but the payments industry itself is evolving rapidly. I do
not think we can look at either one as a point in time or a snapshot. We are seeing mobile commerce and cellphone
technology that will allow payments. The way that consumers pay for the products they buy from our members will
change rapidly. That is why we look for the task force as well to provide a lot of guidance as to where we go from here.
To repeat: This legislation is an important first step. We do not believe it is the end goal, but it is a first step that we
Senator Callbeck: You say your coalition will monitor compliance as well as the agency.
Mr. Wilkes: That is correct.
Senator Callbeck: How will you monitor it?
Mr. Wilkes: We will speak with those members that are impacted by the provisions in the bill. We will judge those
folks within the payment card networks to see that they are following the provisions articulated in the voluntary code.
As we have from the beginning of this debate, which was some 18 or 24 months ago, where we find that both the
spirit and the letter of the code is not adhered to, we will not hesitate to bring those instances forward.
Mr. Oakey: I can give you an example. A month ago, we received a contract update from one of our members from
a processor that had a clause that said, As of a certain date, a new fee would be assessed as per your contract. We will
not tell you what the fee is, but if you want to know, consult your statement.
It is that kind of circular logic; the member sent it to us and we said, First, you probably do not want to sign the
contract. As of August 16, that fee will be a clear violation of the voluntary code of conduct.
We will ensure our members know their rights and responsibilities under the code. When they provide us with these
types of examples, we will ensure that both the minister and the agency are aware of them.
Senator Callbeck: Thank you. I will go to the second round.
Senator Marshall: Thank you, gentlemen, for appearing here today.
I was interested in hearing your comments regarding the voluntary code of conduct versus a regulatory framework.
I know Mr. Oakey referenced it in his opening remarks; I think he said some people were trying to move ahead of the
code. I think the Retail Council of Canada made reference to moving from a voluntary code of conduct to a regulatory
framework when they went before the Commons committee. I am interested in hearing both your views about where
we will go in the future and how successful you think the voluntary code will be.
Mr. Oakey: We obviously support the voluntary code, largely because the minister said a few things. When he
announced the draft code, he was clear to say that, while the government will not write regulations, publish them in the
Canada Gazette and go through the whole process, they fully expect all financial institutions, acquirers, issuers and
retailers to respect this code. If they are presented with evidence on a systematic basis where the code is not adhered to,
they will regulate.
I guess this approach is part way between a voluntary code and a regulation. In the end, the minister has made it
clear that as soon as he is persuaded that certain players, or any players, are not living up to their obligations under the
code, they will be met with regulation.
In general, we feel that voluntary codes tend to be more fluid. Government can change them easier because they
only need all industry to buy in. However, voluntary codes are easier than going through the long regulatory process.
As we have seen over the last six to eight months, even with mobile payments over mobile cellphones, there are always
new innovations that the regulations likely would not have covered. We are happy that the code is voluntary but we are
even more pleased that the minister has stated that he has no problem making it involuntary.
Senator Marshall: You said in your opening remarks that some operators were trying to move ahead of the code.
How prevalent is that activity; are there only a few examples, or do you think this is a bad sign?
Mr. Oakey: We have had a lot of examples provided to us. Those examples do not mean the issue is systemic. There are
probably provisions in the code that are less favourable to certain players. In a market economy, they probably will try to
put those out before the code is in effect. All the financial institutions, credit card companies, processors and merchants
have signed on to the code. We expect everyone to adhere to the code, once it is finalized.
Mr. Wilkes: One of the most important aspects of the code was the prohibition on co-badging on debit cards, for
example. If you look at some of the reactions in the marketplace since then with that commitment, there has been
compliance and there have been changes in the go-to-market strategies of credit card companies.
From our point of view, we have not had the same experience potentially as the Retail Council of Canada had in
terms of the examples Mr. Oakey brought forward. We are supportive of some of the big building blocks, most notably
the co-badging, which gives merchants the choice. Ultimately, merchants will have the ability to choose the payment
method that makes sense for their business and their relationship with their customers. That is probably the most
substantial part of the code and we would have a different opinion of our support for the code if it were not part of the
As I said in my opening remarks, we are pleased and comforted with the minister's commitment, not only in the
words that Minister Flaherty has spoken, but in the backdrop regulation that he has included with these provisions;
namely that, if the code does not work, this compliance will become involuntary.
I reiterate what Mr. Oakey said: The experience to date has been positive; the payment card industry has signed on.
Senator Marshall: The signs are good, are they?
Mr. Wilkes: Yes, the signs are good.
Senator Marshall: I want to pick up on Senator Callbeck's question about the Financial Consumer Agency of
Canada. Reading the legislation, it appears that the biggest impact will be on the network providers. How involved will
your members be in that area?
There is a provision that the cost of monitoring this code now will be borne by the network operators, from my
understanding. How involved do you see your members being in this monitoring by the Financial Consumer Agency of
Mr. Wilkes: I think it is one of our responsibilities. We were involved in putting forth solutions to both the House of
Commons and the Senate on what we believed should be in this code of conduct. We will not stop here. This issue is a
long-term one, and an issue that will evolve.
Ultimately, we will be the ones from a merchant perspective that have the ability to determine whether the goals that
are established by this government are respected by the players. It is not only whether we will be involved; we will also
have a responsibility to support the leadership the government has shown on this bill.
Senator Marshall: Do you foresee your members as bearing part of the cost of this monitoring?
Mr. Oakey: In the current legislation, they are not required to do so.
Senator Marshall: That is right. That is why I asked that question.
Mr. Oakey: Therefore, no.
Senator Ringuette: It is so nice to see you again in front of our committee. Some progress has been made. However,
the central concern, not only from retailers but also from consumers, remains the fees and rates, which are still under
no control whatsoever and no code of conduct. That concern remains.
However, there is light at the end of the tunnel because the biggest free market entity in the world is the U.S. I am
happy to report to you that, as of last Friday, both the Senate and the House of Representatives in Washington have
mandated the U.S. Federal Reserve banks to put caps on fees.
We will probably be the last democracy to cap fees on these huge institutions.
Having said that, my first question to both of you is as follows: Who has volunteered to comply with the code of
conduct? Do you know; do you have a list of the institutions that have volunteered?
Mr. Oakey: I can provide you with a list. I think the code of conduct came into effect on a Thursday or a Friday,
and I personally saw press releases from Visa, MasterCard, American Express and most of the issuing banks and
processors. I do not have a list here, but I can send you one. It is our understanding that every major player has signed
Senator Ringuette: It is your understanding, Mr. Oakey? Why is it that, when I was in conversation with your chief
executive officer two weeks ago, she was writing a letter to all stakeholders to find out if they had volunteered?
Mr. Oakey: We want to ensure that every player has signed on.
Senator Ringuette: I have good news for you, Mr. Oakey. Three weeks ago, I asked officials of the Department of
Finance at this committee studying Bill C-9 to provide a list of those who had signed on. They said they had a list. Yet,
as of this morning, three weeks later, it seems that they have translation problems, so they cannot provide the list. Is
that not funny?
Mr. Oakey: I can only say that if there are any players in this sector that have not signed on, or will not sign on by
August 16, we will call on the minister to fulfil his promise and initiate the regulatory process.
Mr. Wilkes: If any major players within the payments industry do not sign on to the code, that will be the first
digression from the intent and spirit of the code.
This code works if it is implemented in the way it was designed. It was designed such that all major players are party
to it and respect its provisions, with which we agree. It is an evolution. If any large player does not sign on — and it is
my understanding that there is no one who does not currently support it — we will not tolerate that.
Senator Ringuette: I agree, and I totally support what you said. No one should tolerate that. We know that it is the
technical suppliers that sign. It is not the banks that sign with the merchants. It is the technology provider that signs
those contracts. I am most interested in finding out whether these stakeholders have volunteered; yet, the Department
of Finance, which is responsible through the Minister of Finance, still cannot provide this Senate Finance Committee
with the list. I have concerns about that situation.
This legislation gives a supervisory role to the Financial Consumer Agency of Canada, which in itself is an issue. I
am also concerned that there is no formal complaint mechanism and there is absolutely no financial penalty
mechanism in Bill C-9.
When we asked the officials who were here two or three weeks ago if there was provision for any financial penalty
following a complaint, they told us that there is none. They said that it will be reported yearly to the Minister of
Finance only if a stakeholder does not adhere to the guidelines.
Mr. Oakey, you said earlier that there was provision for a financial penalty. Perhaps the departmental officials were
not up front with us, but that is not what they told us.
Mr. Oakey: On page 549 of the bill, in clause 1843, subsection 19(2) is amended as follows:
(2) The maximum penalty for a violation is $50,000 in the case of a violation that is committed by a natural
person, and $200,000 in the case of a violation that is committed by a financial institution. . .
That is my reading of the legislation.
Senator Ringuette: That is only after there are regulations in place.
Mr. Oakey: Absolutely.
Senator Ringuette: There are no regulations now, so there is no penalty.
Mr. Oakey: It is the second step.
Senator Ringuette: Yes, and the second step is not in place, so there are no penalties in place. There is currently no
Mr. Oakey: As long as the code is voluntary, obviously, the regulatory portion of this bill does not apply.
Senator Ringuette: Yes, and it can be a voluntary code forever.
The Deputy Chair: Senator Ringuette, will you continue in the second round?
Senator Ringuette: Yes, please.
Senator Finley: Thank you for coming. This is interesting.
Senator Runciman was talking about the attempts by our friends on the other side to delay the implementation of
Senator Ringuette: Point of order, chair, point of order.
Senator Finley: What would Senator Mitchell know? He has not been following it. Where has he been; France?
The Deputy Chair: I am recognizing Senator Finley at the moment.
Senator Finley: Thank you.
Are you going to allow me to ask my question or are you not?
The Deputy Chair: I will ask Senator Finley to continue for the moment and then we will come back to you.
Senator Finley: If Bill C-9 continues to be hung up, is there a possibility that credit card companies or debit
providers can try to go around this code by moving for particular agreements? I think you mentioned that some
companies are already doing this. Is there a possibility that the longer this situation continues the more there will be of
this? Are there inherent problems with delays?
Mr. Wilkes: Mr. Oakey indicated that there have been a few examples of that type of the behaviour.
We support the commitments that the government made in this bill. If passed, the bill will come into effect on
August 16. As the code is voluntary, and since it has the support it does, hopefully any delays will not result in a
voluntary code not going forward. We are concerned about the regulatory backdrop that we have referred to. The
other provisions that require a legislative change may be delayed.
We believe this legislation is an important government policy. I hope that people will not use the opportunity for
debate and consideration of this bill to do things that are counter to both the voluntary code and the other longer-term
goals of this policy. I am not in a position to comment on whether people will take advantage of the government's
deliberations on the bill.
Senator Mitchell: Thank you, gentlemen. You have been kind to the government in saying that these provisions and the
voluntary code are excellent first steps, and they may well be. However, the elephant in the room is, while all that work will
be useful, it misses the fundamental issue, which is lowering fees to small business. As Mr. Oakey said, low prices are
critical to competitiveness. This legislation will do nothing for competitiveness, while lowering fees will.
Why has the government done this other stuff while, it seems to me, it is setting up to filibuster lowering fees? Why
has it sided with big banks in allowing them to continue to charge their fees while not allowing small retail businesses
such as yours, which are at the cutting edge of competitiveness and live and die by it every single day, to obtain from
the government, after consulting with the government, this concession to lower fees?
Mr. Wilkes: I refer back to my earlier comments. This legislation is an evolution, respectfully, senator. The competition
within the debit side of the business will be healthy within the provisions of the code by not being able to co-brand to
ensure that one debit vehicle is on one card, which will provide merchants with the ultimate choice, given the fact that we
have a made-in-Canada debit solution with the Interac system that is protected from a retailer's point of view, because it
continues to be a not-for-profit structure. Those are all important things and will ensure that we have a competitive
landscape within those aspects of the marketplace.
The provisions to temper how premium cards and other credit vehicles enter into the marketplace, ensuring they are
requested as opposed to unilateral change, are concerns that the coalition brought forward last time we were in front of
our colleagues on the Banking Committee. All those things are positive steps and real competition on the debit side.
We are reassured that this code is not done in isolation. The Competition Bureau continues to look at abuse of
dominance claims within the credit card market, and that investigation is ongoing, as we understand it. A variety of
things are going on.
I will not characterize this step as anything other than a first step. We are repeating ourselves, and I do not want to
be disrespectful by doing so, but the backdrops of regulation, monitoring and recognizing the legislation as a work-in-progress are important, and we would not offer the support we are without those backdrops.
This legislation creates change. I agree with Senator Ringuette. There is light at the end of the tunnel. It is change
that we think is worthy. I do not hesitate to remind folks that it was June 30 of last year that the Senate's report came
out on this subject. We are pleased we are at this spot right now, but we also recognize this spot is not the resting spot
but the first step in the journey.
Senator Mitchell: One of the steps to addressing fees, which I still think are the critical issue, is the payment system
review task force. That could cause delay or, to use Senator Runciman's word, filibuster, and could take a long time,
depending on whose interests the government wants to defend, whether it is banks or retailers. Do you understand that
there is a schedule for that system, and have you been given a commitment by government as to when fees will be
addressed and lowered?
Mr. Wilkes: I do not believe we have been given a specific commitment on fees and when they will be lowered. The
payments task force has a defined time frame of December of next year, so approximately 18 months, to report. We
have written the chair of the task force that we need to understand where the payments industry is going from here.
Technology is moving fast. I mentioned some of the examples of new technology that we are already seeing. We need
to have a framework or a structure that accounts for how payments will be made not only 18 months from now, but in
two, three or four years, to ensure that competitiveness we both talked about remains in place. The direct answer to
your question is no, but the second answer is, there is a deadline for the task force reporting.
The Deputy Chair: That concludes our round one list, and I will move to round two.
Senator Callbeck: I was looking at the code of conduct for credit card and debit card industries in Canada. Are there
any elements here that perhaps were well-intended when they were included but that you can see may cause harm to
business or consumers or, in other words, cause unforeseen consequences? Do you have any concerns?
Mr. Oakey: The Retail Council of Canada does not. We were consulted extensively. Other than the direct fee
regulation, as they do in Australia and as they are moving towards in the United States with the amendment last
Friday, this code reflects the concerns that we brought forward to this committee, the committee of the House of
Commons and the government through the Minister of Finance. We are pleased with the code. That is why our
president and chief executive officer was with the minister when it was announced.
Senator Callbeck: Does the Canadian Council of Grocery Distributors have any concerns?
Mr. Wilkes: We reiterate the Retail Council of Canada's statement. We too were there when the code was
announced. We indicated our support when it was announced initially here in Ottawa before the holidays. Senator, the
provision that was vital to our support is the one around debit. Particularly, as you look at the grocery industry, over
half the payments that our customers make every day when they walk into our store to buy food is through debit. We
do not see that percentage going down. If there were not the options I spoke about earlier in response to your
colleague's question, we would not have the same position here. We believe those options are vital. We worry about
how that code will play out as the market changes, which we believe is the opportunity we have with the task force as
Senator Callbeck: In other words, you have no concerns with what is included in the code of conduct and, when you
were asked to comment on the proposed code of conduct, the concerns that you brought up then have been
incorporated into this legislation.
Mr. Oakey: Absolutely; I can give you a specific example. There were not many changes between the draft code and
the final code, but one change was around the qualification for premium cards. There is a practice known as pooling,
where if you have a $1 million income person and a $20,000 income person, if you put them together, they both qualify
for a premium card. If you do that with the Canadian population, you bring thousands of people up to qualifying for
premium cards. One change made between the draft code and the final code was that individual income and spending
thresholds had to be met. Companies are no longer allowed to pool 50,000 credit cards together to meet requirements.
That change will disqualify a number of people from premium cards, which brings a higher interchange rate for our
Senator Ringuette: This change is especially important with regard to the grocery retailers because of the small
margins in the grocery industry.
I hate to say this, but this morning, I received in the mail an invitation from the National Bank for their new credit
card, and there was an advertisement showing me how many points I would receive if I used that credit card to buy my
groceries. We all know the vast marketing that some credit card companies have undertaken in regards to making sure
that consumers use that card when they buy their groceries because they will save two dollars. I have much fear for our
group of groceries.
One question that I seriously have concerns with is that we have seen the experience in Australia. Australia has
mandated their reserve bank to supervise the caps they have put in place with regards to fees. Last Friday the U.S.
mandated their federal reserve to supervise that industry.
The common link between these two bodies is that they have access to the private data of those financial institutions
for other matters. That data will now include these reasonable fees, as it is stated in the law; the bodies will supervise
what is reasonable, and to do that, they need access to the data.
How do you feel that our supervisory institutions in Canada, in regards to the code, do not have such access?
Mr. Oakey: I think you are right. They do not have the kind of access that a reserve, the central bank or the
Department of Finance would have. Some provisions are contained in section 5 of the proposed act on page 543 in
which they discuss the fact that "the Commissioner has all the powers of a person appointed as a commissioner under .
. . the Inquiries Act," so the commissioner can compel information, witnesses and testimony. It says that the
commissioner will have the "right of access to any records, including electronic records, of a payment card network
operator; and" they "may require the directors or officers of a payment card network operator to provide information
and explanations" in relation to the code.
Senator Ringuette: What will they do with the information? Will they report to the minister at the end of the year?
There are no penalties.
Mr. Oakey: You are right. Financial institutions are regulated in other ways in Canada. It will be in the best
interests of financial institutions, charter banks included, if they sign on to this code to be in compliance with it.
Senator Ringuette: I agree.
Mr. Oakey: If this is the way the process works, great. If there is a report to the minister that then is made public
and it is apparent that two of however many institutions are not following the code, I think that information gives
Retail Council of Canada, other coalition members, honourable senators and members of Parliament a great tool to
use to push the government to do more.
Senator Ringuette: I agree exactly with what you say, and one of the tools we immediately need to know is
compliance, because people had until May 17 to announce their compliance, and we are at June 28 with no list. This
committee has not been provided with a list by the officials. You do not have a list, an official list of volunteers.
How do you think that this entire supervisory role to the consumer financial agency will happen? At the same time,
that same agency, contrary to the Federal Reserve Bank of the U.S.A. or to the Reserve Bank of Australia, has their
financial operational independence. The Financial Consumer Agency of Canada depends on the financial institutions
for their operating funds. On the one hand, they need money to operate; and on the other hand, they need to supervise
companies and make a complaint, and maybe, if we are lucky, we will have regulations in five or seven years.
At first I was happy that there was a movement forward in regard to an attempt to regulate and supervise. It seems
to be the more we move, the shorter it is to the goal.
Mr. Oakey: The only other agency, and I think this agency has also been talked about, is OSFI. They also have
somewhat of a conflict because their main mandate is to ensure the solvency of banks and to ensure they have proper
We know a great revenue stream of the banks is interchange rates, so do we want the same organization in charge of
ensuring the banks are solvent also regulating their main revenue streams? All agencies are somewhat financially
dependent. The entire government relies on taxpayer money. We are all somewhat responsible for funding the
government operation. We feel the current tools provided to the commissioner will likely be sufficient, and we look
forward to seeing the code implemented.
Senator Ringuette: Do you see the supervisory role in Canada, as it is in the U.S. and Australia, to be given to the Bank
Mr. Wilkes: I agree the list is an important one, and I hope that the understanding that CCGD has as to who has signed it
is accurate, but we will all be reassured — I do not think there is an individual who would not be — with the publication of
that list. We also believe that when we commit on behalf of rather large organizations — and I know that at CCGD we are
individuals of our word — we trust and expect that those people who commit to the code with the Government of Canada
will live up to their obligations.
That is why we are supportive of the current direction, but we are comforted by the fact that if people do not do
what they say, tools are in place, from monetary penalties to investigative powers, if the regulatory requirements are
necessary, and indeed, are passed, to allow further structure.
I truly do believe that we sign a document because we believe that our company, our organization will commit to
that document and that is important.
Senator Ringuette: That is all our hope.
Mr. Wilkes: At the same time, if the hope is not realized, there are tools.
Senator Murray: I hear what Senator Ringuette is saying, and I agree it is somewhat baffling that the government
pleads translation problems for not having produced the list of those who have signed on to the code, and I am sorry
we do not have that list.
I do not see what the incentive is for not signing on, and I think the incentives are in the other direction. If a
sufficient number do not sign on, then they know, because they have been told, that the government will bring the
hammer down and bring in a compulsory regime.
Also, if only a few fail to sign on, they will stick out like a sore thumb and attract the attention of the overseers, so I
am more comfortable with the incentives than Senator Ringuette seems to be. I may be missing something.
Senator Mitchell: Who will be advantaged or disadvantaged by fee reductions? Clearly, the banks will be
disadvantaged and the retailers will be advantaged. You follow the money. Do you have any idea what percentage of
bank revenues come from these fees? On the flip side, do you have any idea of what percentage retailers' costs come
from these kinds of fees?
Mr. Wilkes: Yes and no; let me be less succinct. Obviously, from the bank point of view, no.
When we appeared before your colleagues at the Standing Senate Committee on Banking, Trade and Commerce in
advance of the Senate report last June, we provided information at that time that was indicative that our costs with
respect to credit cards were going up dramatically. The penetration of the credit card market was increasing,
particularly on the grocery side, given the activities that Senator Ringuette referred to earlier today. We were
concerned that we would see the experience of the debit market repeated here in Canada, where right now we have a
competitive made-in-Canada solution with Interac that has competitive transaction rates. We wanted to ensure that
system was maintained here, not an ad valorem, not a percentage system on debit because it is different than credit,
and we could have projected how that type of regime in debit would lead to additional significant costs for all retailers,
particularly grocery, that would mirror the experience we are seeing in credit. I do not have hard numbers for you,
senator. I have only trend information. From a retailer perspective, we believe that these provisions will provide the
tools to manage those costs more effectively from our members' perspective.
The Deputy Chair: Thank you very much. This concludes our first session. I want to thank Mr. Oakey and Mr.
Wilkes for appearing before us today, and also for their most helpful testimony.
Senator Joseph A. Day (Chair) in the chair.
The Chair: I call this meeting back to order. Thank you, honourable senators, for carrying on without me in the first
panel. I apologize for being delayed and I thank the deputy chair of the committee, Senator Gerstein, for handling
things so well.
We will carry on with Parts 12 and 13. On the second panel we have Ursula Menke, Commissioner of the Financial
Consumer Agency of Canada; and John Rossi, Director, Compliance and Enforcement Branch, Financial Consumer
Agency of Canada.
Welcome to both of you. Who will make a few introductory remarks before we go to question and answer?
Ursula Menke, Commissioner, Financial Consumer Agency of Canada: I will be brief in my introductory remarks. We
were called here at about 11:30 this morning, so I decided to forgo introductory remarks and throw the floor open to
The Chair: Those are short introductory remarks. I appreciate your brevity. I am sorry that we called you on such
short notice. There probably is an explanation, which I cannot give you at the present time. However, I can tell you
that this committee is working hard to deal with a bill of 900 pages and 24 parts as quickly as we can.
We find that many people, especially as we are into the holiday season, find it difficult to accommodate our
requests. However, we have no choice; we must go forward.
Ms. Menke: I am here to serve you.
The Chair: We have an agenda that we are working towards. You are familiar with the bill?
Ms. Menke: Yes, I am, or at least those parts that are of particular interest to me.
The Chair: I hope that Parts 12 and 13 have some level of interest to you.
Ms. Menke: They certainly do.
Senator Marshall: Ms. Menke, perhaps you can give us an overview. The proposed legislation gives new powers and
responsibilities to your office. While you wait for the legislation to pass, no doubt your office is gearing up for
Can you give the committee an overview as to exactly how you are preparing for implementation of the legislation?
Ms. Menke: With pleasure; as you know, there are two key areas right now where there will be an increased mandate on
our part. On the one hand, a whole new research function will be developed as a result of the legislation; and on the other
hand, there is the issue around the credit/debit code or the proposed payments legislation.
We are in the process of trying to work with both those areas. We have to think about the research function, because
that is a new area to us, frankly. We will develop that function fundamentally, not from scratch but almost from scratch.
The purpose of the research function is to identify consumer trends and emerging issues, so it will be forward looking. We
have not had the opportunity to do enough of that in the past, so I am excited about that area.
The other area is the credit and debit code. We have been spending a lot of time speaking to the various players that
are interested in the code. We are speaking with the payment network operators, acquirers and the various players to
have a sense of what the business is and what they are talking about. We have also spoken to other interested parties.
For example, we met with the Canadian Federation of Independent Business to try to understand what their respective
Senator Marshall: How big is your office? What impact do you think this legislation will have on your office in terms
of size? I know you will not know until you start the work, but you must be contemplating what percentage of the
workload will be devoted to these amendments. Can you give the committee some idea as to that workload?
Ms. Menke: It will be in proportion to what we are right now. We are currently approximately 50 people, all told.
There will be some growth related to both of those functions. It is difficult right now to predict exactly how much
growth. I am assuming that the research function will be four, five or six people. It is a hard to tell until we really get
into it and see what is there and what we need to do.
With respect to the code, I could say we could double our compliance staff because we have been spending a great
deal of time on the code right now but that is clearly not what will happen. We are in the process of learning the
operation. That is intense from a resource perspective. Once we get into it, I do not expect it to be that intense.
Senator Marshall: How many officers do we have?
John Rossi, Director, Compliance and Enforcement Branch, Financial Consumer Agency of Canada: We have about
five officers that work on coverage of it.
Senator Marshall: Are those compliance officers?
Mr. Rossi: Correct.
Senator Marshall: You expect an additional five?
Ms. Menke: No, that was a joke. Once we get over the initial hump on a permanent basis, I think we will add one
person, perhaps two. We will see how it turns out.
Senator Marshall: It seems that the legislation contemplates that you will do a lot of detailed work; that is, you will
deal extensively with the network operators. I am surprised when you say one additional person.
Ms. Menke: A lot of it is up-front work; once they have done some of the initial things they have to do, it will be
primarily a monitoring function.
At the front end, the network operators will have a lot of work because they need to change their own relationships
and reflect the code in the contracts all the way through. They will have to change their statements, too. That will take
a lot of time.
Right now, we are spending a significant portion of our compliance resources on understanding that work, and
working with them to try to ensure we understand where they are coming from and they understand where we are
Once that part is in place, the ongoing maintenance of monitoring will be less, I think.
Senator Marshall: Do you see any major impediments starting out; is there a big hump that you have to get over or
do you think this transition will be smooth?
Ms. Menke: From our perspective, the big hump is ensuring we understand their operations, how they work and
how the code will affect their operations. That is what we are working on right now.
Once that is over with, it should be smooth sailing from our perspective. We have experience monitoring codes
already; we monitor several codes, so this is not exactly a new function for us.
Senator Marshall: It should be a smooth transition, then.
Ms. Menke: Yes.
Mr. Rossi: On the question about the number of staff, we already have a number of internal processes we use to
monitor financial institutions on the consumer side of things, including the monitoring of codes. We foresee using
Senator Marshall: You can adapt them, you mean?
Mr. Rossi: We can adapt those processes to cover off this type of code. When the bill is passed, we can use those
same internal processes we already have. While there will be an increase in total amount that we must do, we do not
have to create new internal processes to cover off that work.
Senator Marshall: Thank you. That is helpful.
The Chair: Ms. Menke, when you indicated a monitoring function, there is also a requirement on an annual basis to
have an inquiry to see how the new act is functioning. Do you anticipate the inquiry as a monitoring function?
Ms. Menke: I would. I am using the word, perhaps, a little loosely but we will use our monitoring and inquiry
activities to generate that annual report.
The Chair: As I understand it, the report will be filed in Parliament through the Minister of Finance.
Ms. Menke: That is correct.
The Chair: Will it be filed on an annual basis?
Ms. Menke: Yes.
The Chair: Do you have the authority to monitor and make reports at any other time other than on an annual basis,
if you see something that should be reported to Parliament?
Ms. Menke: I do not know if it says so in the legislation, necessarily, but I certainly would.
The Chair: Do you feel you have that power?
Ms. Menke: I do.
The Chair: Is your agency accustomed now to passing on costs to the financial institutions that you monitor?
Ms. Menke: Yes.
The Chair: You are able to determine how much they should be assessed, and pass it along. Is that correct?
Ms. Menke: I want to explain the assessment process a bit. That will probably be helpful.
We submit an annual budget to the Minister of Finance. Once that budget is approved, from there towards the end
of the year, we assess each of the financial institutions that we supervise on a pro rata basis. This assessment is
provided for in the legislation. The legislation also says that once we have made that assessment, it is a debt owing to
Her Majesty. There is no choice about paying it. This is a commonly employed assessment basis used in other
regulatory agencies, as well.
The Chair: Do you have a responsibility to educate consumers? If so, what program do you have in place to do that,
or what are you planning?
Ms. Menke: Do you want to talk about this for the rest of the afternoon? We have several programs.
We started in 2001 with a variety of product- and situation-specific information. We developed a lot of good
information. Then, over time, and with the help of our minister, we went into the financial literacy area. That
information is a little different from the information we had been providing. We had been providing specific, detailed
information on specific topics.
A few years ago, we entered into a partnership with the British Columbia Securities Commission. We took a product
they had developed and we took it on a national scale. It is a teaching tool meant to be taught in the schools, and it is
focused on 15- to 18-year-olds. It gives them a basic financial education, if you will — a personal finance course. It is
about 22 hours in length.
It takes the students through the basics. As far as I am concerned, it includes one of the key issues, which is called
"wants" versus "needs." It takes students through a variety of modules. It goes into budgeting and the banking system
generally. From there, it goes into credit and debt management and credit cards. It goes from there into insurance and
investing, until finally it reaches a financial plan stage.
It is focused on students about to make that transition from high school to university, and from childhood to
adulthood. This course gives them some background to enable them to make better financial decisions. It gives them a
bit of knowledge — not experience — so that, when they are faced with all the people who are trying to sign them up
for credit cards, they have some basis for making a decision.
The Chair: You have expanded this education program previously to include more with respect to credit and debit
cards, have you not?
Ms. Menke: No, there was always a significant portion there. This one is driven by the group we are targeting, which
is 15- to 18-year olds. Credit cards management is a key issue they face, and there was always a lot on credit cards in
The Chair: That particular function you are performing will not be expanded, then. You are already providing the
information, are you not?
Ms. Menke: No, I am indeed expanding it, chair. That is one. We keep it up-to-date and that is a task.
We have also worked with the Investor Education Fund of Ontario, with George Brown College and with Ellen
Roseman to develop what we call financial basics, which is a five-hour seminar aimed at post-secondary students. It is
three modules because it is a lot more compact than the one we developed for the high school students. We focus on
budgeting, credit and debt management and investing. There are other topics; we cover fraud and other topics like that,
but more peripherally. The focus for those students is on ensuring they know how to budget and how to spend their
student loans appropriately. That is credit or debt management. We have that program going out now. We have been
pilot testing it and it has been well received.
We are also in the process of developing an adult financial literacy course, which is modular. It will be different from
the post-secondary one. It will cover a variety of topics. Again, it is something that people need that they do not often
receive. It has not been put together. There is a tremendous amount of information available but our value-add is the
way we are putting it together.
The Chair: I want to know what expanded activity will result from this legislation and what more it will cost the
financial institutions that you supervise.
Ms. Menke: I think that the research component, which is a whole new section, will create additional cost. Again, it
is difficult for me to predict now how much more, but it will be a significant increase. We have already talked about the
monitoring activity once the legislation is in place. Depending upon where exactly in our own learning curve the
legislation comes into place, there will be more or less impact on the operators. At this time, those are the two areas of
cost that will be increased.
The Chair: I heard your comment that it is difficult to predict what that cost might be at this time.
Senator Ringuette: Ms. Menke, this morning, I was going over the notes I took last year, when you testified before
our Banking Committee.
You were working closely with MasterCard, in particular, with regard to the model application form. Have you
done the same with Visa and American Express, or was it only a one-time cooperation issue?
Ms. Menke: That was a one-time cooperation issue. The idea was to have a plain language model application form
that can be used by everyone, as they wish, as a basis for changing to clearer language the dense language that is used in
Senator Ringuette: Have they used that model that you worked so hard to update?
Ms. Menke: Not as much as I would like them to.
Senator Ringuette: The answer is no. I followed it closely.
Ms. Menke, do you see your close relationship with MasterCard and your ability to take complaints and deal with
the voluntary code of conduct with regard to Visa, MasterCard and American Express as a concern?
Ms. Menke: Not at all; that was a one-off project that we worked on with them. At that time, they were not in any
way a regulated entity, so there was no concern. If they become a regulated entity, I will no longer work with them in
Senator Ringuette: I read on your website this morning that you will oversee the code of conduct for the credit and
debit card industry. I guess you assume that the bill will pass, although the code is in effect.
Ms. Menke: The code is in effect.
Senator Ringuette: The only question is your mandate within that code.
How many complaints under the other codes — such as the Canadian Bankers Association code of conduct; the
Canadian Code of Practice for Consumer Debit Card Services; the Model Code of Conduct for Bank Relations with
Small- and Medium-Sized Businesses; and the Principles of Consumer Protection for Electronic Commerce — do you
deal with in a year and how many penalties are issued?
Mr. Rossi: On code-related issues, we handle between 200 and 500 complaints a year.
With regard to codes, the power provided to the commissioner under our mandate is not an enforcement mandate
but a monitoring mandate, so we monitor adherence with the code. No enforcement action is applied in that scenario,
so there are no penalties with regard to the monitoring of codes. We only report to the minister, and the minister, based
on the information that he or she receives, will make a decision as to the policy that the government will put in place
with regard to that information.
The majority of the complaints we receive are related to the debit card code of conduct. Since that code of conduct
has been in place, most of the code-related complaints have been around that code, primarily because it has the clearest
impact on consumers. It impacts them in a direct way.
Senator Ringuette: How many complaints are in regard to the debit card code of conduct?
Mr. Rossi: It is between two thirds and three quarters of the 200 to 400.
Senator Ringuette: Do all the other codes that you have been mandated to supervise constitute one third or one
Mr. Rossi: The fact that the codes do not generate complaints does not mean we do not monitor them. We monitor
them through the information gathering that we do. They do not raise significant issues within our organization. We
also monitor the credit card no-liability commitments that large financial institutions that issue credit cards have in
place. That is the second largest grouping of complaints that we receive.
Senator Ringuette: With regard to debit cards, Interac is the major player and, thus far, has done a good job.
Mr. Rossi: That is my understanding as well.
Senator Ringuette: However, over a year ago MasterCard introduced another debit product. How many of your
debit card complaints come from that issuer?
Mr. Rossi: I do not have that information with me right now, but I can look into it.
Senator Ringuette: Can you provide that information?
Mr. Rossi: Yes, we can provide it.
Senator Ringuette: I have another concern. I looked at the list of financial and insurance institutions that are
governed by OSFI and therefore are related to the codes that you monitor. Visa, MasterCard and American Express
are the three main credit card providers, and none of them are mentioned on your website.
Mr. Rossi: We need to make a distinction between a credit card provider or issuer and a credit card network. Visa,
MasterCard and American Express are credit card networks. The only one of those three that is also an issuer of a
credit card is American Express and, yes, they are a federally regulated financial institution, therefore falling under
both our compliance and our enforcement function.
Senator Ringuette: None of them are mentioned in the 13 pages of your constitution.
Ms. Menke: Visa, MasterCard and Interac are not there right now.
Senator Ringuette: Yes, but the debit card code has been in force since —
Ms. Menke: We looked at it from the perspective of the issuers there. Our authority was limited at that time to the
issuers, which are the financial institutions, and not the operators.
Mr. Rossi: The debit card code is written in that specific way. The code talks to the issuers of credits cards and not to
the credit card networks.
Senator Ringuette: Are you telling me that you will look at this new code of conduct also from the perspective of the
Mr. Rossi: The issuers have always been captured under our legislation, so the Bank Act will apply to all federally
regulated issuers of credit cards. It clearly will not apply to provincial issuers of credit cards. Those federal institutions
have always been covered by the legislation, and they are covered by the debit card code of conduct, so we would monitor
them. Those are the issuers.
Senator Ringuette: The code of conduct talks about the stakeholders and the full gamut.
With regard to the small- and medium-sized businesses, it is not the Royal Bank and the National Bank, and it is not
directly Visa or MasterCard that signs an agreement with the small- and medium-sized retailers; it is the technology
provider, and they are not on your list.
Ms. Menke: They will not be, either, because the code, as it is worded right now, addresses itself to the network
operators, and it is an obligation of the network operators under the code to ensure that there is that ripple effect
downwards. That is what the code says.
Senator Ringuette: Oh boy.
Mr. Rossi: There needs to be a clarification. We are speaking about two different codes. The code I was speaking
about, that we have been monitoring for a number of years, is the debit card code of conduct. That code has existed for
several years, and it applies in the context of the issuers of credit cards and those who issue credit cards to consumers.
That is one side of the picture.
The second side is the new code of conduct that the Minister of Finance recently announced. That code will cover
the other side of the business and will deal with the network operators, which are the Visas, MasterCards and Interacs,
and it will deal with the acquirers, which are the ones who have the direct relationship with the merchants, and all the
relationships that flow down. That is what Ms. Menke is referring to.
On the one side, we have the legislative authority to monitor that code. What we do not have at the moment is the
ability to monitor formally the code that touches the merchant side of the business. We need the legislation that is
before you now to be able to carry that out in a formal way.
Senator Ringuette: It takes effect only on August 16. I still have so many concerns in regards to that code.
Mr. Rossi: The minister's expectation is that everyone will apply the code as of the dates that are set out within the
press release that the Department of Finance put out. Our ability to monitor that code, again, depends heavily on the
progress of the bill. Once that bill is passed, that will give the commissioner the full authority she needs to direct my
group to carry out the steps we need to take to implement all of our processes to do the monitoring we need to do.
Senator Ringuette: Can I go on, or can I go on the second round?
The Chair: I will put you on the second round.
Senator Neufeld: As a supplementary question to Senator Ringuette's question and your answer about debit card
code, how long has the debit card code been in effect?
Mr. Rossi: It has been a number of years. I can find the exact date for you, but 1995 is jumping into my head. It may be
later than that. I am not 100-per-cent sure. It has been around for a while.
Ms. Menke: It predates our office.
Senator Neufeld: That is okay. It does not have to be definitive to the year. That leads me to believe that
governments in the past thought that codes were okay, and that is what I am getting at.
Would you say that the debit card code has worked well?
Ms. Menke: I think it is fair to say it has worked for what it was intended to do. It has worked to that extent.
Mr. Rossi: Not only has it worked well, but the tools we have been provided allow us to work with financial
institutions to continue to improve their adherence to that code over time.
Senator Neufeld: Do you have an opinion on whether this code will be similar? It will probably work well, but it will
evolve over time. Maybe some changes will be made to make it better, similar to what took place with the debit card
Ms. Menke: I expect that to be the case. Whenever something new comes in, there are learning pains and growing
pains at the front end. As we learn about it, we become better at it. That is the normal course. If there are issues, they
will come to the fore. We will certainly inform the Minister of Finance if there are issues.
The Chair: Presumably that information will be in your annual mandated inquiry.
Ms. Menke: Or some special report.
The Chair: Exactly; that is why that reporting is built into the system; understood.
Senator Callbeck: Continuing on with these codes, there seems to be a lot of them. You report to the minister every
year, and I assume that is an annual report of your agency that is presented to Parliament.
Ms. Menke: We have a parliamentary report, and we have an annual report that goes to the minister only.
Senator Callbeck: In the report to Parliament, are all these codes listed separately with the number of complaints?
Ms. Menke: No, I do not believe they are. We do not list our regulations either, or each individual regulation. That
is an approach to reporting that we have taken. There are not all that many complaints on the codes.
Mr. Rossi: While the annual report is a public reporting mechanism that some consumers might read, we direct
many of our consumers to our website where all our consumer information is found. On that website, we have the full
list and all the links necessary for a consumer to see those codes, and not only the codes but also any public
commitments we oversee.
Senator Callbeck: I think you said two thirds of all complaints were related to the debit card. Can we have
information as to what numbers that two thirds represent?
Mr. Rossi: We can provide that information to you.
Senator Callbeck: Can I access that information on the Internet?
Mr. Rossi: We have a relatively high-level breakdown in our annual report of the types of complaints we receive, and
the nature of them, so that information is in our annual report. As our annual report is also on our website, yes, you
can find it there as well. If you want more detailed information, we can provide that to you separately.
Senator Callbeck: You said it was from 200 to 500 complaints a year under each code.
Mr. Rossi: The number goes up and down. That is an average, not under each code but in total.
Senator Callbeck: How many codes do we have?
Mr. Rossi: That is a good question. In terms of direct codes, we have maybe two or three that I can rattle off relatively
quickly. We see a majority of public commitments that the industry or a portion thereof enter into, for example, the no-liability commitment, or promise, as some call it. They make that commitment to consumers broadly. We monitor and
ensure their compliance with that commitment. There is balance between the two.
Senator Callbeck: I want to ask about consumer awareness. You talked about this finance course, 22 hours, geared to
young people, 15 to 18, which is a terrific idea. You mentioned institutions or schools that you are involved with in British
Columbia and Ontario. Did you approach them, or did they approach you?
Ms. Menke: We have been working hard in a variety of ways. There has been two-way traffic, as far as that course is
concerned. We have worked across the country to build awareness of the availability of the tools that we have. We
have worked specifically with departments of education and also with schools and school boards individually.
We have approached the work in two ways: as a top-down approach through the departments of education and
direct contacts with them, and, on the other hand, we have a number of what we call teacher champions. There is at
least one, often more than one, in each province who is helping with the bottom-up approach by going to professional
development days to make the tool known and to train the teachers in the use of the tool. Between the two, we have a
considerable number of people looking at the tool and using it in the classrooms.
Senator Callbeck: You said you had a teaching champion in each province.
Ms. Menke: We have at least one, often more.
Senator Callbeck: Do you have one in Prince Edward Island?
Ms. Menke: Absolutely.
Senator Mitchell: I do not know whether this subject falls directly into your purview, but clearly related to this issue
is whether fees will be lowered. Are you agnostic on that, or do you have some sense about what the process for
lowering fees might be? Do you have a sense that the strength of the banks is at stake with this issue and there is a fear
that to reduce fees ultimately might weaken banks and their revenues?
Ms. Menke: I assume you are talking about things like interchange fees. I have no jurisdiction whatsoever with
respect to those fees. Under the proposed legislation, we will have no jurisdiction with respect to fees in and of
themselves. I cannot do anything with respect to those fees.
Do I have any idea if they are going up or down? That subject has been mooted in the public, in the media, for some
period of time, of course, and frankly, I do not have any better information than anyone else, so there is a real concern
that they will be going up. That could indeed be the case. I assume that people who say that is the case may be right. I
do not know.
Senator Mitchell: There has been an underlying current that perhaps the next step will be to go down, but maybe
that is not the case.
To be clear, you said that each year your budget is approved by the Minister of Finance and then you raise money
from the banks.
Ms. Menke: The majority of the money is raised from the financial institutions, about 80 per cent to 85 per cent. I
receive $2 million a year directly from the Consolidated Revenue Fund, CRF, to fund the financial literacy efforts that
we take on.
Senator Mitchell: What is your total budget?
Ms. Menke: It is about $11.5 million dollars right now.
Senator Mitchell: Given that this bill could be passed and effected in August, and understanding you have said you
will not double things but you will need more money, when will you receive that money and how?
Ms. Menke: Normally, we send out assessments in the month of December, so we hope to know by then what our
expenditures will be for the year so we can assess them at that point in time.
Senator Mitchell: However, you will be working on this from August to December?
Ms. Menke: We are working on it now, really.
Senator Mitchell: This is very specific, but I am interested in the financial literacy work that you do. I think we all
are. It is excellent and essential. There was a woman's group called Womanspace Lethbridge, and that is what they did.
After years of being funded by the federal government, their funding has been cancelled. Are you aware of that group?
What can they do to get in touch with you? You said you work with schools, but would you work with a group like
Ms. Menke: We work with a variety of groups and often in partnership. The one thing that has always been difficult for
us and for many groups like that — because there are many community groups and we try to work with community
groups as well — is they are often looking for funding. I have no grant-giving authority, and therefore, while we can work
in partnership on certain things, I am not in a position to fund anyone else's activities, so that is the limit, and $11.5 million
would not go far anyway.
The Chair: Are you accustomed to dealing with minister's directives? Do those directives exist now? If so, why do we
need this proposed subsection 5.1 on page 552 that creates this new scheme of directives?
Ms. Menke: I have no experience with them. This provision is a new part of the legislation. I think it is common in
all the other pieces of legislation around the financial institutions. I believe it is in the OSFI legislation, and I believe it
is in the Canada Deposit Insurance Corporation legislation.
I am not sure how it will be used. I would be purely speculating, but under certain circumstances I could see it would
be a useful thing for a minister to say, could you please do some work in this area, for example some research work.
The Chair: To by-pass Parliament it would be useful.
Ms. Menke: Well, yes. It does not by-pass Parliament. I believe that at least the direction needs to be tabled in
Parliament; does it not?
The Chair: That is not the way I read it, but if you can help me find that section, I would appreciate it.
Ms. Menke: Maybe I am mistaken. I was under the impression it had to be tabled.
The Chair: There is a provision that says it will be published in the Canada Gazette
"as soon as is feasible after the direction is implemented."
Ms. Menke: Oh, after it is implemented: That is my mistake.
The Chair: After it is implemented is not looking at it beforehand.
Mr. Rossi: Our understanding is that this framework laid out for the FCAC in that particular instance builds on the
currently existing model for CDIC, so it is pulled out of the CDIC legislation.
The Chair: I can check that. It concerns Canada Deposit Insurance Corporation?
Mr. Rossi: Correct.
The Chair: It concerns parliamentarians when we see clauses like "The Statutory Instruments Act does not apply," and
therefore, this directive will not be a regulation that is normally subject to review by the Standing Joint Committee for the
Scrutiny of Regulations. We have a system set up to provide a check on the executive power, and this provision
circumvents that check. That is our concern. However, if you tell me this provision is common in your field, that gives me
some comfort, not a lot but some.
Mr. Rossi: Senator, my understanding is that the Department of Finance is the one who builds the legislation and is
responsible for setting up that provision. Our understanding was that they used a currently existing model. The
implication of that model, that kind of a question is better directed to them than us because we do not set that up
The Chair: However, that provision is not in our legislation now.
Mr. Rossi: No, that is a change that is being made.
The Chair: It is not a model you are accustomed to. This provision is new. Was there a consultation between you
and the draftspeople of this legislation in relation specifically to this new directive?
Ms. Menke: I believe it was mentioned. Would I call it a consultation; no. Our understanding that it was modelled
on the CDIC come from that discussion held beforehand, yes.
The Chair: We can check into that provision. Thank you for giving me that place to research.
We are now into round two of our discussions.
Senator Marshall: Back to your budget again, did you say your budget is $11.5 million, and your levies are $9.5
Ms. Menke: Right.
Senator Marshall: The money that is levied does not go back into the Consolidated Revenue Fund, does it? It goes
back to you and you are allowed to spend it?
Ms. Menke: It comes to us in payment for operations of the office. That is right.
Senator Marshall: What is your major expenditure, other than salaries?
Ms. Menke: Salary is the largest expenditure we have. On the education and financial literacy side, we have
contracts for development work of product, but apart from that, our major expenditure is salary and the related
expenses to salary.
The Chair: I do not recall having seen your agency in our Main Estimates. Is the funding tucked away?
Ms. Menke: That is because we are funded by the assessments, I believe. We do not show up in the Main Estimates
except for the $2 million.
The Chair: Which is for the educational side.
Ms. Menke: Which is for the financial literacy side.
The Chair: Were you given a float at the front end to start or did you work in deficit until you finally caught up with
Ms. Menke: In effect we work in deficit. We borrow from the CRF at the front end of every financial year until we
receive the money from our assessments, and we pay interest on that money.
The Chair: Thank you.
Thank you, Senator Marshall, for raising that issue. That is an interesting point.
Senator Ringuette: Very interesting.
Going back to the current codes, you said there is anything between 200 and 500 complaints a year. That is quite a
Mr. Rossi: It is probably towards the lower end of that range than the higher end. Without the numbers in front of
me, I am trying to give you a ballpark figure, but I can give you the specific numbers.
Senator Ringuette: I would appreciate that because my next question is how many complaints does it take to move
you to a second phase of gathering official documents for grounds against the code?
Mr. Rossi: It depends on the nature of the complaint.
Senator Ringuette: Let us take the 200, the low end. How many complaints would justify —
Ms. Menke: Senator, we really do not have those numbers, and rather than mislead you, I would rather give you the
actual numbers. Every year, we do some work on these complaints. How many, I cannot tell you right now, so we will give
you those numbers.
Senator Ringuette: It is something like 80 per cent of your mandate.
Ms. Menke: The commitment, no, is certainly not 80 per cent of our mandate. First and foremost, our mandate is
the supervision of the financial institutions, to ensure that they comply with the legislation. The major part of our
mandate is the education and financial literacy part.
We monitor the codes and those kinds of activities, but in between; between the supervisory work and the education
work, that part comes third.
Senator Ringuette: What do you do with those complaints?
Ms. Menke: We look at every one of them. On some, we go further and investigate them. Many times, the
complaints are about subjects that do not enter technically into the commitment, unfortunately, or the code.
Senator Ringuette: If a complaint goes all the way from your receiving the complaint, making the inquiries and the
last thing, which is a penalty —
Ms. Menke: There is never a penalty with the codes. The codes are voluntary; there is no penalty associated with
them. We report to the minister at that point in time. That is what we are asked to do and that is what we do.
Senator Ringuette: Exactly; how do you resolve those complaints if there is no penalty involved?
Ms. Menke: We do not resolve the complaints. Please understand that these codes are voluntary commitments.
People who volunteer to do something usually are happy to do it. Our experience, generally, is — and I do not think
with any exceptions — if we bring something to their attention, they fix it. It is in their own interest to do so because
they have committed to doing that. The financial institutions generally try to be good corporate citizens.
Mr. Rossi: That being said, I do not want to leave anybody at the table feeling that the consumer does not have any
route to deal with their individual complaints. The government has set up the FCAC to work directly with the financial
institutions to ensure compliance, but there is also an ombudsman system that exists. It is a third-party, independent
body, where consumers can take their complaints and have them resolved.
We do not deal with the individual complaints of consumers. We deal with the compliance within the marketplace.
The ombudsman for banking services and investments is the body that deals with the individual complaint of the
consumer. They have their process that they undergo. There is an internal process at the financial institution, and then
a third party that also will look at that issue in the context of an individual complaint for a consumer.
Senator Ringuette: Mr. Rossi, in regard to the issue of the ombudsman that you raised, are you talking about the
individual bank ombudsman — every bank has its own ombudsman? I know that some have them.
Mr. Rossi: That is a portion of it. The first portion is the handling of internal complaints, which, in many situations,
includes an internal ombudsman to the financial institution; but there is also the Ombudsman for Banking Services and
Investments. This organization is a third-party organization, independent of the industry. The consumer ultimately can
take that complaint to that third party to have it resolved.
Senator Ringuette: Who finances that institution?
Mr. Rossi: I believe it is the industry, through a similar type of scenario that exists for us. The funding is an
Senator Ringuette: We look forward to your next report. Thank you very much.
The Chair: I have had a chance to check CDIC and OSFI and we find similar provisions. However, for your own
future lobbying, you might want to consider that in both of those other models, there is a requirement by the minister
to consult with the entity before imposing any directives, and that requirement does not appear here. You might want
to be aware of that difference.
My final question is with respect to the consequential amendments. The Bank Act, the Cooperative Credit Associations
Act, the Insurance Companies Act and the Trust and Loan Companies Act are all being amended to provide that you can
become involved in the same supervision that presumably you have not been involved with in the past.
The part that intrigues me is at the end, and it flows from complaints and consumer protection. All the provisions
end with the fact that the commissioner, you, can take action if the terms and conditions undertaken were a consumer
provision. That is the guideline; you can take the same actions that you would take if it were a consumer provision.
What does that provision mean?
Ms. Menke: The compliance and enforcement regime under the FCAC legislation will take effect. That means we
have a series of potential compliance and enforcement actions we can take, culminating in the imposition of a fine.
The Chair: For each of these provisions, you can impose a fine?
Ms. Menke: To the extent they are a consumer provision, yes.
The Chair: You can treat any one of these provisions as if it were a consumer provision, is that right?
Ms. Menke: I believe what you are looking at are those provisions that take the existing legislation for those various
categories and have incorporated — is it the credit union?
The Chair: I am looking at page 554 of the act, clause 1858, where it says:
If the minister specifies that the Commissioner is to supervise a bank to determine if it is complying with any of
the terms and conditions that are imposed, or undertakings that are required, . . .
Then it goes on to say what you can do.
Ms. Menke: Can you give me that clause again?
The Chair: It is page 554, clause 1858 of this legislation, which amends section 973.01 of the Bank Act.
Ms. Menke: This is the undertaking provision; that is correct.
There is also another new provision, apart from the directions, with respect to undertakings, where the minister can
exact undertakings of a financial institution that comes under the federal regime — a new financial institution. As part
of the creation of that new financial institution — or coming into or whatever the situation may happen to be — the
minister has been given the power under the legislation to exact undertakings from these new financial institutions,
such as a new bank. With respect to the undertaking exacted by the minister, that is treated as though it were a
consumer provision and therefore brings into play all the compliance and enforcement powers that I have under the
Financial Consumer Agency of Canada Act. That is what that provision means.
This is an undertaking given by a financial institution to the minister, and I have the authority to enforce that
provision. That is what this provision is saying.
The Chair: In part, you are right — or undertakings that are required by the minister. The earlier part is complying
with terms and conditions that are imposed.
Ms. Menke: That is the same thing. There are terms and conditions that can be imposed or undertakings that are
given; it is the same thing.
The Chair: Then you have powers to enforce those undertakings, according to consumer privileges of your legislation.
Ms. Menke: Under the terms of the existing legislation, that is right.
The Chair: That is a roundabout way of arriving there, but I think I am beginning to understand.
Senator Callbeck: I asked about the financial literacy courses for youth. You said that you had a teaching champion
for every province. You mentioned there was one for Prince Edward Island. Does that person live in the province and
devote their full time to Prince Edward Island?
Ms. Menke: These people are full-time teachers in the school systems — all of them; and yes, they devote their
attentions within the province. They are full-time teachers, so what they are doing for us with respect to acting as a
teacher champion is a part-time activity; but yes, they are within the province.
Senator Callbeck: If they are full-time teachers, they do not have much time to devote to this literacy course.
Ms. Menke: A large part of what they are doing is teaching other teachers how to use the tool. That does not take up
a huge amount of time. Most frequently, they do that during professional development days, where there are
conferences for the teachers. That is then part of the continuing education that teachers take from time to time.
Senator Callbeck: This is above and beyond the regular teaching load?
Ms. Menke: This is above and beyond the regular teaching load, yes.
The Chair: Senator Ringuette has asked to raise an issue. Before I go to Senator Ringuette, do you wish that the
witnesses remain for your point?
Senator Ringuette: Yes, they can listen, because this is an important issue with regard to their future role, too.
I want to raise a point of order. We started our study of Bill C-9 over two weeks ago and we had all the different
government officials in front of us, including people from the Department of Finance. I specifically asked for the list of
financial institution issuers, networkers, et cetera, that had adhered to the voluntary code of conduct. The witness from the
Department of Finance said that she had that information at the office and she would send it to the clerk. I specifically
asked that the information be sent by email so that the members of this committee would have that information before we
have our public witnesses in front of us today.
At least five times in the last two weeks I have asked our clerk, who has been doing a super job, and he followed up
on our behalf to obtain that information. Unfortunately, however, two weeks have passed and the department has not
sent us the information. This information is critical to the issues we are studying this afternoon.
I think by not sending the list, the Department of Finance is obstructing this committee's work. I want that to be
noted and I want this particular point of order to be sent to the department officials so that they understand that when
they make a commitment to send us information that they have readily available at their offices, which we asked to be
sent by email to the clerk of our committee, that this commitment should be kept. Otherwise, it is almost contempt of
The Chair: Thank you, Senator Ringuette.
Does anyone else wish to comment on this particular matter?
I can comment briefly that typically we would have our clerk follow up with any undertakings that are given. We are
trying to move expeditiously with our hearings and the clerk has been working hard to try to put together panels so
that we can move ahead. We owe him thanks for that.
In addition, apparently the clerk has followed up. I do not know where he found the time, but we thank him for
that. However, we still have not received the information.
Can we ask the clerk to contact the department again and point out how important this information is?
Adam Thompson, Clerk of the Committee: Senators, so that you are aware of what follow-up there has been, I have
had regular communication with the department. The last communication I had from them, earlier today, was that the
information had been sent by post last week. I had asked for the information to be sent by email and we have run into
technical difficulties with attachments bouncing. We have been trying to work that out throughout the day.
Senator Ringuette: There is a messenger service between departments and our committee. Hopefully, we will have
that information by tonight.
The Chair: You are not privy, Ms. Menke, to this information that has been requested?
Ms. Menke: No; we are still waiting for some of that information ourselves. We are not privy to it.
The Chair: On behalf of the Standing Senate Committee on National Finance, we thank you very much for being
here and for helping us understand your roles, commissioner and Mr. Rossi.
Senator Murray: Mr. Chair, I know that we have scheduled a 15-minute break, but I have a point of order that I
want to raise. It has nothing to do with these witnesses. The reason I raise this point of order now is because I see that
we have witnesses coming for Part 9 at 3:15 and I do not want to impinge on their time.
I want to try to clear the air on the future business of this committee. Perhaps we should have come to a conclusion
when Senator Gerstein raised the issue the other day in camera. Today, there have been several references by
government senators to a supposed filibuster being conducted by the Liberal senators.
First, I want to say that what we have been doing in this committee over the last number of days on this bill is as
serious and as substantive an exercise as I think I have ever been involved in at the Senate, so I do not think we have
anything to apologize for in that respect.
I received a notice to come today to hear from the Canadian Council of Grocery Distributors, the Retail Council of
Canada and the Financial Consumer Agency of Canada. I did not put their names forward. I presume that someone
did, and that the steering committee sent out the invitations and then the witnesses came. Senator Runciman told us
that invitations had gone out far and wide, and these were the only witnesses who responded.
I am glad the witnesses came. I thought their evidence was helpful. I do not begrudge the two hours that we spent
with these two sets of witnesses, nor the two hours that we will spend with the next set of witnesses.
Now, this is strictly on the basis of the most informal kind of on-the-fly conversations that I have had with
government and opposition senators. I have been assuming, perhaps wrongly — and someone will tell me if it is
wrongly — that this week we would hear from the witnesses who are already scheduled for this week, and that next
week we would wind up the "outside witnesses" and hear from ministers, of whom there are three, maybe four, that
various members are seeking to have called. We would hear from the ministers and they would have the final word. We
would then have clause-by-clause study and report the bill by the end of next week.
That does not seem to me to be out of line. If someone thinks we can study this bill faster than that, especially
someone on the government side, I would like to hear from them. I want to know what witnesses that we are presently
contemplating should be cut off; or alternatively, because I think it is an option, I suppose we could agree to sit longer
My hunch or assumption was that we would proceed as I said. If it will settle things down in this committee, I will
support a motion to that effect; or if there is enough support, I will make the motion to that effect. We do not have
much time, but I would like to settle things down and try to clear the air on this point, if there is someone on either side
who feels they can help.
The Chair: Senator Murray, I think you have been operating on that assumption because I have indicated to you
and to others — and I said it in this committee — that is the program I have been working towards. It is difficult to line
up witnesses. We have a list of witnesses that have been exchanged between the parties. We are all working hard and
there are a lot of people working behind the scenes to try to line up witnesses. However, the plan that I had in mind was
that we could do sufficient, adequate and thorough work on this particular piece of legislation with the panels meeting
up to Wednesday or Thursday of next week, and then having the ministers appear. We are still working on that. The
ministers have been given notice, the four that have been mentioned in this legislation. We will then report back. We
will probably be in clause-by-clause review by next Thursday.
Senator Murray: Surely anyone who was interested in being heard has gotten in touch with us by now.
The Chair: Not necessarily.
Senator Murray: Chair, I do not think it would be out of line to close off the witness list. We can go through the
sections. I think we have heard enough from Atomic Energy of Canada Limited — apart from the minister, for whom I
have a few questions — to confirm me in my opposition to what is being proposed. I do not need to hear any more.
The environmental sections of the bill, I think we still need to hear from some witnesses. I do not know what else.
We have heard from outside witnesses on the excise tax measures and on a number of other parts. I do not think that
the way should be open for people who have not yet written in to express an interest to do so now. You must have
enough prospective witnesses on your list in the steering committee.
The Chair: All those on our prospective list will not necessarily be witnesses. Once they are interviewed, they might
have the same point of view as someone else.
Senator Murray: You know my view on that subject. I would rather spend more time with fewer witnesses than a
short time with a revolving door of witnesses.
The Chair: That is the way we have been operating. The clerk is working on that schedule that I have expressed to
you: Monday, Tuesday and Wednesday of this week, Monday, Tuesday, Wednesday of next week, and then Thursday
with the ministers. Then we will proceed to clause by clause consideration.
Senator Murray: I have not heard anything from the government side. I am not chairing the meeting, but I want to
settle this down so that we are not pointing fingers.
Senator Gerstein: Senator, I appreciate your comments. Frankly, I am not sure I am hearing anything different from
you than what I tried to express at our meeting last week. I am not sure that I understand the response from the chair,
if I may say most respectfully.
I believe my suggestion last week was to encourage leadership to come to a conclusion on this issue and that did
suggestion not go anywhere, chair, in trying to put some finite schedule in place, which I think I am hearing you say
today. I am hearing Senator Murray say that he is prepared to make a motion. If that is the case, I think he should.
The Chair: Along the lines that I have described?
Senator Gerstein: Along the lines that Senator Murray described.
Senator Murray: It is infinitely preferable to proceed by way of consensus.
The Chair: I agree.
Senator Murray: I am prepared to make a motion, but I want to hear whether the kind of schedule I have referred to
is acceptable, in which we hear outside witnesses into next week and ministers next week, and then complete clause-by-clause study next week, by July 8 or 9, or whatever that is.
Senator Callbeck: Are the four ministers lined up for next week?
The Chair: No.
Senator Callbeck: We do not have any commitment from any minister?
The Chair: No; we know that. We are working hard on that lining that up. It is not to suggest that we are not. Many
things are not lined up definitively. The first panel today was changed. You have to understand that this is a difficult
job for the clerk and people working behind the scenes to bring these things together. We cannot give you a definitive
list of who all the witnesses will be. We have exchanged tentative lists and we are working on that list, but we do know
the timeline. That is what we are working on.
Senator Gerstein: May I have a point of clarification on Senator Callbeck's question? Let me assure you from the
government's point view that we are making every effort to bring the ministers, who have been requested, before the
The Chair: Thank you for that.
Senator Callbeck: Do we have commitment from the four ministers that they will attend? I know the time frame is
not down and I know you are working hard, but their appearance is not scheduled. Do we have a commitment from
the four ministers that they will come to the committee?
The Chair: No.
Senator Mitchell: What happens if we pass a motion to have clause-by-clause review by a week from Thursday and
we have not heard from the ministers yet? I remember the statement, No ministers, no bill.
The Chair: That was Senator LeBreton's position; no minister, no bill.
Senator Mitchell: It is hard for us to make that kind of commitment.
The Chair: Senator Gerstein is working hard to try to bring the ministers.
Senator Gerstein: Mr. Chair, the government is working hard to deliver the ministers who have been requested. I
think the government senators here will be pleased to support the motion that Senator Murray has made.
Senator Murray: I have not made it, but I am writing it down in a way that will commit ministers.
The Chair: If we have consensus we do not need a motion, but if we do not have consensus then I will entertain a
motion. Is there a consensus on that time frame we discussed, provided the ministers appear?
Senator Moore: We need not only a commitment but that they show up.
The Chair: The only difference that we are hearing is that Senator Gerstein says he is making every effort to have the
four ministers appear that were indicated. If only three are available and the other one is away somewhere, do we sit
around for a month waiting for the other minister?
Senator Moore: It is his bill.
The Chair: It is the Minister of Finance's bill and he has already been here. It is not only his bill. These are other
ministers who have pieces of this bill that impact on their jurisdictions.
Senator Mitchell: As was said earlier in the day before you were here, the point was made by a couple of senators
that it is absolutely urgent, that this bill had to go through. We were accused of filibustering. Can you imagine that?
Senator Neufeld: Imagine that.
Senator Mitchell: If they cannot have their ministers appear, maybe the shoe is on the other foot and they are
filibustering. I have all the faith in the world in Senator Gerstein and I do not doubt for a moment that he is doing his
best. That does not mean he can deliver those people, so let us see if he can. If we arrive at next Thursday and we a
minister has not appeared, we need to wait. If we arrive at next Thursday and the ministers have appeared, then there is
a problem. Let them put their money where their mouth is and deliver.
Senator Gerstein: Mr. Chair, we understand the urgency of the matter.
The Chair: I have no doubt that you have been able to communicate that urgency. Things work a lot better if we can
work on consensus and we do not use terms that are provocative and intended to be so, like
"filibustering." It does not
do any good for anyone when we are all trying to cooperate.
Senator Gerstein: We are coming to consensus. It would be good to hear what we are coming on consensus on.
Perhaps we might impose on Senator Murray so we might hear what we are agreeing on.
Senator Murray: We do not need to have a motion, but what I have is that the committee hear from
witnesses — there must be a better word than that — and from ministers for the remainder of this week and into the
week of July 5. Then clause-by-clause study of the bill will be completed by July 8, which means that the bill will be
reported on July 8 or 9.
The Chair: The only issue raised here that is a variation of that schedule is, what if the ministers are not available?
That is the variation.
Senator Murray: It is not inconceivable, but if we had the motion, then the motion we passed would become a
nullity if we did not hear from the ministers.
Do you have a legal opinion on that matter, Senator Moore?
Senator Moore: I agree with you.
Senator Ringuette: The motion must include the ministers' appearances.
The Chair: Yes, it does.
Senator Murray: I do not have their names listed.
The Chair: The motion includes the ministers' appearances.
Senator Mitchell: I trust the consensus.
Senator Murray: Senator Gerstein will produce the ministers, I am sure.
Senator Neufeld: Senator Gerstein is working hard.
Senator Gerstein: I will have you repeat it one more time. I want to have the words.
Senator Murray: That the committee hear from "outside" witnesses. We know what that means.
The Chair: Non-government witnesses.
Senator Murray: Yes, thank you: That we hear from nongovernment witnesses and from ministers for the remainder
of this week and into the week beginning July 5; and that clause-by-clause study of the bill be completed by July 8.
Is July 8 right? Yes, that is Thursday.
Senator Gerstein: That is correct.
Senator Murray: That is what I have assumed now for the past 10 days.
The Chair: As have I. Your interpretation is that, if we do not hear from the ministers, then the motion is a nullity.
Senator Murray: If no ministers show up, we are into a new ball game. I hope everyone understands that.
The Chair: Will you feel more comfortable if we put this schedule in the form of a motion, or can you stick with me
and say we have a consensus?
Senator Gerstein: A consensus is fine if we have an understanding amongst us that things are satisfactory.
The Chair: Thank you. There is consensus on this point and, Senator Murray, thank you very much for your
Senator Neufeld: We have consensus regarding the ministers, right?
Senator Dickson: Four.
Senator Neufeld: Name them.
The Chair: We are working on that.
Senator Neufeld: For everyone here.
Senator Gerstein: We are getting them.
The Chair: We can talk about it in steering if it turns out that one of the ministers is not available and someone else
is. We want to have the ministers in for this study.
Senator Gerstein: The intent is clear.
The Chair: Does anyone want a break before we continue?
Senator Ringuette: I hope they are here for longer than half an hour. I do not want a hit-and-run minister coming in
front of us.
The Chair: Our plan was an hour a minister.
Senator Ringuette: At least.
The Chair: Do we need a short break or shall we carry on?
Senator Eggleton: No, let us carry on.
The Chair: Let us bring our new panel forward and I will introduce them.
We are dealing with Part 9, honourable senators. Page 502 deals with the Pension Benefits Standards Act, 1985. We
are pleased to welcome from the Common Front for Retirement Security, Dan Braniff, Founder. He is attended,
assisted and supported by Bernard Dussault, Technical Adviser. We also have Ross Gascho, a partner from one of the
leading law firms in Ontario, Fasken Martineau.
Mr. Braniff, do you have introductory remarks? Mr. Gascho, I will call on you after Mr. Braniff. If Mr. Dussault
has anything additional, he will follow.
Dan Braniff, Founder, Common Front for Retirement Security: Thank you very much for the invitation. The
Common Front for Retirement Security, CFRS, represents 21 organizations with a collective membership of two
million members across Canada. You have a list.
We are non-partisan, subscribing to peaceful advocacy by working within the system. Our success with pension
splitting demonstrated the potency of our strategy: to use reason, fairness and the power of the ballot.
We are pleased with the processes that led to the recent announcements. Minister Flaherty's proposal to enhance the
Canada Pension Plan is a progressive start for facilitating self-sufficiency for the next generation of retirees.
The major concern is that retirees will outlive their income. The worry is aggravated by shrinking savings, under-performing investments and insolvent pension funds. It is nice to know we are living longer, but we are fearful of
becoming wards of the state.
Transferring risk to pensioners is unfair and unwarranted. As an example, the $500 million settlement this month
with the Alaska pension litigation illustrates the tremendous pressure that is on actuaries these days.
There should be a moratorium on contribution holidays while current pension deficiencies prevail. I am referring to
a document I left with you from Leo Kolivakis. The 5-per-cent solvency margin proposed for contribution holiday is
recklessly insufficient. After taking lengthy contribution holidays, many sponsors have lapsed into systemic solvency
shortfalls throughout the private sector. After the pension solvency meltdown normalizes, the CFRS supports the 25-per-cent solvency recommended by the Canadian Institute of Actuaries.
However, employers and representatives of members and retirees should negotiate individual situations based on
risk. Consultations will add balance to Mr. Flaherty's similar workout scheme for distressed pensions. What is good
for the goose is good for the gander.
There is no logic for private sponsor plans having inferior pension security than that of the Canadian insurance
industry. We agree with Mr. Kolivakis that the whole private pension system should be reviewed with the possibility of
rolling it into the new public entities that we see in the shadows.
The Common Front agrees with Minister Flaherty to elevate the rank of pension funds in the events of sponsor
bankruptcy. Pension funds deserve a super priority over unsecured creditors.
Retirees should have sole discretion for withdrawal rates from registered retirement income funds, RRIFs. Current
RRIF rules are out of date and are excessively depleting savings. The annual mandatory minimum withdrawal serves
no purpose and inhibits intelligent management of personal savings. What point is served if retirees' savings are
depleted prematurely, triggering the Guaranteed Income Supplement, GIS, and social assistance, and transferring costs
to the next generation? The rate of the U.S., $401,000, the equivalent of our RRIF, is half the withdrawal of the
Canadian system and we live 3 per cent longer.
Also, RRIF withdrawals should not factor into the Old Age Security clawback. I think that issue has been brought
to your attention. Gordon Pape gave testimony to the Standing Senate Committee on Banking, Trade and Commerce
that RRIF savings withdrawals are not income.
Mr. Dussault is an expert for any questions you might have.
Ross Gascho, Partner, Fasken Martineau: Thank you for the introduction and the invitation to speak today. Fasken
Martineau is one of Canada's largest law firms, with approximately 650 lawyers in multiple provinces. We have offices
in Quebec City, Montreal, Ottawa, Toronto, Calgary and Vancouver, as well as an office in London, England, and
Paris, France. We are able to serve our clients in a variety of jurisdictions.
I have practiced exclusively in pensions and employee benefits for 20 years.
With respect to the amendments to the Pension Benefits Standards Act, 1985, I think the overall thrust of the bill
takes excellent steps in the right direction, both for plan sponsors and also for plan members. It enhances protections
for plan members in the form of immediate investing and requiring full funding of the plan in the event that it is
partially or fully wound up. From the employer side, the bill also provides for a somewhat more flexible funding
standard, in particular to deal with the investment returns and changes in interest rates that we have seen in the last
number of years.
Be that as it may, I say strongly to the committee that if and when this bill is passed, you should not consider your
work on pension and retirement savings to be done. In particular, the bill addresses the existing pension plans for
existing plan sponsors. It does nothing to increase pension plan coverage among employers and employees. Most
gravely, that problem appears in the private sector where in Canada, overall, private pension plan participation has
With respect to the bill, I will make a couple of points. The Pension Benefits Standards Act, 1985, is drafted with an
eye to defined benefit plans. In that regard, it is like other pension standards statutes in Canada. The amendments to
the act set out in Bill C-9 do not add meaningfully to how the act applies to defined contribution plans, which are
increasingly particular among both employers and employees.
While I realize that it is late in the legislative process to make changes of that nature, I commend to you that the next
time the bill is up for review, consideration be given to adding provisions specifically to address defined contribution plans,
such as the concept of an account balance, the role of the administrator in the transmittal of a member's investment
directions to the plan provider and consideration of certain default options that should be protected legislatively as they
are protected in the United States.
The bill also focuses on funding. In particular, it provides for plan sponsors to use letters of credit to secure certain
liabilities in certain circumstances; it requires full funding in the event that a plan is wound up; and it introduces a
distress plan workout scheme, DPWS.
As I believe the Minister of Finance said, the DPWS formalizes the process used in granting special regulations for
Air Canada in two situations, and also for Canadian Press. I note that other provinces have made special regulations
for troubled employers under their respective jurisdictions. For example, under its Pension Benefits Act, Ontario has
made regulations for the former Algoma Steel, the former Stelco Inc. and recently for General Motors. While I think it
is a helpful articulation of the expectations and the thresholds of an employer to be able to have some relief from the
current funding requirement, it may go a bit overboard, given that there was jurisdiction to provide the regulations for
Air Canada and Canadian Press previously. The time might have been better used elsewhere, but that horse has left the
barn. I leave it with you.
Finally, I point to the investment provisions of the Pension Benefits Standards Act, 1985, which are unamended by
Bill C-9. Currently, the act states that:
The administrator shall invest the assets of a pension fund in accordance with the regulations and in a manner
that a reasonable and prudent person would apply in respect of a portfolio of investments of a pension fund.
The concept of prudence is one of the foundation principles that underlie all of the PBSA. One of the curiosities that
arise in Bill C-9 is that although the government has stated it will remove the qualitative limits that apply largely to
pension fund investments, plan sponsors have sought vehemently the removal of the 30-per-cent rule. That rule
prohibits the administrator of a pension plan from investing monies that would be used to purchase more than 30 per
cent of the voting securities of a corporation. In practice, the 30-per-cent rule has been planned around. The most high
profile example was the proposal from the Ontario Teachers' Pension Plan to buy BCE. Other mechanisms can be used
to deal with it, so I commend to you that if we believe that the PBSA has a basis in prudence, which the language
supports, the 30-per-cent rule is no longer required.
The Chair: Mr. Gascho, does that 30-per-cent rule fall under the rule that requires an administrator to act as a
Mr. Gascho: The rule that requires the administrator to act as a trustee concerns the administration of the plan. This
rule is separate, and arises in the investment of the plan. The 30-per-cent rule is set out in Schedule 3 to the regulations.
The Chair: Does the fact that the administrator must act as a trustee apply with respect to the investment scheme
that the administrator might follow?
Mr. Gascho: Section 8(3) of the PBSA states that:
The administrator shall administer the pension plan and pension fund as a
trustee. . . ."
That is the administration of the fund. Section 8.(4.1) states that:
The administrator shall invest the assets of a pension fund in accordance with the regulations and in a manner
that a reasonable and prudent person would apply in respect of a portfolio of investments of a pension plan.
The Chair: Section 8(3) of the PBSA states that the administrator shall administer the pension plan and the pension
fund as a trustee for the employer. It says "for the employer" as opposed to
"for the employee."
Mr. Gascho: That does not necessarily remove them from the ambit of the 30-per-cent rule, which is a concern.
The Chair: Why was that particular amendment necessary? What are we trying to achieve by this amendment?
Mr. Gascho: That is an excellent question, but I have not sorted through what it is intended to do. Part 9 of Bill C-9
attempts to balance employer and employee interests. The change to section 8(3) is an attempt to clarify that it is acting
as trustee for the employer.
The Chair: That is helpful.
Senator Mitchell: What you are saying is indicative of our broadly based problem with changing demographics. I
draw the relationship between, and mention the issues that arise out of, the facts that about 30 per cent of people have
pensions and 70 per cent do not have pensions, and that all the suggestions you are making to enhance the security of
their pensions are wonderful. The suggestions are excellent but they do not address the fact that so many people will
have to retire on whatever they can save. People do not understand that $1 million invested today in Government of
Canada bonds to pay out a pension down the road would amount to about $35,000 per year, and it would not take
long to eat away the principal.
Is it only 30 per cent of Canadians that have pensions, understanding that not all of those 30 per cent have full
pensions because not all of them worked for 35 years before they retired. What percentage of that 30 per cent have
defined contribution plans, which is like a registered retirement savings plan? Are you aware of those figures?
Mr. Braniff: The CFRS supports the idea of a universal pension plan. One of the architects for our plan is sitting
beside me. Mr. Dussault was the chief actuary for the Canada Pension Plan so he is well qualified to answer that part
of the question.
We met with Senator LeBreton in early 2007 to propose this universal pension plan. We were ahead of the
meltdown. We sensed something coming. Your numbers reveal our dilemma. That does not mean that the rest of the
people do not have sufficient savings, but those savings are under attack, except perhaps for those who can withstand
Bernard Dussault, Technical Adviser, Common Front for Retirement Security: You are right that only 30 per cent of
Canadian workers are covered by a pension plan. However, two thirds of Canadian workers reach age 65 with some
coverage by a pension plan.
With respect to your second question about the level of security those people have, I can answer in the reverse by
saying that Statistics Canada says that 4 per cent of Canadian seniors live in poverty. However, I do not agree with that
number, because a little over 35 per cent of Canadian seniors have to rely on the GIS. To me, this reliance is a much
better indication of poverty. That is the best way to answer how well the pension landscape operates in Canada.
Senator Mitchell: If a pension fund loses money, are there provisions whereby people or sponsors can fill that hole?
If so, what are the prospects of allowing people with RRSPs to do the same thing? If someone had $100,000 in their
RRSP two years ago and today they have $60,000, can we provide for a means by which they can replace that out of
their own pockets, rather than having to start again now, with fewer years to go and less money to provide for their
Mr. Dussault: For a defined benefit plan, the employer makes the provisions. However, RRSPS are individual plans,
so if individuals lose money in their RRSPs, they cannot simply replenish the funds, because it is the person having the
Senator Mitchell: I suppose not many people will have the money to replace the losses anyway.
Another advantage that can be offered to RRSP retirees is paying tax on a RRIF payout but not having to count it
as income for assessing the GIS or the OAS, so they are better able to sustain their income.
Mr. Braniff: By definition, it is not income; it is a withdrawal of savings. The tax has been unpaid, so it has to be
paid, but that does not mean it should accumulate as a factor in calculating Old Age Security.
Senator Mitchell: Exactly.
Mr. Braniff: There are other elements. Today we probably need longevity insurance. I do not think that insurance
exists in Canada, although people can buy it in the United States. It is much cheaper than life insurance, but there is no
provision of that insurance. I know of no instrument for a person and a spouse who have an RRSP or a RRIF who
might be expected to live longer.
Senator Mitchell: That insurance is so they do not outlive their capital.
Mr. Braniff: Exactly.
Senator Ringuette: I am fortunate because I have the pleasure of sitting on the Standing Senate Committee on
National Finance looking at the provisions of this bill and on the Standing Senate Committee on Banking, Trade and
Commerce that is looking into the future pension situation. That committee heard the presentation of Gordon Pape,
which was welcome,
Mr. Braniff, in your presentation you indicated that there is a lack of consultation by Minister Flaherty with regard
to distress pensions. You also said that you agree with Minister Flaherty that the rank of pension funds should be
elevated in the event of sponsor bankruptcy.
I have Bill S-216 in the Senate to do exactly that, protect pension funds in case of bankruptcy. Contrary to what you
believe, the minister and the government have indicated that they do not support my bill at all. I am sorry to tell you
On the issue at hand, the departmental officials told us that 75 per cent of federally regulated corporations including
Crown corporations that have pension plans are in deficit. This proposed legislation gives employers who are
responsible for underfunding their pension plans the mandate and obligation to sit down with their employees and
negotiate a vacation from that portion of employer abdication of their current responsibility. It gives those employers
the full privileges of negotiating a new pension fund contribution deal, because they did not meet their portion of the
What do you think about that situation?
Mr. Braniff: I suspect it is even more than 70 per cent, because the data is not up to date.
As I said, there is tremendous pressure on actuaries and other administrators to reduce contributions. In 1999, I served
on a voluntary pension committee with a large company. At that time, the company had enjoyed 10 years of holidays from
contributions. They have not been solvent since. There is a culture; there is a mood.
Most of my time was spent on the corporate side, so I know somewhat of the thinking. One argument against having
an advanced ranking for pension funds in bankruptcy is that the credit rating will sink. The fact is that the credit rating
is already sinking if they have a deficit. If Dunn and Bradstreet are not evaluating that company based on the true
solvency of their books, I would be surprised, and as a retail investor, I look at that, because it is part of the net income
of the company. It is a liability they have.
I agree with you violently that there is no real protection and no balance in the system to give the employees and the
pensioners a say. Some companies do meet, and they do report to both their pensioners and their employees, and they
should be applauded. However, they do not reveal much because the books are kept somewhat separately. There is no
provision. The idea of providing a 5-per-cent margin before they can start a contribution holiday is a joke. One argument
is that there should not be any contribution holiday. If I had the power, I would put a moratorium on contribution
holidays immediately until this situation is worked out.
Senator Ringuette: We agree. Otherwise, at the end of the day — and I think that Mr. Dussault can attest to this
point — whatever is missing in contribution from an employer's point of view, whether it is a federally or provincially
incorporated entity, if the funds are not there, whether there is bankruptcy or not, the taxpayer will have to foot the
bills of these employers that have had a holiday for a long while in regard to the contribution to the pension plan. The
taxpayer will have to add to the Guaranteed Income Supplement, the Old Age Security and all that. Increasingly, we
see that our seniors, at the time of retiring, will be poorer and poorer.
I see in this bill, Bill C-9, the provision is only another means to remove secure pensions and funds from federally
regulated institutions. This bill also includes Crown corporations that have underfunded pensions — contributions
from the employers' standpoint.
It is one thing to say something publicly, but this bill does not match what the minister has been saying for a year
now to Canadians that there needs to be more secure pension funds. This bill deters from any kind of public statement
to that issue.
Senator Eggleton: Mr. Braniff, in your presentation you said the Common Front for Retirement Security agrees
with the minister. Senator Ringuette touched on this point as well that Mr. Flaherty will elevate the rank of pension
funds in the event of a sponsor bankruptcy, and that pension funds deserve super priority over unsecured creditors.
Can you tell me more about Mr. Flaherty's commitment here; what timeline you understand it might follow, and
does he agree with your position that it should be a super priority ranking in a bankruptcy proceeding?
Mr. Braniff: My source is not the press or from Mr. Flaherty. My source is from one of our organizations that have
been dealing with this issue on a crisis basis because they are close to it.
I use the words "super priority" because I think I know what they mean. When Confederation Life went down, I
was involved in the discussions and the proceedings before the bankruptcy courts, the liquidation courts, and there
were some super priorities, and at that time we were not.
As I understand it — and I wish Mr. Flaherty were here to confirm this understanding — the government is
prepared to provide a ranking equal to the unsecured creditor, which is more than they have now.
Senator Eggleton: What is below an unsecured creditor?
Mr. Braniff: It is around junk bonds.
Senator Eggleton: That is what the unsecured creditor is, but between unsecured creditor and super priority there is
also preferred and there is secured, but you are asking for super priority but with no indication as to whether Minister
Flaherty agrees with that ranking.
Mr. Braniff: However, we are patient. We have many members, we are active and we think we have to work on this one.
What is happening as a result of these discussions is more and more people are becoming aware. We are organized better
than we have ever been before. You have to think about it: Twenty-one organizations, two million people, support my
I do not think there is an equal power in this country. I do not think all the party members together equal those
numbers. These are the people who are pounding in the signs and working behind the scenes. We do not burn tires and
we do not cause right riots, but we carefully work our way through the system.
Senator Eggleton: There are many Nortel employees out there that would wish you to have that super priority fast.
Mr. Braniff: Exactly; and if you think about it, from a moral standpoint, I cannot even understand an argument
against giving a pensioner a priority in this instance.
I have heard arguments that this priority will harm the ability of the company that maybe is in trouble to raise
additional capital or whatever. My feeling is that these provisions exist in other places in the world and they do not seem to
cause a problem. I think if we make enough noise, this priority will go on the books anyway. In the case of Nortel, no one
will lend them money anyway.
Senator Eggleton: It is the employees I am concerned about.
Mr. Braniff: Yes.
The Chair: I have a concern about the effect on employees if there is a run on the security of a corporation, and that
effect creates all kinds of other problems, especially for larger corporations. What are your comments — any of you —
with respect to the right of the superintendent to replace an actuary or an administrator if the superintendent deems it
to be in the best interests of the employees to do so?
Will replacing an actuary create a lot of concern in the public's mind and investors' minds?
Mr. Braniff: I point to the action in the Alaska pension case. A well known actuary, one that has business in
Canada, and probably the largest actuary in Canada, has settled a case for half a billion dollars with admitting no guilt,
mind you, and my response to that case is some audits should be done. I do not know if it is within the OSFI mandate,
but I would want to audit a few of the companies that particular company has been consulting with.
Does this audit seem unreasonable? Do we just sit back? I realize this is new information. This court case came to
the press this month, but it has been going on since 2007. My response is that the cat is out of the bag. I think that
particular actuary will have real trouble keeping some of their clients.
The Chair: I would think so.
The change in wording at page 505 of this 900-page document is "it is in the best interests of the members or former
members." In the removal of administrator, if the administrator goes into bankruptcy, then this other
"it is in the best
interests" follows that. Here, there is no bankruptcy contemplated from the actuary point of view. Do we see that
happening, Mr. Gascho? Does that kind of thing happen on a regular basis, or is this a new power and we do not know
how it will be used?
Mr. Gascho: In my experience, it is something that we do not see happening on a regular basis. For example, in
Ontario, the Superintendent of Financial Services has the power to appoint a new actuary. I cannot think of a
particular instance in which that power has been used, with the exception of one highly unusual case in which some
directors and officers and the actuary were initially subject to a claim for the underfunding of the plan.
The Chair: The power exists in parallel provincial legislation, then.
Mr. Gascho: Yes, it does.
The Chair: It is helpful to know it is there, even though it is never used. It is there as a final resort, I guess, to be able to
Mr. Gascho: So it would seem. Given that the actuarial profession is subject to its own standards of conduct and rules
of practice, one hopes it is a power that does not have to be used often.
The Chair: That was my point earlier. Actuaries are part of a professional group, and self-regulated in the sense that
to be a member in good standing, their practices are monitored by themselves. However, it is here, and we are
contemplating putting it in the federal legislation.
The other point I ask you to comment on is the power to use the letters of credit. Is that power something that exists
in other legislation and we are only catching up federally, or is this step an innovative one?
Mr. Gascho: I believe that the 2006 Solvency Funding Relief Regulations were the first ones that allowed the use of a
letter of credit, but that use has expanded since into, I believe, British Columbia, Alberta and Quebec. Ontario is
expected to introduce later this year substantial changes to its funding regime for defined benefit plans. We will see
whether it is included in those changes as well.
The Chair: Thank you. That helps put the use of letters of credit into perspective.
Senator Marshall: To change direction, several witnesses talked about these proposed amendments, and there has
been a lot of discussion about future pension reforms. What is contemplated for the education of future pensioners? I
am always surprised when I speak with people that I have worked with that although they contribute to some sort of
pension arrangement, they are not aware of what their plan is or what their future benefits will be. Is that situation
common? How do you educate people about becoming aware of what their future benefits will be and what they need
in the future?
Mr. Braniff: You touched on an important point. Most pensioners do not understand the limits of their pension
security. They do not, for instance, understand that their pension security is almost entirely dependent on the health of
the business. That would be a shock. Most of them think their pension is guaranteed. The recent Nortel issue has raised
the level of understanding. That is an education by itself.
I am in my eightieth year. When I speak to my peers, they do not want to hear this information. It scares them to
death. Some of you will have to look at your grandparents to think about this, but this is a shock that has aftershocks.
It affects the relationships in the family. They do not want to talk about it. I am aware of people who, if this issue
comes up on their television, they will turn it off. I do not think education or financial instruction of any sort will do
much, for that age group, at least. The worst thing that can happen is to think that educating these people will protect
them. It will only make them worry more.
I am a volunteer, by the way, and I look to you as the people that have the resources to do something. We need to
have regulation. I am a capitalist. By the way, most pensioners, whether they acknowledge it or not, are capitalists,
because their pension is dependent on the equities of this country, and others. The day has come when we have to put
in place some protection. Maybe it is only temporary until we have a better day.
I retired in 1985. I was general manager of Toronto when you were mayor of Toronto, Senator Eggleton. There is a
different culture today. It is an entirely different culture. I can remember when it was the duty of a manager to go out
and visit a pensioner once or twice a year to ensure that they had adequate resources and that they were able to take
care of themselves, or someone was looking after them. We went in, through our benefit system, and increased
pensions. Can you imagine that happening today? No, it is a different age.
We need to have rules, because the culture will not catch up fast enough. There is a
"me first" culture out there in the
boardrooms and in the executive offices that is 180 degrees off what it used to be.
Senator Marshall: I agree with your comment about culture. As you were speaking, I was thinking that, perhaps, it
was cultural, but it is a big issue. I have spoken to people who think that they will be entitled to certain benefits when
they retire. In fact, they will not be entitled to those benefits. That is aside from the fact that pension plans run into
trouble because of a financial crisis or whatever. A whole host of issues out there impact what a pensioner is entitled to,
but it seems that many people are not knowledgeable about the issues that will affect what they have to live on when
Mr. Braniff: It will take decades to change that situation. We are in favour of some form of universal pension. The
one that we prefer, that looks simple and that we should use as a model until we see a better one, is the enhancement of
CPP. Mr. Dussault is the architect of that plan, if you need information. When you have that plan, I suggest you take a
hard look at moving all the private pension defined benefit plans into that plan. Migrate it, with the permission of the
stakeholders. It will not cost the government anything. In fact, it will ensure that they have protection into the future.
Senator Marshall: Even a public plan can run into trouble. I am from Newfoundland and Labrador. The
government pension plan is the Public Service Pension Plan. That plan had a huge unfunded liability for many years.
The government had to come up with the money to fund this unfunded liability. We then hit the financial crisis, and
the holdings of the pension plans, the values, plummeted. Even a publicly funded plan is not the be-all and end-all.
Mr. Braniff: The CPP is a world class model. It is the one thing that we have done right. When I say we applauded,
we said it with tight lips, because we saw it as a complete reversal when Mr. Flaherty said he would do this. We hear in
the press that the Prime Minister intervened. That is not enough, but it is a step in the right direction. Hopefully, it will
We have been crying out for a pension summit. We got the tour, and we got investigations. I have been before at
least a dozen committees, three times before the Standing Senate Committee on National Finance and twice before the
Status of Women Canada, with this same message: We have to do something. We have to take the issue to a summit
and give it the kind of focus that the riot created in Toronto, for instance. It is hard to move the issue forward. You
described correctly the senior pensioners who are complacent or maybe worried to death. If they know what is going
on, they are worried to death.
Senator Marshall: They are probably better off not knowing; at least, that is what they think.
Senator Neufeld: Thank you, gentlemen, for being here; I appreciate it. This subject is an interesting one.
You said, Mr. Braniff, that we should take all the private plans and roll them into CPP.
Mr. Braniff: Yes, or something similar.
Senator Neufeld: Can you tell me how you would define the benefit that each one of these people would receive? That
may sound good to all those people out there but some people have better pensions than others. You are saying that all of
a sudden, we put everything into a melting pot and everyone receives the same.
Mr. Braniff: No, they would not receive the same.
Senator Neufeld: You need to explain that more.
Senator Moore: No, he did not say that.
Mr. Braniff: By the way, if you lock these two gentlemen, and maybe a couple more, in a room and do not let them
out until there is a solution, I bet you will have your answer.
The Chair: That is what Brian Mulroney used to do.
Mr. Braniff: What I propose is like what Jean Charest proposed for Nortel. I do not know where this proposal has
gone, but he provided that the Quebec government would take over Nortel's plan over and hold it for five years. Is that
Mr. Dussault: I do not remember the period.
Mr. Braniff: I think it was five years, and they would operate it in whatever condition. Eventually, they would move
it into the umbrella of investment of the plan. They would have to do some sorting out.
I am not making a proposition that they would make the pension whole but they would at least keep it from
collapsing and would probably be able to successfully implement — CPP looks like it is successful — the kind of
investments at the efficient cost that they alone can invest at because of their size, their experience and the way they are
No, I do not think it will be easy, but what is?
Senator Neufeld: Perhaps I can take that point further. You mentioned the last proposal of Minister Flaherty about
increasing the contributions to CPP. I am not an actuary so I am asking you these questions.
Mr. Braniff: Mr. Dussault is the actuary, by the way.
Senator Neufeld: Will the plan fund the retirees that will hit that magic age 65 or whatever the day is for the 30 year-olds?
Mr. Braniff: No, it will not do a thing for them. It will take 30 years to 40 years before that plan will kick in. We
should have been talking about this plan 20 years ago.
Senator Neufeld: Shoulda, coulda, woulda.
Mr. Braniff: It tells you a bit about your constituency when the people in the 21 organizations I represent will not
gain a dime in this plan. However, they feel compelled to speak out and say, we need to do something; it was not done
for us and we are in this pickle; the least we can do is put forward the idea that this is the way to go.
I think we can lead the world on this issue. I detect that many corporate people will be glad to move their pension
into a super-plan. They might be enticed to pay some of the cost of moving those pensions because it would take them
off the hook. This plan is not simple, but it is worth looking into.
Senator Neufeld: Has this been done anywhere else?
Mr. Dussault: Some claim that the only country in the world that will have a similarly fully expended CPP is in the
Netherlands. I hear that is not really the case. Ninety-six per cent of employers have a defined benefit pension plan there. A
lot of people thought it was mandatory, but it is not really mandatory because they have the leisure of converting those
defined benefit plans into a defined contribution plan. They are covered in the Netherlands, but I do not know for how
long. If they convert to a defined contribution plan, it could change the quality of the pension coverage there for the
immediate and long term.
The Chair: Mr. Gascho, before you get away on us, we did not talk a lot about the distressed pension plan workout
scheme, which is a big part of this legislation. It is reflective of what took place in dealing with Air Canada and the
Canadian Press that you mentioned earlier. Have you had a chance to study this scheme? Is this scheme reflective of a
plan anywhere in existence in any other legislation?
Mr. Gascho: I had an opportunity to study these provisions. I cannot speak to whether there is other legislation that
has something similar. I am not aware of any other Canadian jurisdiction that has anything like this plan.
That being the case, the way the distress plan workout schemes were spoken of earlier suggested that this was a
simple opt-in for an employer to walk away from its pension liabilities, and that is not the case at all.
The scheme requires that the board of directors, or the applicable minister in the case of a Crown corporation, make
a declaration that they are opting in, which triggers an entire process of going to court for court-appointed
representatives for members and retirees.
Whatever comes out of that negotiation process is subject to two important criteria. The first is that at least two
thirds of the members and at least two thirds of the retirees agree — separate classes, so we need to have that. We also
need the approvals of the Minister of Finance and the Superintendent of Financial Institutions. This mechanism is not
a mechanism for an employer to dump its defined benefit liabilities on the plan members or anyone else. I believe it is
intended to allow an employer that faces a highly distressed situation that involves their pension plan — and there are
mature employers that, if their valuation rate changes by a small amount or, as we have seen recently, long bond rates
and therefore valuation rates collapse, they sudden face large liabilities. Whether they are the government or a private
sector employer, they cannot simply say, we will go to the back room and obtain cash to fund the pension plan. They
have to obtain the cash over time.
The scheme is intended to allow for there to be a stop-gap mechanism, an opt-out from the funding provisions that
otherwise apply in the event of an extreme distress situation.
The Chair: Are there any questions that flow from that response?
Seeing none, on behalf of the Standing Senate Committee on National Finance, Mr. Dussault, Mr. Braniff and Mr.
Gascho, thank you very much for being here and helping us through this somewhat technical part of the bill. You have
explained it nicely to us.
Honourable senators, I am pleased to welcome, as an individual, Paul McCrossan; and representing Air Canada
Council of Unions, Captain Craig Blandford, Chair, Pilots Pension Committee and Leslie Dias, President, Canadian
Auto Workers, Local 2002. Mr. McCrossan, please proceed.
Paul McCrossan, as an individual: Thank you. I was invited Friday afternoon and prepared notes on Saturday,
which I gather were received by the committee clerk this morning but have not been distributed. The notes are seven
pages, and I understand you want a shorter introduction than that, so I will skip big chunks of it. In particular, I will
skip my background, although part of that background will come out.
In respect of the Pension Benefits Standards Act, 1985, I am critical of the act as it stands now and of the proposed
amendments. I think I can claim to have a better understanding of this bill than almost anyone else because I was
responsible for taking it through the cabinet budget committee, and the bill, in large part, was written in my office with
the New Democratic Party and Liberal critics present, as well as the officials. I want to point out that the circumstances
under which the bill was conceived have changed substantially, to the point where the bill does not work. I believe that
the amendments, while they appear to work superficially, can conceivably make things worse.
Let me outline. The amendments to the bill are to the solvency valuation provision. The solvency valuation
provision was conceived by a public servant named Mic Cohen, and something that I advocated through the budget
committee. The provision was designed to be the exception. It was designed to be triggered once in five years, once in
10 years, almost never triggered, and it was designed to curb certain types of abuses in union-negotiated plans.
Following the first and second Asian crises of 1996 and 1998 and, in particular, following the dot.com bubble
bursting, more and more plans have been reporting on the solvency valuation basis. This basis was designed to be a
short-term alert rather than a long-term solution to having healthy pension plans.
Reference was made by the previous witness to the Dutch pension reform, which took place in 1997 or 1998, around the
time of the second Asian crisis. The Dutch recognized that their previous pension legislation did not work, and they set
about changing it to provide a high degree of security to pension plan members. The degree of security that they sought
was of the same order as a depositor to a bank or a customer of an insurance company; that is, around 99-per-cent
certainty of receiving the benefits.
Following the 2000 dot.com crash, problems arose in Canada and, in particular, the United Kingdom, so much so
that the United Kingdom decided to completely revamp its pension legislation to deal with the crisis.
I was asked by the U.K. treasury to be an adviser to the chair of the commission. One of the things I sent out by
email today was the conclusions that were reached in the U.K. which, by and large, deal with the same problems that
face Bill C-9 today. You will see that the conclusions are very different from those presented in Bill C-9.
By 1994, when I was at the annual meeting of the International Association of Insurance Supervisors, I received a
message from then OSFI superintendent Nick Le Pan while I was in Stockholm, asking me to come to his office the
following day, which was a little difficult in that I was in Stockholm. In effect, the message said, I think there is a crisis
coming in pensions and we need to consider how we might change pension regulation and what the threats are.
As a result of that message, I gave two half-day seminars to his senior officials. I do not have these notes available
electronically. When I retired a couple of years ago, I lost access to my company email, but I did bring my hard-copy
summaries of the discussions with the OSFI officials to be handed out at this meeting for your consideration later on.
One point OFSI was concerned with was the fact that, although the Bank Act, the Insurance Act and the Pension
Benefits Standards Act, 1985 all date from the 1985 review of financial intermediaries, the PBSA was passed first. By
the time we came to the Bank Act and the Insurance Companies Act, we recognized that things were changing fast
enough that we made each of the acts subject to a five-year sunset provision. That means that in 1986, 1991, 1996 and
so on, every five years, the Bank Act and the Insurance Act have been updated. However, there is no such provision in
the PBSA, 1985.
You will see in the notes of the seminars that I gave the comment from the officials that without a sunset
requirement, without a requirement to bring the PBSA, 1985 back before the house, there was no legislative window
automatically open for it, so OFSI were keeping track of the problems, but they were not in a position to take action to
deal with the problems that were rapidly emerging.
In May 2006, the International Monetary Fund determined that there was a significant probability of a global credit
recession, and this determination was a little more than two years before it happened. I was part of the team with the
IMF who scoped out what could happen, and designed the plans for testing out the resiliency of various countries. In
particular, the first country to put all its financial institutions to the test was Switzerland, and that was reviewed in the
fall of 2006. The second country was Canada, and that was I think in February of 2007.
These reviews are under something that is called a financial sector assessment program, FSAP, and you probably
heard the Finance Minister and the Prime Minister refer to the fact that Canada was one of the first countries to
submit itself to this international peer review by the IMF.
I went on the Internet yesterday to find what has been published about Canada's IMF review, the FSAP review. It
surprised me. The FSAP reports indicate where financial institutions are in serious difficulty, the size of them, what
sector they are in and what steps need to be taken. Those reports are shared with the country and the IMF directors,
and are not made public for a year. When they are made public after a year, they are highly edited, because obviously,
if there was a report out there that said the Bank of Montreal is likely to fail in a global credit recession, it could have
In my opening statement today, I quoted sections of the February 2007 review of Canada's pension system.
Interestingly, the main recommendation of the IMF is that OSFI and the provinces should ensure that the regulatory
framework for pension funds focuses increasingly on the adequacy of risk management practices and resources in
addition to the traditional solvency approach. The traditional solvency approach is what this bill is all about.
Similarly, in the recommendations, the IMF concludes that poor risk management and large losses by pension funds
can lead to political pressure for bailouts. The regulatory framework needed to prevent that pressure is a risk-based
analysis system. What is in Bill C-9, as it deals with the PBSA,1985, reflects a political pressure to have a bailout. My point
is that it is now nearly three and a half years since the government received notice of the defects in the PBSA, 1985. Yet the
published IMF report contains not a single word of pension analysis other than the opening comment, the opening
paragraph and the final three paragraphs.
My conclusion, having worked on these things — I was involved in writing one — is that the government requested
that all the material in the IMF report concerning pensions be redacted. Now, that is a suspicion only. What I do
know, having participated in the IMF reviews, is that it does not make recommendations without doing work. These
recommendations are strong recommendations. They are recommendations that Canada faces a significant likelihood
of having material losses in pension funds under its existing regulatory regime, and yet, if you look at the report, there
is not a single bit of analysis of why the IMF came up with those conclusions in the report.
I know from working for the IMF that there are extensive negotiations between the government and the IMF as to
what the contents of the published investigation will be and the contents of what results will take.
I suggest that you use your powers as a committee to obtain this correspondence. It seems to me that you cannot
conceivably, intelligently think about amending the PBSA, 1985 without looking at the detailed analysis of the IMF on
the flaws of the PBSA,1985 if there were a global credit recession.
The government was happy to publish the sections of the IMF report about bank solidity. We come out as excellent.
As has been described publicly, we meet the gold standard. Similarly, the sections on the securities commission and the
need to look at amalgamating provincial and federal securities commissions were — are published in full. However,
somehow there are recommendations about a problem in the pension system that appear based on no work, and I do
not believe that happened. I know that committees have powers to summon documents, and I have outlined in my
opening statement what documents should be summoned.
I do not want to take up too much time from the Air Canada representatives. Let me say that the PBSA, 1985 has
compliance powers in it and they are powers that the superintendent can use to force a pension fund to take certain
actions. To my knowledge, the first application of the compliance power order was in the Air Canada situation where
they were using, as I have heard, a 1999 valuation showing a big surplus to continue to take contribution holidays into
2001. I do not want to become involved in a libel or slander suit here, but in effect, that is the equivalent of using the
pensioners' money to pay the operating costs of the company. That is the logical way I see it. As soon as then
Superintendent Nick Le Pan issued that compliance order, it led quickly to the declaration for solvency protection by
Air Canada who recognized they could not meet the payments.
Now, solvency orders or compliance orders are not really public, but I suggest that you cannot see how the act is
functioning without knowing which compliance orders have been used and which have not and which plans have
gotten into trouble and which have not.
I noted in my introductory remarks that you may need to have this evidence in camera. If the superintendent has
ordered certain companies who were perceived as behaving poorly to change their tack, part of the moral suasion
behind the superintendent's actions are, do the right thing and the committee process should not tar your name.
Nevertheless, in these amendments to Bill C-9, are parts — only parts — of the items that are in the Bank Act and the
Insurance Act with respect to the superintendent. I have suggested a list of things that I think you should ask for from the
superintendent, to see how fast the crisis has emerged and how fast it is continuing.
If my co-witnesses will permit me one more comment, I think the concept of letters of credit needs to be either better
defined or completely rethought. I have worked in jurisdictions that have allowed letters of credit. What happens is
that banks are good at assessing when their clients are in trouble. Before the company can reach the stage of
insolvency, the banks hoist the letter of credit. The seeming security from a letter of credit may be completely illusory,
unless the letter of credit ranks with the senior creditors.
I understand from the previous set of witnesses that may not be what the minister is thinking. My point is I have
seen letters of credit used and I have seen them disappear in a flash, so that they are of no value when a firm gets into
trouble where it cannot fund its pension plans. Letters of credit sound good, but in practice, other jurisdictions suggest
that they do not work.
I have taken more time than the Air Canada Council of Unions should expect and I am happy to turn it over to
them and answer any questions.
Captain Craig Blandford, Chair, Pilots Pension Committee, Air Canada Council of Unions: First, I ask that you
forgive my inexperience in such a prestigious forum, and forgive my nervousness if it surfaces as I take advantage of
this opportunity you have given me today.
I also emailed late last evening speaking notes that I put together, and I will use a power point presentation as a way
to proceed with my briefing today to you.
We heard from Mr. Braniff, representing retirees, a few moments ago and had a quick legislation history from Mr.
McCrossan. Hopefully, Ms. Dias and I can give you the perspective of members of an active employees plan on some
of the proposed changes.
I was born and raised in Springdale, Newfoundland. I joined Air Canada in 1998 after graduating from the Royal
Military College of Canada and serving nearly 20 years in Canada's air force. I have been a member of the Air Canada
pilots pension committee for seven years, and of those seven, I have chaired it for five years.
I have endured one bankruptcy protection in Companies' Creditors Arrangement Act, CCAA, for Air Canada and the
creation of two pension special funding regimes during that time. For a young, inexperienced pension person, I have
experienced a lot.
Pilots' pensions have assets of nearly $3 billion. We have liabilities of about $3.8 billion. Air Canada's 10 registered
pension plans — federally regulated pension plans — have assets of about $10 billion right now, with liabilities of
about $12 billion. We are underfunded by about $2 billion currently. Pilots' pensions account for little more than 27
per cent of that total.
Air Canada employees' pensions are different. They are different from the recent auto sector bailouts and the U.S.
airline failures of recent history. They are different in that Air Canada employees pay a significant amount of their salary,
thousands of dollars, into their own pension plans. We sacrifice quality-of-life improvements and contractual gains to
maintain those pension plans. That makes us significantly different from my U.S. airline friends, who have a look of awe
when they find out I am taking some of my salary and putting it into my pension fund.
I know your time is valuable, so I will comment briefly on the Part 9 amendments that we feel are major
amendments. In general, our review sees the changes as mostly positive; we are heading in the right direction at least to
amend the old PBSA, 1985. We see most of them as positive changes, but I think the regulation details will need to be
We understand the need to provide relief to plan sponsors and employers in a time of financial stress. We
understand that requirement. There is one thing we know; a secure and profitable company is the best security for our
pension plans. Otherwise, pensions must be properly funded and that is the solvency test.
On the letters of credit amendment, we all know that a letter of credit is not cash; therefore, use of letters of credit
will introduce an additional risk into the pension plan. We suggest that any regulations or limitations that are
implemented for the use of letters of credit be included in the Pension Benefits Standards Act, as opposed to the
regulations that will be created subsequent to the amendment.
We believe that if a letter of credit is used, it must be backed by a secure issuer, such as a federally regulated
insurance company or one of the federally regulated banks. It must be backed by an entity such as that. We also believe
they should limit the amount of solvency that the letter of credit pertains to — say in the order of 5 per cent of any
We agree it should be used in the short term. The use of a letter of credit to cover any solvency deficiency is a short-term use for a short-term problem for an employer.
Of course, who would call on the letter of credit if the plan needed to have that money deposited to the pension
plan? We believe there is a conflict of interest between the plan sponsor, the administrator and the employer. Often,
they are the same entity. The business arm will say no, we do not want to use the letter of credit, and the pension arm
will say it is time because we are at 71 per cent of solvency and we should deposit that letter of credit. We believe you
should consider creating regulations or rules that will prevent or eliminate that conflict of interest in such a use of a
letter of credit.
We see that any outstanding amount of solvency deficiency not covered by the letter of credit will be considered a
deemed trust. That is good; but in the event of insolvency or bankruptcy, we want to ensure that the definition of
trust" meets the "expressed trust" definition in the Bankruptcy and Insolvency Act so that it will provide some security in
the event of bankruptcy as well.
The terminal funding amendment clarifies that an employer must now fund a plan on termination. I believe the federal
jurisdiction and Saskatchewan were the only two jurisdictions that did not have that provision as part of their regulations,
and that amendment clarifies the situation at this point. Unfortunately, any deficit that exists in insolvency is not
considered a deemed trust, even though it is required to be funded. Therefore, that deficit becomes an unsecured debt.
I want to be able to say in the event of a bankruptcy or insolvency, you cannot squeeze blood from a stone.
However, we do not even receive the stones to fight over, as unsecured creditors. The secured creditors receive the
stones and try to squeeze the blood; we do not even receive any of the stones to fight over in the event of terminal
Again, we want the government to consider amending the Bankruptcy and Insolvency Act to place pension deficit in
some sequence or order in the list of secured creditors. We understand it can be difficult for a company to gain lending
if pensions come above new lenders or financiers. However, there must be some sequence or place to secure pensioners
in that order in the Bankruptcy and Insolvency Act.
In relation to the distress pension plans amendment, Air Canada employees are all too familiar with these plans.
They mirror the experience we have recently been through twice.
Our concern is the trigger. I heard reference to it earlier. Right now it appears that the trigger is simply the employer
saying we do not anticipate being able to make the payment. Therefore, let us go with the new scheme.
Of course, we must place limits on employers who want to take this avenue to help them out of a stressful situation. As I
said earlier, we understand the requirement for companies at times. We have done it. We helped our company when it was
in a stressful situation.
However, you should also require extensive financial disclosure to pension plan members or some neutral party in
the event that this path is used. Possibly that party can be somebody in the Ministry of Finance or somebody they
appoint to provide checks and balances. We want to ensure this provision is not used to avoid the normal funding rules
that are in place, and which honourable senators may choose to change.
Of course, negotiations are a part of this situation as well. The employees and the employers sit down and negotiate
new funding rules and ways around the existing regulations. In our case, we hope that the bargaining representatives, if
there are bargaining agents, like the Canadian Auto Workers, CAW, and the Air Canada Pilots Association, ACPA,
are able to speak on behalf of the representatives and their members during that negotiation process, as we have
negotiated the contracts that go along with that process.
We hope you consider mediators. The use of a mediator ad hoc at the end of a process is not fruitful or productive.
We hope you can include guidelines, restrictions, powers and qualifications for a mediator in any regulations that go
along with a negotiated change to funding requirements.
We find there are insufficient conditions and controls placed on this kind of new funding or temporary funding
agreements. Air Canada becoming ACE Aviation is a good example. Leaving bankruptcy protection and CCAA in
2004, ACE Aviation removed more than $2 billion from the pre-CCAA entity that was Air Canada while, at the same
time, had special funding requirements below the standards of the PBSA, 1985 for pensions.
If we fast-forward to 2009, last year, when Ms. Dias and I were involved in that negotiation process, we were
underfunded by $2.3 billion. During that time frame, we watched a lot of value stripped from 75 years of Canadians
working to develop that company. Most of that money was not even in Canada anymore. It was taken out of the
Those types of conditions should be placed on that kind of negotiated scheme. Even subsequent to last year's 2009
negotiated process, we negotiated a portion of Air Canada's shares in our pension plan in exchange for our agreement
to new funding. Immediately after that negotiation occurred, Air Canada issued large blocks of shares and diluted the
value of our shares. At the last board meeting, they approved a generous executive compensation package. We are not
against our executives being paid for the work they do. We love our airline — do not misunderstand me — but those
conditions are at a time when the company is not paying anything this year into our pension plan, and at the end of
2014 our pension plans are expected to be underfunded when we exit this protocol.
That situation should be considered as well. Can we have the pension plans closer to being fully funded?
We want to stop the transfer of wealth from the pensioners and employees to shareholders and executives under a
Pilots' pension plans are always underfunded in the neighbourhood of 30 per cent to 40 per cent. This underfunding
is because of the restrictions placed on registered pension plans by the Income Tax Act. There is a limit to how much
they can be paid and protected by a registered pension plan.
We believe we are being responsible employees in trying to plan for our futures. We are shooting for pensions of 60
per cent to 70 per cent of our income at retirement. We believe this planning is responsible. None of us should need
Canada Pension Plan or Old Age Security. We do not think we will need to use those kinds of social vehicles. However,
we cannot secure those kinds of pensions that reflect the incomes that we earn because of the restrictions in the Income
For large employee groups — not one or two executives in an ivory tower, we have 3500 employees — we should be
permitted to apply for special regulations and a special pension plan so we can fund, out of our money, along with the
company, the pensions that reflect our salaries.
In summary, Air Canada employee pensions are different. We contribute a large portion of our salary regularly. We
pay, we choose to defer our wages and sacrifice in other areas.
Employers cannot be permitted to treat pensions as a source of wealth for their shareholders and executive officers
under any kind of special funding protocol. We believe we are responsible employees planning for our future, and paying
those costs as we go.
Our pensions will have to support us for more than a quarter of our lives after we retire.
As I said at the beginning, I started my career in the air force. I have 20 years of pensionable time in the air force.
When I went to Air Canada I transferred that pensionable time, as a holdover from the old Air Canada corporation
days, and now that 20 years of military time is at risk. My classmates from the Royal Military College of Canada, who
are mostly colonels and generals now, do not share any concern about the risk of their pension plan because the
Government of Canada will not go bankrupt.
All pensioners should feel comfort and security as they enjoy their retirement. As Mr. Braniff said earlier, it causes
stress when pensioners are worried about that comfort and security.
Chair, we feel that you and your committee, with your critical eye to those proposed changes, can provide some of
that comfort that I can look forward to in my retirement. Thank you very much for this opportunity to speak to you.
Leslie Dias, President, Canadian Auto Workers, Local 2002: Thank you for the opportunity to present. I will try not
to repeat my colleague. We are both Air Canada employees. I started in 1985 in Winnipeg and worked most of my
career in Toronto.
The CAW represents 220,000 workers across Canada in almost every sector of the economy. In the airline division,
which I am the president of, we represent 10,000 workers and 24 airline-related companies, including Air Canada, Jazz,
First Air, Canadian North, the Greater Toronto Airport Authority, as well as a number of ground-handling
companies, catering companies and others.
The breadth of our work includes customer-service agents, aircraft mechanics, baggage and cargo handlers, pilots,
engineers and cooks, et cetera.
Pensions are extremely important to our members, and we have shown many times that we are willing to fight to
keep our defined benefit pension plan. In 2003, our members were prepared to accept concessions in wages and
working conditions when Air Canada went into CCAA, but the defined benefit pension was sacred. Even younger
members supported, and continue to support, senior members to resist the attempts of the employer and potential
investors to cut the pension plan.
Recently, our members at General Motors and Chrysler have also accepted concessions on wages and working
conditions but refused to give up their pension plan. The defined benefit pensions are important to our members, and
we are pleased that the federal government has introduced pension reforms to recognize the current conditions of
I want to comment on the current economic environment in which pension reform is taking place, and focus on a
couple of specific reforms in Bill C-9.
Federal and provincial governments are now paying attention to the fact that Canadians are poorly prepared for
retirement. At the June meeting in Prince Edward Island, the finance ministers agreed to look at options to enhance the
CPP and improve retirement savings plans, which our union applauds.
However, part of the reason Canadians are ill prepared for retirement is that their employer does not want to
provide a pension plan, or the plan is inadequate. That situation is likely to worsen.
Employers who do provide defined benefit pensions want out. The low interest rates and an aging workforce make
defined benefit pensions expensive. In addition, the rapid swings in interest rates can make funding defined benefit
plans erratic. As the chief financial officer of one of the major railways stated, depending on the month that we
conduct the actuarial evaluation, our required contributions can vary by millions of dollars.
As a union, we believe the employer is in a better position to withstand the risks of pension funding than the hourly
wage earners that we represent. However, we note the reason why employers want out of the defined benefit plans, and
we understand that the Department of Finance Canada is proposing reforms to the pension legislation to address the
concerns of employers. The finance department is seeking to balance the employers' call for funding relief on pensions
against the need of plan members for a secure benefit.
Overall, our union believes that reforms in Bill C-9 are balanced, although we are disappointed there are no
provisions for a pension benefit guarantee fund. However, for plan members, there are improvements and some
provisions to secure funding, such as restrictions on contribution holidays.
We also applaud the provisions to give greater authority to the superintendent, as we see the regulator as being in a
good position to act in the interest of plan members. In fact, we saw the important role of the regulator at Air Canada
in 2003. It was the regulator who challenged Air Canada's practice of contribution holidays at a time when the funded
status of the pension plans had likely deteriorated.
For plan sponsors, there is funding relief through options such as letters of credit and solvency smoothing. We are
hopeful the funding relief to plan sponsors will enable our union to maintain defined benefit pension plans where we
have bargained them with employers.
We anticipate that many plan sponsors will see the funding relief as inadequate. Sponsores would like to have seen
10-year solvency funding. However, our union does not support the 10-year solvency funding as an option for all plan
partners. Extending the solvency funding should be considered in special cases, and I can discuss that point further
under the provisions for distressed pension plan workout schemes.
Our main point is that additional provisions for solvency funding relief for employers is unlikely to make defined
benefit pension plans more attractive, and will simply weaken the security of those plans currently in place.
The reforms may give unions support in defending defined benefit plans where we have them. Unfortunately, the
reforms might not deal with the problem of inadequate pension plan coverage. Too many employers with defined
benefit plans still will want to convert to defined contribution plans. Those employers without defined benefit plans are
less likely to be enticed to start up such plans. For this reason, the CAW has been active in the campaign by the
Canadian Labour Congress to double the Canada Pension Plan benefit, a securely funded defined benefit pension plan
that covers all workers.
I will speak to two specific reforms, and will comment later if you have questions on the others.
Under, specifically, the distressed pension plan workout scheme, in December of 2008, the federal government
considered allowing federal sponsors of a defined benefit pension plan an addition five years to fund pensions. The
unions, with Air Canada, wrote to the Minister of Finance stating our belief that the 10-year solvency funding is
excessive and leaves plan members vulnerable. We are pleased that the 10-year solvency funding has not been included
in Bill C-9. Several points in our December 23, 2008, letter are valid for distressed pension plan workout schemes.
A key issue missing in the federal pension reforms is the establishment of a pension benefit guarantee fund. In our
December letter, we called on the federal government to issue letters of credit to plan sponsors. Given that the federal
government is not moving on a protection fund for pension plan members, federal government letters of credit can be an
important step towards securing pension benefits for plan members.
The unions representing plan members, as well as the representatives of pensioners, must be party to any scheme
that looks at the funding of pension benefits. If there is no union, the plan members need to have representation on any
scheme to provide pension funding relief. If the solvency period is extended beyond five years, any future gains in
pension funding should be used to reduce the solvency period.
Under the Air Canada solvency regulation in 2003, Air Canada had the choice to use funding gains to reduce
funding amounts in the schedule or to shorten the solvency period. In 2007, the Air Canada main line pension plan
improved to 95 per cent solvency funding. At that time, Air Canada used the gains to reduce their contributions,
putting the plan in a weakened position when the 2008 financial crisis hit.
Any extensions in the solvency funding period should require that the employer's delayed payments are treated as a
secured claim in the event of bankruptcy.
We support the pension reforms giving greater powers to the superintendent. The superintendent is more likely to act in
the interest of plan members than the pension professionals who are hired by the company. In 2003, it was the pension
regulator's office that raised a concern that Air Canada was continuing to take contribution holidays, as my colleague
mentioned, based on the 2001 actuarial evaluation. Although the actuarial evaluation showed a surplus, there was a great
likelihood that the funding status had declined and the plan was no longer in a surplus situation.
The superintendent ordered Air Canada to prepare an actuarial evaluation and Air Canada refused. Eventually,
under pressure, Air Canada did prepare a report on the pension funding but refused to prepare a complete actuarial
I will stop there.
The Chair: Thank you, Ms. Dias. Unfortunately, we are running short on time but I allowed slightly longer
presentations from each of you because you bring a practical, real experience to the situation we are dealing with. We
thank you for your points.
Do you have a written submission you can provide to our clerk so it can be circulated to everyone? In that way, we
can retain the points you have made as well as others you may not have had an opportunity to make.
Ms. Dias: Yes.
The Chair: I have six senators on my list, but the time has not changed. We have roughly 12 minutes, which is two
minutes per senator.
Senator Murray: This is not so much a question as a comment. I do not hear any of you saying that we should defeat
Part 9 of Bill C-9. Much of the analysis and many of the criticisms and recommendations that you made speak to such
a global or general approach to the problem that I am dubious whether amendments to this bill can be drafted that will
be acceptable. The bill is fairly focused, whereas a lot of the things that you have been talking about are general and
require more thorough reform.
With regard to the global approach, the Standing Senate Committee on Banking, Trade and Commerce is
conducting a study that started out focused in terms of its terms of reference but has become much broader. That study
is taking place on as we speak.
Mr. Blandford alluded to this point and I will ask Mr. McCrossan: In the meantime, are there things that can be
done by regulation under the present act to meet some of the criticisms and suggestions you have made?
Paul McCrossan, as an individual: Yes, there are things that can be done under regulation. In section 4 of my written
presentation, I outlined a number of things that have been done by regulation with respect to protecting depositors of
banks and the customers of insurers.
Those regulations all came along around 1991, after the PBSA, 1985 was passed. As noted in the minutes of my
meetings with OSFI, they said that however desirable they are, since the act does not come forward for updating
automatically, we do not an automatic mechanism to do these things. However, right now, the PBSA, 1985 is in front
of you. My recollection of the Royal Prerogative is that you cannot do things that spend money but you can do things
that help governance. I am 20 years out of politics, so that may be a flawed recollection.
The Chair: No, you are right on.
Mr. McCrossan: I suggest that the exact same provisions that give the superintendent powers for insurers, banks and
trust companies should be granted in respect of pension plans.
Senator Murray: That is another act, though. That is another piece of legislation.
Mr. McCrossan: I do not have the PBSA, 1985 in front of me but, I bet there is a place you can fit in those
May I deal with something else that came up? It is the issue of firing the actuary. Bill C-9 gives the superintendent
the right to fire the actuary if the superintendent deems that the actuary is not acting in the interest of the plan
participants. That situation cannot occur in a life insurance company because there is a provision that stops it. It does
not stop the firing but it stops the acting in conflict of interest. Madam Justice Eileen Gillese pointed out years ago that
the Pension Benefits Standards Act permits conflicts of interest to exist in the role of the actuary between the duties to
the employer — the plan sponsor — and the duties to the employees with prior consent. In a new pension plan that is
building membership and has good cash flow, almost always the interests of the plan members and the plan sponsor
are the same. However, when we have declining employment and mature pension plans, the interests differ.
In their 2005 report, the British said that notwithstanding that they have a letter of consent from the employees and
the employer to act despite a conflict of interest, when the actuary determines that conflict of interest is material, the
actuary must disclose it to the pension plan trustees and they must disclose it to the pension regulator. The first option
must be to resign their position as adviser to the plan sponsor and act for the plan employees. This bill gives the
superintendent the right to remove the actuary but does not give the superintendent the information on which to base
the removal. A simple change, such as that adopted by the U.K., covers it off.
The Chair: Mr. McCrossan, I know you have a wealth of information. If there are other points you want to make
and send them in writing to us, it would be much appreciated.
I want all senators to have their question and comment on the record. I will deal with Senator Ringuette and
Senator Moore. We will then see if we can have a quick answer to those two points.
Senator Ringuette: Mr. McCrossan, your conclusion on page 6 says that the Senate should separate the PBSA, 1985,
provisions from Bill C-9 and commence detailed hearings on how to establish a pension fund regime that is robust and
makes reasonable provision to assist plan sponsors.
From your perspective with your long experience, you recommend that we remove the pension provision in Bill C-9
and have it stand alone, then hold hearings and make necessary amendments to the PBSA, 1985.
Mr. McCrossan: Yes, that is right for two reasons.
The Chair: Can you make a note of your answer?
Senator Moore: Mr. Blandford, you mentioned that 3,500 employees are in the Pilots Pension Plan. What is the total
number of Air Canada employees in the various pension plans?
Mr. Blandford: For all intents and purposes, we have slightly fewer than 30,000 active employees with pension plans.
We have slightly fewer than 30,000 retired employees. A total of about 60,000 folks are affected by Air Canada's
Senator Moore: Mr. McCrossan, I am interested in the report of the International Monetary Fund from February
2007. Canada subjected itself to peer review. Can you send us your response? I want to know the name of the report.
Have you read it? Were you part of the writing of it, or were you one of the reviewers? Who receives the report? Is it the
Minister of Finance or the Governor of the Bank of Canada or both? Does any other country receive it? How lengthy
is their report? Where is it published?
Mr. McCrossan: If you Google FSAP Canada, the redacted report will pop up. If you Google FSAP Canada/Bank of
Canada, you will find a paper from the bank that indicates all the assumptions it provided about what could happen in a
global credit crisis. Those reports were published about one year after the studies were made, which is customary
procedure. Normally, the report is given to the government, by which I mean the Minister of Finance, the Prime Minister
and officials. As well, it is given to the board of governors of the IMF. Beyond that, it is held confidential. All that the
public ever sees are published edited versions.
However, as the Standing Senate Committee on National Finance, I suspect that you have the power to ask for the
unedited version, together with the correspondence as to what goes in and what goes out.
The Chair: Mr. McCrossan, can you help Senator Ringuette with her good question?
Mr. McCrossan: Yes; I am a fair way away from politics, but I think I recall both a Liberal omnibus bill and a
Conservative omnibus bill being split by the Senate.
Senator Ringuette: Yes.
Mr. McCrossan: It is my view that if you simply pulled this section out of Bill C-9, as it stands, to create a second
bill, you can reasonably study the issues if you wish to spend your summer or early fall studying it.
Senator Ringuette: That is why they pay us.
Mr. McCrossan: It probably does not require more than two months of hearings, depending on how that study fits
into your schedule. It is an important issue because we have the financial security of millions of Canadians depending
on what happens with their pension plans.
Senator Ringuette: Absolutely.
The Chair: Next are Senator Marshall from Newfoundland and Labrador, and Senator Finley, Ontario south coast.
Senator Marshall: Mr. Blandford, to put your presentation in context, you indicated that the members contribute an
additional amount to your pension plan to compensate for the unfunded liability. Is that correct or did I
Mr. Blandford: No, you misunderstood. We contribute a large amount regularly as our regular contribution.
Senator Marshall: Are you over-contributing toward your future pension costs?
Senator Finley: Mr. McCrossan, there were extensive consultations and deliberations on the aspects of Bill C-9. Did
you participate in those consultations?
Mr. McCrossan: I asked to participate but I did not.
The Chair: Is that your question?
Senator Finley: That is my question.
Senator Ringuette: What was the answer?
Senator Eggleton: He said no.
Mr. McCrossan: The answer was: I asked to participate and I was not asked to participate.
Senator Ringuette: Bravo.
Mr. Blandford: We believe that we are paying a fair amount for the pensions that we have negotiated.
Senator Marshall: Do you feel you are over-contributing for your future pension costs?
Mr. Blandford: No, I do not feel we are over-contributing. I feel that we are contributing what we should contribute.
We hope that the company does their fair share.
Senator Eggleton: I will forgo a question and make a comment.
I sat on the Standing Senate Committee on Banking, Trade and Commerce as a substitute where they are dealing
with pension issues, but in a limited scope. It looks like the scope might be broadening but it is certainly not covering a
lot of what we are hearing today that needs to be covered. I originally had a motion on the floor of the Senate to have a
comprehensive look at public and private pension plans, but it was not scheduled because it was not a high priority.
Mr. McCrossan raises issues and I think we should proceed with his suggestions as found at the bottom of pages
four and five. Changes to the PBSA, 1985 should be in a separate bill, but that is not likely to happen as we can see the
reality. Therefore, we should follow through on these issues.
The Chair: Thank you, Senator Eggleton. On behalf of the Standing Senate Committee on National Finance, I
thank Ms. Dias, Mr. Blandford and Mr. McCrossan. Your written submissions will form part of the record and will be
helpful to us. I thank you for taking the time to prepare and appear on short notice.
The Chair: This meeting is concluded. We will reconvene at 9 a.m. Tuesday.