Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 2 - Evidence - November 28, 2013
OTTAWA, Thursday, November 28, 2013
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:32 a.m. to examine the subject matter of those elements contained in Divisions 2, 3, 9, and 13 of Part 3 of Bill C-4, A second Act to implement certain provisions of the budget tabled in the House of Commons on March 21, 2013, and other measures.
Senator Irving Gerstein (Chair) in the chair.
[English]
The Chair: Today the committee is holding its third meeting as part of its study on the subject matter of Divisions 2, 3, 9 and 13 of Part 3 of Bill C-4, A second Act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures, otherwise known as BIA.
At this meeting the committee will hear from the Canadian Bankers Association. I am pleased to welcome Ms. Nathalie Clark, General Counsel and Corporate Secretary. Good morning, Ms. Clark. Thank you for being with us this morning. If you would be so kind as to introduce your colleague before you begin your opening remarks, that would be most helpful.
Ms. Clark, the floor is yours.
Nathalie Clark, General Counsel and Corporate Secretary, Canadian Bankers Association: Thank you very much. With me today is Marion Wrobel. Marion is our Vice President of Policy and Operations at the CBA.
[Translation]
Good morning. We are pleased to be here today. We represent the Canadian Bankers Association and its 57 members, including domestic banks, and foreign bank subsidiaries and foreign bank branches operating in Canada.
As I mentioned, I am accompanied by Marion Wrobel.
[English]
We understand that the committee is interested in hearing the CBA's views on some provisions in Bill C-4 that relate to financial institutions. While it is true that there are many provisions that have an impact on legislation pertaining to financial institutions, these are more technical in nature and we have not previously expressed views on these provisions.
Furthermore, the CBA has not been engaged on any of these provisions with its members but, nonetheless, we are pleased to be here this morning and we'll do our best to answer the committee's questions.
We look forward to your questions. Thank you, Mr. Chair.
The Chair: There is no other opening statement or comment you wish to make?
Ms. Clark: No, thank you.
The Chair: Then I will move immediately to my list of questions, starting with Senator Black, to be followed by Senator Ringuette.
Senator Black: Welcome to you both.
I'm interested, however, in your view on these particular matters. We are here studying them, determining what is appropriate. Your organization, I believe, is an organization that can be helpful in helping us to arrive at our view. Are you able to comment on the subject matter contained in Divisions 2, 3, 9 and 13 of Part 3 of Bill C-4?
Ms. Clark: Yes, we will be happy to answer any question you have on these provisions.
Senator Black: My question is, what is your point of view on each of those provisions?
Ms. Clark: Well, I'll be happy to offer you a few comments in relation to the amendment to the Bank Act and in relation to the ability of employees of federal governments, provincial governments or Crown corporations to sit on boards of financial institutions and vice versa.
Maybe we can start with me offering you some comments on that particular issue.
Senator Black: Thank you.
Ms. Clark: We don't have any concern with this amendment. We are of the view that there is a robust framework that is in place, as you are well aware, and I think you have heard the same from Mr. Rudin, that is already in place in the federal government as well as provincial government. Also, as you are probably well aware, there are requirements on federal financial institutions to also have robust policies in place at the board level to address any conflict of interest that could arise. We feel that that framework is robust enough to address any concern that would arise from this amendment.
Senator Black: That is very, very helpful. In respect of the other three sections, have you a view?
Ms. Clark: Maybe my colleague Mr. Wrobel can offer his view in relation to the amendment of no longer having to obtain the consent of the minister for certain transactions that can be done by federal employees.
Marion Wrobel, Vice President, Policy and Operations, Canadian Bankers Association: Thank you, Ms. Clark. Our view is that this amendment simply brings the legislation up to date in a modern environment. It's routine today for Canadians to have financial relationships with their banks and other federally regulated financial institutions and there's nothing exceptional about individuals getting loans from these institutions. I think, as Ms. Clark indicated earlier, conflict of interest rules are in place that govern and that deal with any concerns that they might have.
Senator Black: Thank you. That's very helpful.
Mr. Wrobel: We have no problem with it.
Senator Black: With respect to the other two sections in question, have you a point of view?
Mr. Wrobel: With respect to the amendment with respect to acquisition of foreign financial institutions, again it just makes sure that the wording of the legislation is consistent with the intent of the government policy and consistent with the statements made by the minister. Again, we have no issue with it.
Senator Black: Thank you very much. And the fourth?
Ms. Clark: Are you talking to the amendment to the Financial Administration Act?
Senator Black: I thought I was talking to Division 13.
Ms. Clark: The proceeds of money laundering and terrorist financing?
Senator Black: Yes.
Ms. Clark: We have no concern with this amendment.
Senator Black: Thank you very much. I appreciate that.
Senator Ringuette: Thank you, chair. Ms. Clark, you indicated that in regard to your remarks today you had not consulted with your membership. Tell me, on average, how many board members would a bank have?
Ms. Clark: It will vary. It will vary, but I don't have numbers for each and every one of our members.
Senator Ringuette: Ballpark figure.
Ms. Clark: It's usually around 12, but that number will vary, and I do not have specific information in regard to each financial institution. I would say this is by no means an exact number and shouldn't be taken as such.
Senator Ringuette: Taking into consideration that you have 57 members and ballpark average of 12 board members, we're looking at roughly 700 people on boards of your membership.
How come out of over 34 million Canadians that it seems that it's hard to find 700 of them that are experts in financial issues to sit on your boards, that it is now necessary to have high-ranking public officials, both on the provincial and federal level, to do so? Don't you find that bizarre?
Ms. Clark: The first comment that I would offer is just a clarification. Many of our members, as you are probably aware, are branches of foreign institutions that are now operating in Canada and there is no requirement to have boards of directors for those institutions.
The second comment I would make would be more in relation directly to your question, which is that this amendment actually reflects the fact that there is no need to have a specific provision in the Bank Act, and we agree with that. When this provision was inserted into the Bank Act, we did not have the robust framework that we do have now to deal with a potential conflict of interest, and the requirements within the system overall, whether in the federal or provincial regime or internally within the banks, were not the same. We feel that now there is enough of a robust framework out there to address any potential conflict of interest.
I think it is important to look at this as something that goes both ways. To allow for the movement of federal or provincial employees, or employees or directors of Crown corporations to sit on the board of a financial, federally regulated financial institution, is one thing, but there is also the ability for boards of directors of financial institutions to also sit on the board of financial Crowns, which we think would be a good thing.
Mr. Wrobel: Senator, if I might just add to what my colleague said, I don't think this is about broad numbers. You mentioned a number of say 700. It's not as if there is a shortage, but it is entirely possible to find ourselves in a situation where an individual who brings a lot of expertise to a board table, who has made a decision to, for example, sit on the board of a Crown financial, that we want to make sure that that individual who is highly qualified therefore is not disqualified from sitting on the board of a bank or another federal financial institution, and vice versa. It provides the ability for individuals who have skills related to corporate governance to serve both private sector institutions and public sector institutions.
Ms. Clark: I think that the concern that you have expressed in previous appearances is the potential for conflict of interest, and the comment I would offer is that the assessment of a conflict of interest is very much case-by-case. The important thing, from our perspective, is to have the appropriate framework in place and the appropriate policies in place at all levels to ensure that this assessment is done appropriately.
If it is found that the person has, in fact, a conflict of interest, this person should not be allowed to then sit on the board of, for example, a bank. However, if this person is found not to be in a position of a potential conflict of interest, then we feel that this person should have the ability to do it.
Having said that, once sitting at the board table, if this person finds himself or herself in a position of conflict of interest, there are stringent measures put at the board level to ensure that this person recuses himself or herself from voting or participating in any discussion that would place this person in a position of conflict.
Senator Ringuette: I still come back to my first comment and that is, taking into account that out of your 57 members, some of which are foreign banks not having corporate boards in Canada, we might be looking at a maximum of 500 Canadians. In my 26 years looking at legislation, there's always either a demand or an event that triggers a piece of legislation. I cannot be supportive of a board member of a private financial institution regulated by the federal government sitting also on a board of a Crown, quasi-financial institution.
We have a lot of Canadians who are expert out there, and it's also a form of double dipping, but I take what you say. I don't agree, but we're allowed to disagree. Thank you.
Senator Nancy Ruth: On the same issue of the boards of directors, how much does your industry really want this change? Say on a scale of 1 to 10, what would you say?
Ms. Clark: Well, my comment on this would be that we have not actually been approached by our members to advocate for this change. We are not aware of any particular member having approached the government directly to advocate for this change.
Senator Nancy Ruth: Are you saying —
Ms. Clark: But, having said that, as I said, we don't have any significant concern with the change.
Senator Nancy Ruth: Are you suggesting that this measure is being implemented by a push from the Crown corporations rather than from the life industry, your industry or any other financially regulated institution?
Ms. Clark: As I said, I am not aware of any push from any particular organization.
Senator Nancy Ruth: Thank you.
The Chair: Do you have a follow-up, Senator Nancy Ruth?
Senator Nancy Ruth: No.
[Translation]
Senator Hervieux-Payette: Do you both understand French, or do you only speak English?
Ms. Clark: I understand French very well because my background is Quebecois, but Mr. Wrobel is not bilingual.
Senator Hervieux-Payette: Do you have translation?
Ms. Clark: I think we have live translation, although it is a little out of sync. Could you please perhaps ask your question more slowly?
Senator Hervieux-Payette: I do not think this involves a large number of people. There is some confusion.
For your colleague, for example, this does not involve not allowing an ordinary citizen who is not a public servant to sit on a Crown corporation board of directors, since that is how you operate to get private sector assistance. However, I think in this case that there is some concern about a potential conflict of interest — since they are all companies operating in the financial sector — if the person was on the board of directors of the Business Development Bank of Canada or of the bank that supports exports or of the Canada Mortgage and Housing Corporation, which are all boards of directors made up of private sector members.
Do you have any reservations about appointing members of your board of directors, knowing that those corporations are in the same sector as you? I am not talking about public servants. I am talking about allowing private sector individuals to sit on our boards and to sit on the boards of banks.
[English]
Ms. Clark: I'll offer some comments. Thank you for your questions.
At the risk of repeating myself, and I apologize for that, I think the main concern that is being expressed is having these individuals put themselves into a situation of potential conflict of interest. In fact, a lot of these individuals would probably be in a potential situation of conflict of interest. As you said, I don't think we're talking about a large number of people that now would be able to benefit from this relaxation of the rule. We're talking about a fairly limited number of individuals who would be found not to be in a position of conflict of interest.
I think there is an interest for Canadians in general, and for organizations like federally regulated financial institutions, FRFIs, to have the biggest potential pool of individuals available to serve on these important functions that require specific competencies and knowledge that perhaps are not found as easily as you might think.
Having said that, I would stress the fact that the framework currently in place at the federal government level and at the provincial level — the requirements from OSFI within the financial institution itself and the basic duties that directors have — is robust enough to allow for this rigorous assessment to occur. If the person is not found to be in a potential conflict of interest, I believe that this person should be able to serve as director. Again, if there is a specific issue arising at the board table that would require this person to recuse and refrain themselves from voting or contributing to the discussion, it is their obligation as a director to do so.
The provision that was in the Bank Act, and is currently in the act, was put there before this robust system was put in place; but it is an outright prohibition to actually allow for this movement. Again, we're not talking about a large number of people who would be now eligible to do it, but the larger the pool of potential, qualified candidates is to fill these roles, the better it is generally.
Mr. Wrobel: If I could just add to what my colleague said, we know that the federal government is very much interested in making sure that there is a robust risk management at a number of its Crown financials.
We see, for example, that certain aspects of CMHC's operations are now subject to OSFI oversight. We know that OSFI has looked at the operations of Farm Credit Canada. Consistent with that, the government wants to make sure that the boards of directors of those Crown financials have the ability to draw upon a wide range of competencies for the board of directors.
As my colleague said, we're not talking about a large number of people, but there may be instances where an individual, who could add something to a Crown financial, happens to be associated with a bank and would otherwise be ineligible for serving in that role, subject to the kinds of concerns about the conflict of interest that my colleague mentioned.
Senator Hervieux-Payette: I will change the section I want to deal with. It is the one with specific measures about FINTRAC. This morning big articles reported that there is a lot of laxity in this area. They talked, for instance, about transactions of $500 that took place with the bank, when normally the amount is $10,000. Would you like to comment on this — that the banks would release information about a transaction of such a small amount? We haven't changed the law and the amount has always been $10,000.01 that people have to declare to FINTRAC. How could this happen?
Ms. Clark: As I indicated before, we have not been in discussion with our members on the specific amendments. Therefore, we have not formed a view and, other than that, our members don't have a significant concern with the provision. It is not something that we have discussed in great detail and with which they had concerns. I don't have specific comments to offer this morning on this amendment, other than we don't have significant concerns with it.
Senator Hervieux-Payette: We are dealing with a pre-study. Of course, this has to go through the house and the Senate again. I think it's important that you would look into that. Of course, the amendment is more for the law firms, for instance with their trust funds. At the moment, they claim that they would not be subject to the $10,000.01, which means that if some Mafia person enters a law firm with cash to pay their fee, they have to put it in a bank. That means the trust fund of the lawyers would just serve as a scheme to hide money from crime. I think we need to have your opinion on this, because the cash doesn't stay in the law firm. It ends up in your financial institution. I don't see lawyers having big vaults where they keep all the cash. You are also a player in this, and it is of great concern to us.
This is before the Supreme Court, and I think it's important that we know because our role was to identify where the money was coming from, how it was transiting and how we could get hold of these people. Whether we are talking about terrorists or people from the crime world, both could still be authorized under the law to pay with cash; but the cash would end up at your institution. I would like you to verify with the banks whether they would report when they receive the cash from a law firm.
Ms. Clark: I would be happy to go back to my members and offer additional comments to provide some answers to your questions.
The Chair: That would be very helpful. If you could kindly forward that to the clerk, we will see that it is disseminated to members of the committee.
Senator Massicotte: Thank you for being with us this morning. I arrived a little bit late and I think I missed maybe the opening questions of Senator Black.
The Chair: There was not.
Senator Massicotte: That was my excuse to ask you some stupid questions, but I guess I will have to drop those.
I want to talk to you about the proposed change to the legislation which will allow senior bureaucrats to sit on boards, if you wish, of banks. I gather from the comments that you see no objection to that. You also confirm that you've had no demands from any of your members to request such and, therefore, you think this is a non-troubling amendment. Is that a summary of your position?
Ms. Clark: It is true that we had no specific request from our members to engage on this issue. Our members are comfortable with the amendment and, yes, we are of the opinion that currently, because there is a robust framework in place at various levels, the potential conflict of interest issue can be appropriately addressed through this comprehensive framework and, therefore, that this provision is not necessary any longer in the act.
Senator Massicotte: While you had no requests from your members, did you make a request on behalf of your association or on behalf of possible future benefits from this amendment? Did you ask, or did you support this amendment in this legislation to anyone from the government?
Ms. Clark: We did not ask for this amendment. When we actually got knowledge of it, we saw no issues with it and, therefore, didn't pursue it further. We did not get a specific request from our members to engage on it either. They didn't see any concerns.
Senator Massicotte: Meanwhile, as for the significant benefit you see from the legislation, while there's no shortage of competent potential board members for your association, do you think that some senior bureaucrats could benefit your members in the future — trusting there's no conflict of interest — by sitting on your boards and that's why you recommend this amendment? Is that correct?
Ms. Clark: We think, at the risk of repeating myself again — and I apologize for that — that federal government or provincial government employees should be allowed to sit on an FRFI board if there is no conflict of interest.
Senator Massicotte: Give me one of example. Obviously, your interest is to satisfy the needs and the objectives of the board. Your interest is obviously not the government but your own members.
Give me one example of where a deputy minister or someone very senior could be beneficial to your members in a way unrelated to his relationship to the government. It's good business for the banks. You may not wish to have the deputy minister of finance sitting on a bank board, but you may want the deputy minister of agriculture to sit on the bank board. While he has no particular expertise, any relationship with such an important potential client as the government is good business.
Is that a good example? It may be a good example for the bank, but do you not see the concern that Canadians would say, ``I can appreciate your advantage, but somebody else is being disadvantaged?'' Somebody else is maybe the Canadian taxpayer, for instance.
Ms. Clark: My comment to your question would be that I think we're talking, as I said, about a very small amount of people that would benefit from this. We're not talking about a large amount of people that would suddenly become available for a bank board because many of them would be placed in a potential situation of conflict.
I think that, when Mr. Rudin appeared last week before this committee, he gave you the example of a provincially regulated credit union that would decide to migrate within the new provisions of the Bank Act that allow for a federal credit union framework — Crown credit unions. These individuals would suddenly find themselves in a position where they could no longer sit on the board of the organization. I thought that example was a good one.
Senator Massicotte: I'm not surprised.
Ms. Clark: When it comes to employees, as you mentioned, obviously an employee coming from the Finance Department would probably not, under the conflict of interest framework that is currently in place — aside from this particular provision from the Bank Act — be able to sit on a bank board. So we're probably talking about a limited amount of people. The robust assessment around conflict of interest would need to be done and, if these people are not in a position of conflict of interest, then we think that they should be able to sit on the board of a financial institution.
Senator Massicotte: Just one more question on this same note. I suspect that conflict of interest rules, as I understand them, in many cases would not prohibit the deputy minister of agriculture from sitting on the bank board because there is no immediate or direct conflict, given the normal definition of conflict of interest. However, there is a conflict of ownership, a conflict of loyalty here, whereby his job is to represent Canadians — in his case, agricultural policies. There is a conflict of relationships here. No bell would ring, I suppose, under your conflict of interest rules or any other, but there is a natural conflict in his loyalty. When he goes to sleep at night, he should be worried about Canadians, not about bank shareholders. Do you not see that?
Ms. Clark: I think that, when it comes to conflict of interest, it is very much a case-by-case assessment. It is not clear to me who, if anyone, in the public servant pool would qualify to sit on the board of a bank, for example, looking at it on a case-by-case basis and applying to it the very rigorous framework that not only exists in the federal regime, which I think you were referring to, but also within the bank itself around the function of the board and the requirement of OSFI. We have to add to that the common law requirements around a director's duty.
It seems to me that you have the appropriate framework to make a very robust assessment about this potential conflict of interest, including at the level that I think you're talking about. The concern is that this potential conflict of interest be appropriately assessed and appropriately addressed and, if it's found to be present, then this person should not be allowed to sit on the board of an organization.
So it is not clear who would be allowed or not allowed. It is a case-by-case situation, and I think we have to be careful in taking it from that perspective. It is very much a case-by-case analysis.
As I said, it is not clear to us who would be eligible. I suspect that it would be a small pool of individuals.
[Translation]
Senator Maltais: Ms. Clark, my question covers several things, but we will start off with the first one. I suppose that individuals who would be authorized to sit on the board of directors of a financial institution would be highly qualified individuals in the federal public service, right?
I suppose that if those individuals were recruited by a financial institution, the ethics commissioner would have already given permission for those people to be recruited by financial institutions. We agree on that.
Lastly, does the amendment to the act that has been presented cause problems for all Canadian financial institutions?
[English]
Ms. Clark: I believe that Commissioner Dawson also appeared before a committee and indicated that she had no significant concern with the amendment because she also felt, as Mr. Rudin also communicated, that there was already in place a very robust, complete framework that would allow for a robust assessment of the individual who would be attending.
I took good note of the fact that Commissioner Dawson didn't have significant concern. So, yes, I would agree with you that that assessment would need to be done. But as I said before, I also think that there are other mechanisms within the financial institutions and also duties as directors that would also allow for a further layer of assessment that would ensure that any potential conflict of interest would disqualify this person from sitting on a bank board.
[Translation]
Senator Maltais: Thank you. You have answered my question very well.
[English]
The Chair: Thank you very much, senators. That concludes the questions to our witnesses.
To you, Ms. Clark and Mr. Wrobel, we express our great appreciation. I do so on behalf of all members of the Senate Banking Committee. You have been very helpful in your deliberations to us and I thank you.
Ms. Clark: It has been a pleasure.
The Chair: Senators, we will suspend for a few minutes, and then we will go in camera.
(The committee continued in camera.)