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

Issue No. 10 - Evidence - November 30, 2016

OTTAWA, Wednesday, November 30, 2016

The Standing Senate Committee on Banking, Trade and Commerce met this day at 2:29 p.m. to examine the subject matter of those elements contained in Divisions 3, 4, 5, 6 and 7 of Part 4 of Bill C-29, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures.

Senator Joseph A. Day (Deputy Chair) in the chair.


The Deputy Chair: Good afternoon, and welcome to the Standing Senate Committee on Banking, Trade and Commerce.

I'm the deputy chair of the committee, filling in for Senator David Tkachuk, the chair, who is, regrettably, unable to be with us here today.

Today we will begin our subject matter examination of Bill C-29, the budget implementation act, 2016, No. 2. In particular, we will be dealing with those divisions which have been referred to this committee, namely, Divisions 3, 4, 5, 6 and 7 of Part 4 of the bill. Honourable senators will want to have those divisions available.

We know that our committee must report our findings to the Senate by Tuesday, December 6, so we're under some pressure, pursuant to the order of the chamber.

Today we welcome officials from the Department of Finance and Employment and Social Development Canada. I've asked officials to provide us with a brief oral description of each of the clauses in the order that they appear in the bill, so it will be like a clause by clause, but an explanation clause by clause.

Thank you for being with us, each of you.

Senators, it will make for a busy and informative session, and one that I hope, with some luck, will be as seamless as possible. I would remind you that we have a lot of ground to cover, as you can see from the various divisions, so please try to make your questions as crisp and succinct as possible.

Witnesses, your responses fitting the same description would be appreciated.

If senators are in agreement, I understand that one of our witnesses, Mr. Glenn Campbell, has to catch a plane. He is a witness here for Division 5.

We could begin with that division. Then officials for the Divisions 3, 4, 6 and 7 will be asked to present. We will begin with Division 5, Part 4, which appears at page 181 and onward of the bill.

We will have the remarks and description of the clauses, and then we will go into the usual question and answer for that particular division.

Mr. Campbell, thank you very much for being with us. If we approach your departure time, please raise the flag, would you? You have the floor, sir.

Glenn Campbell, Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance Canada: Thank you, Mr. Chair and senators. I'm pleased to provide an overview of Part 4, Division 5 of Bill C-29, which includes proposed amendments to the federal financial consumer protection framework for banking. There are 18 clauses and 48 pages of legislation, so it's quite sizeable this part of the legislation.

I'm going to go through the main component parts. They actually follow the clauses, generally speaking, Mr. Chair.

The proposed amendments modernize and enhance the consumer provisions of the Bank Act. These amendments fall into four main categories. First, consolidating and modernizing the framework under a single part or chapter of the act; second, introducing guiding principles to help banks and consumers interpret the legislation; third, implementing targeted enhancements to strengthen specific consumer provisions; and fourth, and finally, affirming exclusive federal jurisdiction over consumer protection rules for banks and banking.

I will now go over each of these four categories of the amendments in turn.

The first category is consolidating and modernizing the act. The existing consumer provisions are currently spread across the Bank Act in two dozen regulations. The amendments consolidate existing legislative and regulatory requirements into a single part of the act. This is intended to make the rules easier to understand for all Canadians and to demonstrate the comprehensive nature of the framework. This would also make provisions more consistent across various banking products and services.

Modernizing the framework would also allow it to better accommodate future changes in the sector, such as the shift to the digital economy. For example, the rules would allow for disclosure through paper, electronic and mobile channels to keep up with the changing industry and consumer preferences.

The second category is the introduction of new guiding principles. The proposed principles would set out expectations on how the consumer provisions should be interpreted. The five proposed principles align with the structure of the legislation.

First, basic banking services should be accessible; second, disclosure should enable an institution's customers and the public to make informed financial decisions; third, a bank's customers and the public should be treated fairly; fourth, the complaints process should be impartial, transparent and responsive; and fifth, and finally, a bank should act responsibly, considering its customers and the public, as well as the efficiency of its business operations.

The third category consists of specific amendments to strengthen consumer protection in banking. Targeted enhancements are proposed in each of the five key elements of the legislation, namely, access, business practices, disclosure, complaints and accountability. I will discuss each of these briefly in turn.

The first element is access. Existing consumer provisions give customers the right to access basic banking services, including the opening of deposit accounts, the cashing of Government of Canada cheques free of charge and accessing funds deposited by cheque in a timely way. The new enhancements would allow customers, consumers, to choose from a more flexible list of personal identification documents to open an account or to cash Government of Canada cheques.

The second element is business practices. The existing consumer provisions prohibit actions that would be unfavourable to consumers. For example, banks cannot provide consumers with a product or service unless they get the consumer's express consent.

The new enhancements strengthen the business practice rules. For example, expanding the provisions to capture undue pressure by clearly prohibiting banks from applying undue pressure or coercing a person for any purpose; specifying also that advertisements must be accurate, clear and not misleading; and third, adding a new cancellation period for a wider range of product and services. With few exceptions, consumers obtaining a product in person through a website would have three business days to cancel free of charge. The cancellation period would be 14 days for products obtained through telephone or mail.

The third element is disclosure. Disclosure of information is a cornerstone of the framework. It helps consumers make informed decisions and choose the bank, products and services that best fit their needs. Existing consumer provisions govern how and when banks disclose information to their customers and the content of that information.

For example, banks must disclose information to consumers before they enter into an agreement for a product. Banks must also disclose to the consumer if the features of a product will change.

The new enhancements make disclosure more flexible and more consistent across products and services. For example, the use of summary information boxes, which consumers have found very useful, will be broadened across all bank products and services. Summary information boxes highlight key information about a product for consumers, in language they can understand, to help them make the choices that are right for them.

The fourth element is complaints handling. Existing provisions set out a dedicated complaints-handling regime that is timely, efficient and free for consumers. Banks must now have an internal complaints-handling procedure to deal with consumer complaints. All banks must also be members of an independent external complaints body regulated by the Financial Consumer Agency of Canada to deal with complaints that have not been resolved to the customer's satisfaction internally.

Banks and external complaint bodies have to report now on the number of complaints received and the number of complaints resolved to the customer's satisfaction. The new enhancements would strengthen this public reporting by requiring banks and external complaints bodies to also report on the nature of complaints. Enhanced reporting on complaints would provide greater transparency to the public and policy-makers on consumers' concerns as the industry evolves.

In turn, banks would have an even stronger incentive to focus on and address the areas that generate complaints.

The fifth, final element is governance accountability. Existing consumer provisions set out rules around boards of directors' responsibilities with respect to the disclosure of information and complaints handling. As well, existing provisions require banks to demonstrate, through public reporting, their contribution to Canada's economy and society.

New enhancements are proposed in this governance area. Boards of directors will be required to oversee their banks' operational procedures, put in place by management, to comply with all of the consumer provisions of the act. Banks would also have to report on what they do to address the challenges faced by vulnerable Canadians. This means consumers facing accessibility, linguistic or literacy challenges.

The fourth and last category of amendments is the affirmation that the Bank Act sets out a comprehensive and exclusive regime in relation to banks' dealings with their customers and the public. Three amendments are proposed to clarify the scope of federal jurisdiction: An amendment to the preamble to the act ensures consistency with the new part, a new purpose clause states the objectives of exclusive federal regulation, and a new paramountcy clause expresses the intent that the new part is paramount to provincial consumer protection laws and regulations.

This is intended for consumers to have clear, comprehensive and uniform predictions when dealing with their banks, no matter where in the country they live, work or travel. An exclusive federal regime would be intended to avoid the overlap of federal and provincial laws, which can be confusing and not in consumers' interest. It would create clear rules that Canadians can follow and to which banks can be held accountable.

In conclusion, the consumer protection framework will continue to be overseen by a dedicated financial sector consumer-protection regulator, the Financial Consumer Agency of Canada. The FCAC will continue to collaborate and cooperate with provincial regulators as well as industry and consumer groups to ensure that the rules continue to protect consumers.

This concludes my opening remarks. We now stand ready to answer any questions that members of the committee may have.

The Deputy Chair: Mr. Campbell, Division 5 starts at page 181. Could you open the bill to page 181 for us? We'd like you to very quickly go through the sections and just point out what this is achieving.

Jean-François Girard, Chief, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance Canada: Let me take it from here.

We have a number of enhancements to the existing regime, as Mr. Campbell said. Some of them are improvements on measures that exist in the legislation and, in some cases, regulations. Some of them are brand new.

The Deputy Chair: We don't have the regulations before us.

Mr. Girard: Yes, and I can address some of these questions.

In terms of different categories, we have the corporate governance improvements that can be found in clause 120, which is an amendment to section 195.1 of the act. That's a new provision.

We have new duties of the board. This is, as you see, paragraph 195.1(1)(b). Then we have the reporting requirements that are in (c).

In terms of the next category, many of the clauses repeal some of the provisions that exist in the act, which is part of the consolidation process. The next group of amendments starts with clause 131, which is the core of the consumer protection framework.

We start with 627 —

The Deputy Chair: That's at page 182?

Do we have a different bill in front of us? Which one does the government want passed?

Mr. Campbell: They had reprinted, and some of the pages are one page off in the document.

The Deputy Chair: When we're voting on this, we don't want that kind of situation to arise. The one we have in front of us — is there a particular date on that?

Mr. Campbell: I'll just take one moment, Mr. Chair. My colleague had notes, given that it's 50 pages of legislation, to answer this very question, with side notes. Now we're going to cross-reference with the final print.

Mr. Girard: The version that was handed to me has the proposed new Part XII.2 of the Bank Act starting at page 182 of the bill. If it's not what you have, I'll need to get another reference document.

The Deputy Chair: Page 184? So what do we do?

Mr. Girard: I think the easiest thing to do is clause 131 of the bill, which should be on either page 182 or 183 —

The Deputy Chair: It's 184 —

Mr. Girard: Okay, 184.

The Deputy Chair: — of the bill I have before me. Which one will we be voting on?

Mr. Girard: The one you have before you, I suppose.

The Deputy Chair: That's helpful. That's a place to start.

Mr. Girard: If I can take a moment and get the right copy, I think that will avoid the situation for the rest of the session.

The Deputy Chair: All your notes are referenced to another bill —

Mr. Girard: No, it's just the page numbers that are different; the actual layout of the bill is identical except for the page numbers.

The Deputy Chair: Are you confident that you can make your explanations and proceed now, or do you want to go away and come back when you're ready?

Mr. Girard: No, I can proceed.

Starting on page 184, we have clause 131 of the bill. Clause 131 starts with a new section in the Bank Act, section 627.01. That's the beginning of the core of the consumer protection framework that we are here to discuss today.

The Deputy Chair: Good.

Mr. Girard: We have proposed section 627.01 going all the way towards the end of that division to proposed section 627.96.

The Deputy Chair: On page 136?

Mr. Girard: It is proposed section 627.96. These are all under clause 131. Clause 131 is quite long, and it is the essence of the discussion on the proposal, I should say, on the consumer protection framework in the Bank Act.

The Deputy Chair: I found that 627.96 is at 226 in the bill before us.

Mr. Girard: That's right. That's the framework.

The Deputy Chair: And that has been explained by Mr. Campbell?

Mr. Girard: That's the extent of the explanation that was provided today.

The Deputy Chair: Okay. Carrying on, then.

Mr. Girard: Mr. Campbell went through some of the elements of the framework. One of the elements described was access. On page 188, proposed section 627.04 is where the access provisions begin. In this portion of the bill, the main improvement being proposed is the change to the identification requirements — the pieces of personal identification — that can be used to open a bank account or to cash a government cheque. These are described in proposed section 627.04, and the following sections provide for context and some exceptions.

In terms of business practices, which is the next category, I invite you to turn to page 195, which starts at proposed section 627.15. That's at the bottom of the page. The main improvements in that portion are found in proposed section 627.15, which is the new requirement on advertisement that requires that advertisements be clear, accurate and not misleading.

The new section 627.16 provides this new provision on undue pressure and coercing a consumer for any purpose.

We have a new provision in 627.16(b) which prohibits a bank from taking advantage of a person who cannot protect their interest. Then we have a series of measures that enhance existing provisions in the act. I can go through those if you want, or we can move on to the next section, which would be under disclosure of information.

The Deputy Chair: I think you should go on, but just describe generally what you have done, what's in this particular area, and then go on to tell us what generally is in the others. Then, if honourable senators want you to delve into an explanation on the clause or subclause, they will ask you a question.

Mr. Girard: Before we move on to disclosure, I think the key elements of the business practice provisions are the requirement for express consent before a product or service is provided to a consumer and the requirement to enter into an agreement for the provision of that service. These are really fundamental provisions on that group of provisions.

Moving on to disclosure, 627.37. That's on page 203. Again, in that division of the Bank Act, there are a number of improvements to the existing regime and a number of new measures.

An important new measure is the proposed requirement to have information boxes applicable to application forms and agreements applying to all banking products and services. These information boxes contain key elements of the features of the product in a language that's easy to understand. The purpose of these information boxes is to allow people to understand the key elements of the product they want to purchase and be able to compare various products so they can make an informed decision.

The next group of enhancements starts at proposed section 627.82. That's on page 218 of the bill. It's Division 6 in the Bank Act. It deals with complaints handling.

Mr. Campbell explained how the regime works today, so it requires banks to have a dedicated process and procedures to handle complaints internally and also to be a member of an external complaints body that deals with complaints that are not resolved to the customer's satisfaction.

Currently, the regime requires banks and external complaints bodies to report on the number of complaints they receive. This requirement is enhanced by adding a requirement that they describe also the nature of the complaints. That will enhance transparency for policy-makers but also for the public, to know which areas of banking generate complaints from consumers, and also it enhances transparency to help banks focus on and address the areas that generate the most complaints.

The next group of provisions is 627.91, which is described as accountability. It's on page 222. This set of provisions deals with the reporting that is required of banks to report on their contribution to the economy and to Canadian society. There is already a regime in place to ask them to publish public accountability statements. This bill protects the existing requirements but also adds a new requirement so that banks will have to report on the actions they take to comply with the principles that Mr. Campbell described a moment ago, and also to report on measures they take to provide services to specific groups of vulnerable Canadians, so those who have accessibility, linguistic or literacy challenges.

This covers the core of the framework that applies to the protection of consumers in the Bank Act.

The Deputy Chair: Thank you very much. Now I'll go to honourable senators for their questions and interventions. I'll start with a senator from Ontario, Senator Enverga.

Senator Enverga: Thank you for being here today.

I'm surprised that a lot of these provisions are being done again. Are these just consolidations in the act and you're putting them in one location? Is that how it is?

Mr. Campbell: The majority of the legislative amendments are a modernization of the act, which includes consolidation. A lot of the existing provisions, over the years, were found in all different parts of the act, making it very difficult for the regulator or consumers to see a comprehensive view of all of their protections. Part of the modernizing, consolidating project was to consolidate all those under one chapter, take the important things that were already in regulation, that made sense to put into legislation, bring all those together and then add these targeted enhancements to each of the areas.

Senator Enverga: Which gives you easy access. Have you identified any complaints or any issues with respect to the current system at this point?

Mr. Campbell: Yes. The government and the department had consulted widely and for a long period of time. There was a consultation paper. There were dialogues, round tables, feedback from the industry, from consumers and from the regulator that indicated that the regime was not clear enough for them. They were not informed about what their rights were. Part of this project was to consolidate and make more comprehensive and clearer to understand the rights Canadians before their banks. There were clearly a lot of complaints in that regard, or issues that were raised. All of the areas that we've identified for targeted enhancements are areas that come out of our dialogue both with the regulators and with consumers.

The consumers liked more the information boxes. They liked the external complaints-handling process; they wanted to make sure that operated more. They needed some flexibility for the two documents. They needed to open accounts and cash cheques. In this respect, the targeted enhancements responded to the concerns that were expressed by Canadians.

Senator Enverga: I see that it looks more user-friendly for a lot of people. Why is it only for the banks? Why not insurance companies or other institutions that deal with these kinds of clients?

Mr. Campbell: That's a very good question, senator. In this case, Parliament and the Bank Act are clear where under federal jurisdiction the Government of Canada has authority both prudentially and for consumer protection over the Bank Act. For insurance, whether life insurance or property and casualty, provinces have market-conduct-related rules that govern that interaction with the customer. It is clearly divisible, there are no issues before the federal and provincial governments that even in the case where, let's say under the Insurance Companies Act, the Government of Canada prudentially regulates federally insurers, but all of the market conduct issues are governed by the market conduct provisions of the provinces. Even though there are issues there, they work seamlessly from a federal-provincial point of view.

Senator Ringuette: My first comment is with regard to allowing a lot more Canadians to have a bank account under the provision of identity and a request, and I don't recall that being very specific in the act before. Is that true?

Mr. Girard: Yes, it's true. There were requirements in the act, but they were supported by regulations. The regulations, as they exist today, are a bit complicated in terms of what documents could be acceptable to a bank before the opening of an account. This is one area that was problematic because it was difficult to understand. It depended on whether you had a passport, then you could have another document that would support your identity. But if you had another type of document, then you had to complement it with another set. There were schedules with lists of documents.

This is one area that really benefited from the improvements that we're proposing. Now the regime is much simpler. You need two reliable pieces of information. Also, there are some cases where people may have only one piece of identification, and the regime provides that one piece of identification can be used if someone can vouch for the identity of the person applying for the bank account or for the cashing of a cheque.

These are very specific, targeted measures to deal with what we would expect would be the most vulnerable Canadians. Maybe it's an elderly person or someone who is in transition in life and may not have all the documentation, such as a new Canadian who may not have all the identification documents that other people have. That was seen as being an important aspect of the proposal.

Senator Ringuette: We see more and more online banking, including the opening of accounts, so how will these measures be applied in those kinds of situations?

Mr. Girard: That's an excellent question. Just to be clear, the measures in the act regarding access provide rights for someone from the public to open a bank account. They do not dictate how a bank may determine on its own what identification requirement it will accept for its own purposes. So a bank may decide that for purposes of an application for the opening of an account online, if they already have a relationship with a customer, they may decide that your application on a website is sufficient. What this deals with is the right of someone to open a bank account.

Specifically, though, we do have a provision that would allow the use of electronic identification once a common standard is generally accepted in Canada. The act already provides for that flexibility. Right now it's our understanding that there is no such generally accepted method of identification through electronic means, but once it is developed, the act already has the flexibility to rely on that.

Senator Ringuette: I want to go to the issue of bank complaints and the ombudsman that's in the system right now who is paid by these financial institutions. I find it hard to have an arm's-length relationship with regard to dealing with customer complaints when one is being financed by those financial institutions.

What kind of guarantee, first, and what kind of tightening of the time frame with regard to the complaint mechanism are we looking at? I hope it has been tightened and it's clearer. As you understand, with regard to my dealings with the credit card issue and criminal interest rates, I get many calls, many complaints. First, how have you tightened? And how can we be sure that the ombudsman, whose office, salary and expenses are being financed by financial institutions, is not in a situation of conflict of interest?

Mr. Campbell: Senator, that's a good question and we welcome it because it allows us to draw attention to changes that have been made and to a system we think is working well and will only work better in the future.

Let me address your first point about who pays for the service. It is common practice and consistent globally that financial sector regulation is paid for by the entities that are being regulated. For example, OSFI, who is the prudential regulator, assesses the cost that it takes to regulate banks. In many respects we're already charging the financial industry for the cost it takes to maintain high standards.

So the fact that in the case of an external complaints body the bank is also the one paying for that service is not inconsistent with the way the regime has worked.

Senator Ringuette: Who appoints the ombudsman?

Mr. Campbell: That was the first part of the question. The second is, there are currently two external complaints bodies. They need to be certified by the government, regulated by the Financial Consumer Agency of Canada and apply a certain standard that is consistent between the two.

To the extent to which a bank can choose one or the other, they need to choose it in advance; the customers know which ombuds service the bank has chosen. They can't do it on a one-or-the-other basis. Various banks choose one or the other, but both of them have to meet and be certified on the same standard. They're regulated as such and have to disclose.

An ombudsperson is only dealing with those parts of the complaint that weren't resolved through the bank's own internal system, in which the bank has an incentive to make sure they have a happy customer at the end of the day. I'm not going to overplay that. But in some cases there is an issue not resolved to a customer's satisfaction. And the role of an ombudsperson, even though there are two and they're paid by the bank, effectively they're regulated and they have to be transparent in order to meet the standards.

Your other parts about what's new in the timing process, I'll let my colleague handle.

Mr. Girard: If I understand what you're looking for, you asked how expedited this process is.

Senator Ringuette: Have you tightened the system?

Mr. Girard: There are really two standards in the framework. One is how quickly a bank should be dealing with a complaint. The second one is how quickly an external complaints body has to address the complaint.

In the regime, the requirement is a bank has 90 days to resolve the complaint. The external complaints body has 120 days to resolve the complaint. That's the maximum amount of time that can be taken to resolve a complaint.

We were reviewing in practice how it's taking place. The external complaints bodies report on how quickly they answer the questions brought before them. For the last year that they've reported, both OSFI and ADRBO have an average of just around 60 days, slightly below 60 days, to answer the complaints, which means they take about half of the time that's actually allowed in the framework. So we think it's pretty good performance by the two external complaints bodies.

The Deputy Chair: Colleagues will be concerned about the bell ringing. We've determined that it is a bell to call us to vote at 3:32. The reason we're here is so that we can be there quickly. So we'll continue until 3:22 to give us 10 minutes to go up the next flight, if that's acceptable.

Senator Ringuette: I have one more question.

The Deputy Chair: Senator Tannas has a supplementary. Do you remember what your supplementary is?

Senator Tannas: I do. It was on access. I've heard it said from bankers, not that I hang around with them a lot, that the regulations around access absurdly do not match the regulations around anti-money laundering and terrorist financing. So you can go to jail or lose your job if you refuse access to somebody to open an account, or you can go to jail and lose your job for anti-money laundering.

I see you're widening access. That's wonderful. Are we putting bankers at risk on the other side more? Has any harmonization gone on, any discussions, or does this just exist in a vacuum?

Mr. Girard: The requirements, as proposed, would match on both sides.

Senator Tannas: Perfect; thank you.

The Deputy Chair: Senator Ringuette, do you have another short one?

Senator Ringuette: Yes. It's a question, kind of a comment, a suggestion. I believe, as one of the longest-standing members of the Banking Committee, that we're all very satisfied, and to some extent proud, of the work that OSFI is doing in the system. I would like to see the same kind of operations system, that is, not only that the government regulate or provide certification to an ombudsman agency but that it would have to be completely distinct, at arm's length from the financial institution, as OSFI is, so that at the end of the day the customers that make complaints are really satisfied that there's not a bias against them from the moment they put in a complaint. That's my suggestion.

I hope that in your process of modernizing the Bank Act that will be put in place once and for all. It is not the first time I'm making this suggestion maybe because I'm not crying too much. But I think that it's a must for the credibility of the process and the credibility of the banking system with regard to their customers.

The Deputy Chair: Do you wish to comment on that, Mr. Campbell?

Mr. Campbell: I just wanted to highlight very quickly that we heard you and to draw attention to the fact that OSFI is an independent regulator and that FCAC is a sister agency that is now also independent and completely arm's- length. The two often work in tandem when they deal with the bank, and now we have a dedicated body that is specifically looking at the role of the consumer and the customer. They share information; they work in tandem. They are both independent. Since last year, when the new external complaints body process was put in place, we have had an independent regulator looking at an independent — we still think — ombudsperson. There are two bodies there. To the extent to which a customer is still displeased after an external complaints body, you still have an independent regulator to address the matter. It's hard to say that they resolve all issues, but it's certainly improving and seems to work. What's important here is that it has proven to be timely. It's inexpensive, and it does, when we look at the statistics, resolve a lot of disputes. Going forward, now we're going to find out more about the nature of those complaints that are not resolved, and hopefully that will inform future policy decisions along the lines that you have mentioned, senator.


Senator Massicotte: Thank you for attending the committee this afternoon. These are very important amendments. In your summary you define the proposed amendments, and it is difficult to be objective. They are certainly necessary, but I am surprised to hear that these changes had not been made. The objectives you mentioned are clear, and I wonder if they are needed at this point. I hope it is only a matter of reclassification.

As parliamentarians, we constantly receive complaints from people who are not satisfied. These are cumbersome bureaucracies. These institutions are much more skilful and have more resources than their clients. You say you have an independent inspector, but how long has he been completely independent financially? Has it been years, or months? That is not established here.

Mr. Girard: The Financial Consumer Agency of Canada was created in 2001. It has existed for some time and it is independent. As Mr. Campbell explained, its revenues come from analyses. It collects fees from the industry to meet its financial obligations.

Its more recent responsibilities include the supervision of external complaint resolution organizations. Those organizations have always been independent. The new element is a legislative framework that broadens the mandate of the agency to include supervision of those bodies. That supervision ensures the integrity of the process. In my opinion, it is fundamental in a system like this one to ensure integrity and independence. This follows upon the comment your colleague made a few minutes ago. The integrity of the process is important, because this is what reassures people and makes them feel that they have been treated properly, even though we have a complaints resolution process.

Senator Massicotte: I am repeating myself, but two or three years ago, some problems were raised. According to clause 627.83 of the bill, institutions must publish an annual report and release the number of complaints which, according to the institutions, were settled by agents according to the procedure. I am looking at all of this verbiage, and I am certain that financial institutions will not take it into account. In their opinion, they have solved the problems, but that is not necessarily the opinion of the consumer. I don't know if this will be useful. These are nice words.

It falls under the purview of the bureaucracy as such to involve the board of directors and the committee to ensure that all of the services are provided in a satisfactory way. It's a bit surprising and it must be cumbersome. According the text of the bill, the members of the board will produce an annual report and provide their opinion on the complaints resolution. I hope that solutions will be found, because we continue to receive complaints from dissatisfied people. I often agree with the complaints that are submitted and I understand why people aren't satisfied. If you believe that the hundreds of pages in your document will help to clarify the situation, you are more optimistic than I am.

Mr. Girard: I'd like to make a clarification concerning the complaints. Obviously, some cases are more complex than others. In general, those are the cases that make it to the final stage, that is to the external body that processes the complaints. Under the current regime, when the institutions publish information on the complaints, we are not always told about the nature of the complaints, but we do have some statistics. The proportion of complaints that are resolved to the satisfaction of the consumer is quite high. We verified one bank in particular and the satisfaction rate was close to 98 per cent. Of course, if you are. . .

Senator Massicotte: Does that figure represent the opinion of the bank or the consumer?

Mr. Girard: The opinion of the consumer.

Senator Massicotte: You obtain the client's opinion following the complaints resolution process, to confirm that he is satisfied.

Mr. Girard: No, the bank has to follow up on complaints. There is a procedure to be followed and at the very end the person who filed the complaint has an opportunity to say whether or not they are satisfied. In short, this is not the bank's opinion, but that of the consumer.

The Deputy Chair: Does that suit you?

Senator Massicotte: Yes.

The Deputy Chair: On behalf of the committee, Mr. Girard, Mr. Campbell and Ms. Ryan, I thank you for taking part in this hearing.


We will now proceed to Division 3, Part 4, which is at page 174 of the bill, the remarks and the description of the clauses. We will ask our witnesses for that, and then we'll go to the usual question and answer period.

Dealing with Division 3, Ms. Kerr, please begin by introducing yourself and your colleagues and briefly tell us what your titles are. Sometimes they're pretty long, so I'll let you do that. We very much appreciate you being here. Division 3 deals with the Canada Education Savings Act. We would like to know what the various clauses are trying to achieve and what the policy purpose is. You have the floor.

Jessica Kerr, Director General, Canada Education Savings Program, Employment and Social Development Canada: Good afternoon. I'm here with my colleagues Christine Nagy and Michelle Demery, who is the Director of the Programs Division in the Office for Disability Issues.


Our presentation discusses the amendments on pages 174 to 179, and before describing each of the provisions, I will do an overview of the changes and their objectives.


The Government of Canada administers the Canada Learning Bond. This is an education savings initiative linked to Registered Education Savings Plans, which are designed to help Canadians save for post-secondary education. The Canada Learning Bond is available to children from low-income families, born in 2004 and thereafter. Until June 2016, the Canada Learning Bond was payable to a beneficiary in respect of whom the National Child Benefit Supplement, the NCBS, was payable. The NCBS was based in part on the number of qualified children in a family and the adjusted family income.

With the introduction of the Canada Child Benefit, which replaces among other benefits the NCBS, an amendment to the eligibility criteria for the Canada Learning Bond was required. The new eligibility requirements are similar to the NCBS. More specifically, the new eligibility requirements are based, in part, on the number of children and family, as well as the adjusted income.

In support of the changes, the Canada Education Savings Act is being amended to include the replacement of the term "Child Tax Benefit'' with "Canada Child Benefit.'' There's also a change in the definition of "primary caregiver'' and the repeal of the definition of the NCBS, as well as the incorporation of the formula designed to measure low income, which is very similar to the NCBS, into the act.

There's also a transition measure included for the benefit year 2016-17 to allow for the use of the calculation that was in the Income Tax Act as an indicator for low income for the CLB eligibility.

Before I proceed to a clause-by-clause review, are there any questions?

The Deputy Chair: You go ahead with the clause by clause, and then we'll do the questions.

Ms. Kerr: Okay. The first clause is 107(1), found on page 174. This clause repeals the definition of the Child Tax Benefit as of July 1, 2017, since clause 107(4), which is later on, replaces it with the term "Canada Child Benefit'' as of the same date.

The Deputy Chair: Where do we see the date? Help me with that. I'm looking for the date.

Ms. Kerr: The date is with respect to when it comes into effect, which is at clause 113(1), page 179.

The next one is clause 107(2). This clause repeals the definition of the National Child Benefit Supplement as it's no longer in play as a result of the CCB being introduced.

The next one is clause 107(3), also on page 174. This clause refines the definition of primary caregiver to clarify that an individual must be eligible for but not necessarily in receipt of the Canada Child Benefit. This is achieved by removing the term "payable'' which is used elsewhere in the act to mean "in receipt of.''

The next one is 107(4), also on page 174. This clause inserts a definition of the Canada Child Benefit, which replaces references to the former Child Tax Benefit.

Then we're at 108(1), page 175. This clause replaces the Child Tax Benefit with the Canada Child Benefit.

Clauses 108(2) and 108(3), page 175, also replace the Child Tax Benefit with the Canada Child Benefit.

Next, clause 108(4), page 175, amends the clause for the French portion to replace "la prestation'' with "l'allocation.''

Clause 108(5), page 176, replaces the Child Tax Benefit again with the Canada Child Benefit as it relates to subsection 5(6.1), "Change in care.'' There are two references there.

Then we're at 109(1), page 176. This clause amends the first two paragraphs of the CLB portion to address the 2016- 17 benefit year. It inserts the text referring to the description of C, which is the NCBS formula that was previously found in the Income Tax Act, which remains in effect for the 2016-17 benefit year.

Next is clause 109(2) at page 176, which amends the first two paragraphs of the CLB portion, which refers to including eligibility criteria of up to the lowest income threshold for families with up to three children.

Clause 109(3), at page 177, clarifies how the act already works. It does not introduce a new substantive rule. This clause expressly states certain aspects of the act's operations during the time of the transition to avoid any confusion.

Next is clause 109(4), at page 178, which inserts the revised CLB formula, which was previously in the Income Tax Act for families with more than three children. It also inserts the clause for the annual adjustment as well as a clarification of the annual adjustment in terms of how it relates to a benefit year.

Clause 110(1), at page 178, again removes the reference of the National Child Benefit. Then we have 110(2), at page 178. We're removing the reference to the Child Tax Benefit and replacing it with the Canada Child Benefit.

Clause 111, at page 179, pluralizes the title from "provision'' to "provisions.''

Clause 112(1), at page 179, adds a section to ensure that for applications made retroactively beginning on July 1, 2016, the rules applied are those that were in place for that benefit year.

Next, clause 112(2), page 179, adds a section to ensure that when applications are made retroactively for the 2016-17 benefit year, the rules that are applied are those that were in place for that benefit year.

Lastly, clause 133(1), on page 179, contains the coming into force provisions.


Senator Massicotte: Thank you for your presentation. We are all familiar with the talk we heard after the budget, and even during the election campaign. We reviewed the provisions that amend the act as such. Could you explain to us, in your own words, what the purpose of these amendments is, and how this compares with what existed previously?

Ms. Kerr: These are really minor changes. From the policy perspective, there is no change. People who had access to the subsidy previously will still have access to it. It is more or less the same thing. We simply eliminated the expression "from the Income Tax Act into this act''.

Senator Massicotte: The amount will not change in any way?

Ms. Kerr: No.

Senator Massicotte: So why is the formula regarding the number of children and dependents so complicated? Is there not a simpler way?

Ms. Kerr: We tried to make sure there would be very few changes.

Senator Massicotte: So no Canadian will be affected once this amendment is made.

Ms. Kerr: They should not be.

Senator Massicotte: So why make this change?

Ms. Kerr: We have to make the amendment because the incentive was eliminated.


Senator Enverga: Just a quick question. Would the same number of people have the same benefit?

Ms. Kerr: In principle, nothing should change. It really is a consequential amendment as a result of the CCB having been introduced.

The Deputy Chair: Thank you very much, Ms. Kerr and Ms. Nagy.

Ms. Demery, who is there now, will help us with Division 4, which follows Division 3. Please tell us what's there.

Michelle Demery, Director, Programs Division, Office for Disability Issues, Income Security and Social Development Branch, Employment and Social Development Canada (ESDC): Absolutely.

Division 4 pertains to amendments to the Canada Disability Savings Act, CDSA, which contains the framework that governs the payment of the Canada Disability Savings Grants and the Canada Disability Savings Bonds into Registered Disability Savings Plans, RDSPs. An RDSP is a savings plan that helps parents and others save for the long-term financial security of a person with a severe or prolonged disability.

Consequential amendments must be made to the CDSA as a result of the introduction of the Canada Child Benefit in the budget implementation act that has replaced the Child Tax Benefit. Beginning on page 180, clause 114(1) removes the definition of Child Tax Benefit from the interpretation section of the CDSA.

Clause 114(2) refines the definition of the phase-out income, which is the income threshold above which the low- income Canada Disability Savings Bond begins to diminish. Eligibility for the low-income Canada Disability Savings Bond had been aligned to the threshold of the former Canada Child Tax Benefit, which was $26,364 in 2016. The amendment will now align that threshold with the Canada Child Benefit, which is $30,000.

As a result of this amendment, in 2017 it's estimated that approximately 14,700 low-income RDSP beneficiaries — individuals with severe or prolonged disabilities — will benefit from this change by an average increase of approximately $87 in their Canada Disability Savings Bond. This will result in an increase of $1.28 million, which is the statutory cost of the program.

Clause 114(3) adds the definition of the Canada Child Benefit to the interpretation section of the CDSA.

Clause 115(1) amends several provisions in the CDSA by replacing references to the Child Tax Benefit, which no longer exists, with "Canada Child Benefit.'' Clause 115(2) amends two subsections of the French version of the CDSA by replacing "prestation fiscale pour enfants'' with "l'allocation canadienne pour enfants.''

Then on page 181, proposed section 116 provides that the amendments are deemed to have come into force on January 1, 2017.

The Deputy Chair: Thank you.

Pages 180 and 181 are a fairly short division but some important changes. We appreciate your coming to tell us about it.


Senator Massicotte: In your own words, what does this mean? Why make these changes?


Ms. Demery: We had been referencing the Canada Child Tax Benefit in our legislation in order to calculate who is eligible for the low-income bond. There is a requirement — a consequential amendment — to change a reference to the Canada Child Benefit. As a result, though, we will be helping approximately 14,700 low-income people with severe and prolonged disabilities by giving them an average increase of $87 in the low-income bond.


Senator Massicotte: Are these 14,000 families, or individuals?

Ms. Demery: Individuals.

Senator Massicotte: Who will receive, on average, 870. . .?

Ms. Kerr: $87.

Senator Massicotte: $87 more.

Ms. Demery: Yes.

Senator Massicotte: Was this part of the election promises?


Senator Tannas: It's probably fair to say that $87 in a giant bond designed for somebody for the rest of their life isn't really helping; it's just a kind of rounding up as part of a harmonization. Is that fair? You said this whole thing is a one-time charge of roughly $1 million; is that what I heard?

Ms. Demery: The threshold of the phase-out income will move from $26,000 to $30,000. So the $26,000, under the old Canada Child Tax Benefit, was indexed — it did increase — but it is an initial increase for these 14,000 individuals.

Senator Tannas: Is it $87 a month?

Ms. Demery: No, it's $87 a year.

Senator Tannas: It's a one-time $87 increase, and that's really it. That's where you get the 14,000 times $87 equals $1.2 million.

Ms. Demery: That's right.

Senator Tannas: Nobody will throw you a parade for this, right? It is truly a tidying up and not a benefit that's being conferred.

Ms. Demery: Exactly.

The Deputy Chair: But if it was tidying down, you would have a parade.

Senator Tannas: Yes, if it was rounding down.

The Deputy Chair: I thank the three of you from Employment and Social Development Canada — Ms. Kerr, Ms. Nagy and Ms. Demery.

We've done Division 5, so we're going to Division 6. Divisions 6 and 7 are the other two that have been referred to us. We're moving along quite nicely.

Division 6 deals with the Royal Canadian Mint. We have, from the Department of Finance, Nick Moreau. Could you introduce your colleagues?


Nicolas Moreau, Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance Canada: With pleasure, Mr. Chair. With your permission, I will speak French. My name is Nicolas Moreau and I am the director of the Funds Management Division at the Department of Finance. I am accompanied today by James Wu, who is chief of the Funds Management Division, Financial Sector Policy Branch, and by Mark Joshua, from the same division.

I am going to discuss division 6 of Bill C-29 which includes clauses 136 to 139, on pages 229 to 230. The 2016-2017 budget proposed adjustments to the Royal Canadian Mint Act. The amendments proposed to this act aim to bolster the effective and efficient functioning of the Royal Mint. These amendments can be found, as I mentioned, in clauses 136 to 139.

Clause 136 on page 228 amends the Royal Canadian Mint Act by restoring the capacity of the Royal Canadian Mint to generate profits from its provision of goods and services to the Government of Canada and its agents. This includes the sale of Canadian coins to the Department of Finance for resale to financial institutions, by giving the organization the possibility of deriving a profit from these transactions with the government and its agents. This change will encourage innovation and improve procedures, and mean lower costs for the government.

Clause 137 on page 228 amends the Royal Canadian Mint Act by specifying in section 4 the types of activities the Royal Mint may undertake. As currently worded, section 4 refers to four general activities regarding coins and metals. This can be open to interpretation. The amendments proposed to section 4 specify the activities the Royal Mint may conduct and include activities such as marketing, consulting and storing precious metals. These amendments will make the mandate of the Mint more specific and minimize operational risks and risks to the reputation of the corporation and the Government of Canada.

Clause 138, on page 230, amends the Royal Canadian Mint Act by adding provisions to ensure that the $350 coins stamped with the years 1999 to 2006 are legal tender. This clarification derives from the fact that the Royal Canadian Mint Act, as it existed from 1999 to 2006, made no reference to the $350 coins.

And finally, clause 139, again on page 230, amends the Royal Canadian Mint Act so as to repeal the requirement that the Mint administrators must have experience in the area of manufacturing or producing metals, industrial relations or a related area. This allows for a considerable broadening of the pool of possible candidates for appointments to the board of directors. These amendments will enhance the effective and efficient operations of the Royal Canadian Mint.

I will be pleased to reply to your questions.

The Vice-Chair: Did you explain why section 139 was repealed?

Mr. Moreau: That was the last point I mentioned. A change was made to the act to increase the number of eligible candidates for positions on the board of directors, by withdrawing the provision that stipulates that any candidate must have experience in the area of producing precious metals. Since the mandate of the Royal Mint has been broadened over the years, in our opinion, it is no longer necessary to have experience with precious metals.

Senator Massicotte: There are indeed several amendments. The one that interests me the most aims to allow the Royal Mint to make profits on the services it offers to outside clients, and also on the services it offers to the Government of Canada. Is that correct?

Mr. Moreau: Yes.

Senator Massicotte: Why?

Mr. Moreau: The Royal Canadian Mint can already make profits on the sale of goods and services to the private sector, for instance by selling coins to other countries or by offering services to private companies. However, when it had to sell coins or services to the government or its agents, since 2014 it did not have the right to make profits. This meant that there was no incentive for the Mint to develop more productive ways of doing things or to invest in new technologies so as to reduce its costs.

Senator Massicotte: The purpose is to ensure that the institution is managed in a way that maximizes its assets, and among other things, to encourage it to be more creative. Can the Canadian government purchase the same goods elsewhere, or must it deal with the Royal Mint?

Mr. Moreau: The government will in fact deal with the Royal Mint. We have to understand here that the assets are consolidated. What the government pays to the Mint is consolidated.

Senator Massicotte: So there is a monopoly. If the government decides to purchase goods from the Royal Canadian Mint, it can make profits as it pleases. It could even happen that the profits would be ridiculous and not competitive. Where is the balance?

Mr. Moreau: We ensure that a follow-up will be done with the Mint so that the costs charged the government will be competitive as compared to what is charged on the market.

Senator Massicotte: That is what everyone says. Every monopoly is convinced that its services are competitive. Sometimes, as though by chance, there are some bureaucratic links that become less admirable over time. Where is the discipline to ensure that that will not be the case?

Mr. Moreau: One way of ensuring that discipline is respected here is by comparing the costs charged to the government of other countries when the Mint sells coins to them. If the prices paid by the Government of Canada are not competitive they will be much higher than what other countries pay. It is a fact that the Royal Mint competes with several other countries in the world to sell coins and metals.

Senator Massicotte: I am trying to understand. The chief executive officer of the Mint, if that is his title, could state that his profits are not high enough, because he offers his services and sets his prices. However, while offering an essential service he cannot make the profits he believes he should on his sales to the government. Why this turf war to show that the Royal Canadian Mint has higher profits than the books might indicate? Is it a matter of pride? Who was convinced to put forward such a thing? I don't understand.

Mr. Moreau: We are speaking here strictly about an operational perspective. This allows the Mint to try to improve its production capacity and invest in new technologies so as to make higher profits. The profits remain reasonable because the government follows up on its operations. It follows up on the costs of producing metals and coins for the government. Finally, this allows the Mint to compete in a more effective way with other currencies in the world.

Senator Massicotte: Does the Canadian government own 100 per cent of the Mint?

Mr. Moreau: One hundred per cent of it belongs to the Canadian government.


Senator Enverga: My question is almost the same as Senator Massicotte's. You're saying this is being done so that the policies will be comparable with mints in other countries. Is that correct?

Mr. Moreau: I don't know about the mints from other countries, but for Canada, what we're suggesting is that they will be able to make a profit when selling their goods to the Government of Canada and the Crowns.

Senator Enverga: Do they have any projected profit here? What are we looking at?

Mr. Moreau: They have a corporate plan in which they forecast the number of coins that they will have to issue for the Government of Canada, and they also have a price associated with this.

The government has a role to challenge the cost that's charged by the mint in order to mint that currency for the government. So we do play a challenge role in this, and we ensure that the cost that's charged is competitive compared to other mints in the world.

Senator Enverga: The Royal Canadian Mint will be able to compete with other mints around the world; do you want the cost to be closer to par with other mints? Is that the reason?

Mr. Moreau: Let me be clear. The Royal Canadian Mint is already competing against other mints in the world and is already making a profit when selling coins to other countries. What we're changing here is that the mint will be allowed to make a profit when selling coins to the Government of Canada. This will make them more inclined to innovate and invest in new technology in order to reduce its costs.

Senator Enverga: Does that mean that the mint is making a profit when they sell to other countries?

Mr. Moreau: Yes, they do make a profit right now. They're very competitive when selling their goods to other countries.


Senator Smith: Historically, the Royal Mint was always able to make profits. However, the situation changed when the government modified its mandate.

To have it become profitable again, it seems that governance is the key. Aside from making changes to prerequisites for directors, how do you intend to ensure control in the organization so that there are no disputes between the director and the managers of the Mint? Will you align the objectives and the management of the Royal Mint with those of the government? How are you going to keep control of the governance? I think that is the weak point of your suggestion or your strategy; the key is the governance, in addition to the operations.

Mr. Moreau: Like any government agency, the Royal Mint has to submit a business plan for its operations at the beginning of each year. Through this business plan it presents its activities, the profits it expects to make and any change it will make to its production. Aside from that, a review of the Mint's activities is carried out by a third party, which allows us to ensure that it is managed in compliance with the requirements of the Government of Canada.

Senator Smith: What is the government's objective in changing the way the Royal Mint operates? What is the government trying to achieve?

Mr. Moreau: I want to specify that the Royal Mint has always had the capacity to generate profits. The amendment only affects the part of its transactions concluded with the government and government agencies, where it could no longer generate profits since 2014. So what we are changing is its capacity to generate a certain profit when it sells goods and services to the government and its agencies.

Senator Smith: Do all of the profits go to the government?

Mr. Moreau: It is a consolidated fund and so this goes back to the government.

Senator Smith: What are the government's objectives?

Mr. Moreau: The objectives are to allow the Mint to increase its production capacity, to innovate and invest in new technology.

Senator Smith: The real objective is to make more money for the government.

Mr. Moreau: There will not be any more money for the government in the final analysis.

Senator Smith: If you make more profits, you have more money. Technology is a given, a fact, and if technology does not progress, there is no opportunity to make profits, so the objective is to make more money for the government.

Mr. Moreau: I agree with you. Ultimately, productivity will improve, which should generate more profits.

Senator Smith: Who will make the decisions regarding the profits the government will receive? Who is in a position of power? Is it the Treasury Board Secretariat?

Mr. Moreau: The Royal Canadian Mint is under the supervision of the Minister of Finance, through the auspices of the Treasury Board Secretariat, and that is where the revenues will be consolidated and redistributed to all of government.

Senator Smith: According to Senator Massicotte, we need rigorous governance, and the public needs to know what the government will do with these profits. It's all well and good to make profits, but we need to know what will be done with them by government administration. Will the necessary controls be put in place for the public to know exactly what will be done with the Royal Mint's profits?

Mr. Moreau: There are already controls in place to measure the profits generated by the Mint, and the profits will be redistributed to the government's consolidated fund and will benefit Canadians as a whole.

Senator Ringuette: I would like to direct your attention to page 229, subclause 4(2)(i). It reads "issue, promote, deal in or trade in financial services and products [. . .]''. It seems you want to get into a bigger retail market than the one you currently have.

Mr. Moreau: What we are doing is clarifying the mandate of the Royal Mint. The Mint is already doing these things now. For instance, it sells gold ingots. We are not changing the Mint's mandate, but we are clarifying it.

Senator Ringuette: But there is a difference between a financial product and a financial service. What is your definition of financial services? Selling gold ingots is a financial product, not a financial service. What is your understanding of financial services? Do you want to become a bank?

Mr. Moreau: I represent the Department of Finance of Canada. The Royal Mint does not intend to become a bank.

Regarding financial products, what we mention is that in light of its expertise and technology, the Royal Mint will be able to determine the percentage of ounces of gold contained in gold ingots and consequently offer a financial product which will be to measure the gold content in the gold ingots produced by various mines in Canada.

Senator Ringuette: Is that the only service? That is not a financial service, but the provision of expertise. This is very confusing, even more so if one reads the English text:


. . . issue, promote, deal in or trade in financial services . . .


This is not an offer of expertise that is a service, since the text mentions the promotion and exchange of financial services. As I said earlier, this is confusing and I think you must provide much more detailed explanations on what is meant by "financial services''. I do not think it is the Government of Canada's intent to have the Royal Mint become a second Bank of Canada, but this could be interpreted that way. I would like to hear some clarifications with regard to the text of the bill.


Mark Joshua, Senior Economist, Funds Management Division, Financial Sector Policy Branch, Department of Finance Canada: Some of the other activities that the mint is mandated to engage in also include storage of precious metals, and they also maintain notes, which we can elaborate on, if you like, after the fact.

Senator Ringuette: No. I can understand it says in other articles that you store as a service. It's not a financial service. You may store coins for certain countries for a fee, of course. But that is very different than the item of issue, promote, deal in or trade in financial services. That is not a product. And storing coin, it's a service, but it's not a financial service.

Mr. Joshua: They also maintain notes which are backed by precious metals, and that's something we can provide more detail on. I'm not prepared to give you too much detail on the notes which they maintain, but they're essentially predicated on the pricing of the precious metals which they hold.

Senator Ringuette: Notes issued by whom?

Mr. Joshua: They're maintained by the mint. But I'd rather follow up and give you more accurate details later.

Senator Ringuette: I think everyone is interested in having that, if you can send it to the clerk, please.

Mr. Joshua: Sure.

Senator Ringuette: Thank you.


Senator Massicotte: I agree with my colleague that the text in that clause allows for a lot of discretion, such as the possibility of doing transactions on the metals market, on the Stock Exchange. Is the Royal Mint involved in the transactions market for minerals in order to make profits?


Mr. Joshua: Essentially, you're asking what specifically we mean by allowing them to maintain a profit?

Senator Massicotte: The wording of the paragraph, the way we will amend it, will give the Canadian Mint immense discretion in the future to become a trader in commodities. That's what the wording says; its financial services, and it goes on to describe what they are. In other words, they could begin trading in commodities, thinking they are specialists in rare commodities, and so on. The good news is the wording of the paragraph says "subject to the approval of the annual plan.''

Does the Canadian Mint currently do any trading in minerals or commodities?

Mr. Joshua: No. They're not trading in precious metals as a proprietary enterprise.

Senator Massicotte: So, while the wording in the legislation would permit them to do so, at least we have a minor control in that it must be approved by the minister in the annual plan. That's my conclusion.

Mr. Joshua: For all of their activities, there's a corporate plan, which I think Mr. Moreau referred to earlier. It details what they intend to do for the following year and also for the next four years after that, which is approved not just by the Minister of Finance, who is the minister responsible minister for the mint, but also by all Treasury Board ministers, as well.

Senator Massicotte: I think all of us are finding it odd that we're effectively playing counting games to allow them to make a profit on a relationship that's monopolistic. They have no choice but to sell, and the other has no choice but to buy, yet we're going to create an artificial number called profits, there.

Having said that, I guess the argument I'm making to myself is that I guess it isn't too bad because it's right back to zero. It's 100 per cent owned by the mint. I have no idea why we're doing it, but it's not too harmful.

The only question I have is this: Does management have a profit-sharing plan? Does anybody get a piece of higher profits?

Mr. Joshua: One thing on which I'll elaborate as far as the profit point is concerned is that there is a memo of understanding which the government enters into with the mint in terms of the pricing the mint charges for specific coins. Profit aside, the price that the mint is allowed to charge is agreed upon by both the Government of Canada and the Royal Canadian Mint.

Senator Massicotte: So, it's a cost-plus relationship?

Mr. Joshua: Something like that, yes. Another motivation for the reinstitution of profit is, as Mr. Moreau mentioned earlier, that the mint was not allowed to re-profit from its sales to government agents. This includes Canada Post, for example, which is a reseller of some of the mint's numismatic, or collector's, coins.

Senator Massicotte: Again, is the profit stated as a percentage? Is it another cost-plus relationship?

Mr. Joshua: I'm explaining the motivation for reinstituting the allowance for profit. When the Royal Canadian Mint was not allowed to sell to Canada Post to gain a profit, there was a risk that Canada Post, in turn, could undersell private sector sellers of numismatic coins. That is one of the unintended consequences we're trying to fix here.

Senator Massicotte: All of the services they provide to the Canadian government are based upon a predetermined percentage, or cost-plus, relationship, where it's predefined. Is that accurate?

Mr. Joshua: It's agreed to by the Department of Finance under the Minister of Finance.

Senator Massicotte: Further to Senator Smith's argument, the argument you raised is that it provides for us to be innovative, causes us to be innovative and forces us to be market-oriented. I'll try to be polite, but all of that means nothing because you've got a cost-plus relationship. As we see too often on Parliament Hill, when a contractor builds a building cost-plus, the cost is a lot higher than when it's forced to be competitive. Both parties lose in a cost-plus relationship.

Does management get any profit-sharing? Does senior management make more money? Do they get a bonus if they make more money and profits?

Mr. Joshua: I don't believe that that's the case, no.

Senator Massicotte: Could you find out for sure and advise our clerk so we all know?

Mr. Joshua: Absolutely.

Senator Massicotte: Thank you.

Senator Enverga: Since you're going to be jacking up the price of our mint coins, can the government actively receive a tender from you guys? Or is it just a monopoly for the mint? Can they ask for a tender from other institutions or countries to make coins for the government?

Mr. Joshua: The mint is the purveyor of coins and currency for the Government of Canada, so the department isn't engaged in requesting proposals from other mints.

Senator Enverga: If you make the coins more expensive, can they tender it from another mint? Can they ask for bids so that you guys don't have to tap a big profit? Can they ask for bids to make coins?

Mr. Joshua: Are you talking about the Royal Canadian Mint?

Senator Enverga: Yes.

Mr. Joshua: Whether they can request bids?

Senator Enverga: Yes, because you're going to be marking up prices on the coins. When you bid on for something on the government, you have to build in a markup to make a profit, right? Is that how it's going to happen?

Mr. Joshua: There's a memo of understanding in terms of the costs that the government incurs for each coin. Again, we can give you more precise details, but it's not a matter of just getting the cost of production and marking it up by an arbitrary amount. If you like, we can give you precise details in terms of that memo of understanding.

Senator Enverga: We'll be waiting for that.

The Deputy Chair: Thank you, Senator Enverga. That concludes Division 6.


Mr. Moreau, thank you very much. Mr. Wu, will you make a brief presentation on division 7?


James Wu, Chief, Funds Management Division, Financial Sector Policy Branch, Department of Finance Canada: Thank you, deputy chair. First, on the last item, my understanding as well is that the Royal Canadian Mint will be providing a submission to this committee as part of your review.

The Deputy Chair: They were going to attend tomorrow. That was our only time slot, but we are going to provide them with a copy of the transcript.

Mr. Wu: We will be in contact with the Royal Canadian Mint as well.

The Deputy Chair: Thank you. This is quite time-sensitive to the order of the Senate Chamber, so we have to move quickly on this.

Mr. Wu: Understood. It would be our pleasure to follow up with them as well.

We are pleased to be here to assist in your review of Division 7, Part 4 of Bill C-29. As announced in Budget 2016, the government has conducted a review of the legislation that provides authorities for the management of the government's debt and treasury operations. A number of amendments are being proposed.

The objective of these amendments is to ensure that the authorities continue to be sufficient to facilitate the sound and efficient management of federal funds in the operation of Crowns.

In general, these are more technical or housekeeping-type amendments, and I'd be happy to go through them clause by clause for you momentarily.

There are three high-level categories. The first is to clarify authorities for existing activities or operations of the Treasury; the second category is to provide more tools for managing risks, such as hedging currency risks; and the third category is to provide more operational flexibility for how we manage the Crown's funding and tools available to certain Crowns like CMHC.

Amendments are being proposed to the Financial Administration Act, the Bank of Canada Act and the Canada Mortgage and Housing Corporation Act. These are covered in clauses 140 to 144, which should be on pages 230 to 233.

If you'll permit me, I'll now start going through this clause by clause. The first amendment is clause 140, which substantively starts on page 231, but a portion of it is on page 230. This first amendment is to provide an explicit authority for the Minister of Finance to lend the Receiver General cash balances on a daily basis to market participants. This is an option that currently occurs to help manage the cost to the government of building up cash balances in anticipation of upcoming expenditures. It's an ongoing activity, and this amendment would explicitly clarify that the authority is there for the minister to conduct these options.

The second amendment is later on in clause 140; it starts on page 232. It is to establish an explicit authority for the minister to engage in contracts in essence to hedge against risks such as currency transactions. In the past the government has acquired large sums of foreign currencies, and during the time that it takes to convert it to Canadian dollars, the government is exposed to exchange risk.

We were asked from time to time whether or not the government could engage in contracts to hedge against the risks, and the legal review was that the existing authorities were unclear and it would be prudent to have a clear authority before engaging in transactions of managing risks to the treasury for these foreign exchange risks.

If I could invite you to look at clause 141, which should be on page 233, this is the third amendment. This one is to clarify that the minister may make payments that are consistent with his broader existing powers under Part 4 of the Financial Administration Act for public debt.

An example where this is important is that when the government issues debt in foreign jurisdictions, we use foreign fiscal agents. In Canada the Bank of Canada is our fiscal agent, but in other jurisdictions we have other parties that act to support the government's issuances in those jurisdictions. These foreign fiscal agents can sometimes have their own terms and conditions which can be viewed as modifying the government's debt obligations.

In this specific case, sometimes they have limits on the time frame in which the debt can be redeemed, and after that a certain doubt arises as to whether or not the government would repay its debt. This amendment would clarify that the minister can make those repayments, which is very important to support Canada's strong reputation as being a sound credit and its willingness to repay its debts. That is very important in credit markets.

If I may invite you to look at clause 143, which is the fourth amendment, this should also be on page 233. This would give an explicit authority for the Bank of Canada to manage the lending operations that the government has with its Crown corporations. This is the Crown Borrowing Program. It was started in 2008. The Department of Finance has been managing the front office operations of this program. The program has been working very well and consistent with the Bank of Canada's fiscal agent role; we would like to transfer the front office operations to the Bank of Canada. This clause would permit that transfer.

I skipped over clause 142 because clauses 142 and 144, also on page 233, collectively relate to the last amendment, which is to enable the Bank of Canada to offer custodial services to Canada Mortgage and Housing Corporation. Custodial services are basically when a financial institution acts to help safeguard and manage assets on behalf of a client. The Bank of Canada would offer these services to CMHC. As a custodian, the entity can also help facilitate transactions.

This type of an arrangement already exists between the Bank of Canada and the Canada Deposit Insurance Corporation. In 2014 this power was given to the Bank of Canada already for CDIC, and part of our amendment is to add CMHC to the end of that provision so that the Bank of Canada can provide similar services to CMHC.

This will give CMHC more options for how it manages its collateral service providers and its financial risk management operations. CMHC, in essence, is very supportive of this. They proposed this amendment.

In closing, we feel this set of amendments would support and provide for the continued prudent management of Canada's treasury operations. That concludes my remarks, and I'm happy to take questions.

The Deputy Chair: Mr. Wu, four or five years ago, in a budget implementation act there was a clause that allowed the minister to borrow money without going to Parliament. Do you remember that? After the fact, we tried to reverse that. We have reversed it now.

Is there anything in these amendments that takes power away from either house of Parliament and gives it to the ministry or the minister?

Mr. Wu: First, let me say that you're quite right; the government is very committed to providing greater transparency and accountability to Parliament with respect to its borrowing activities. This is a key part of the mandate.

As you indicated, in Budget Implementation Act No. 1, certain amendments were introduced that basically reduce the need to have Parliament's approval for borrowing activities. Those amendments have not yet been brought into force, because more work needs to be done, subject to further approvals, to develop the fuller framework that would manage the borrowing activities.

These amendments are separate from that and do not circumvent either the current borrowing authority approach or the proposed one currently being developed.

Senator Massicotte: I'm trying to repeat what I think I read here, which is that you basically want the authority to borrow money equal to the surplus of funds you may have in your Consolidated Revenue Fund. Is that accurate?

Mr. Wu: Thank you for the question. The gist of it is very accurate. In order to raise funds for expected expenditures, those operations occur over a matter of time. While those operations are being undertaken, there can be so-called excess cash in the system that is not needed for immediate needs but anticipated needs, but while that excess cash is in the Consolidated Revenue Fund, the government "manages down the cost of carrying that cash'' by lending it to financial institutions.

Senator Massicotte: You're getting a deposit rate on that cash. Because the word is "lend.''

Mr. Wu: Yes.

Senator Massicotte: It's not borrow. It's basically advances; you're going to make it to somebody else.

Mr. Wu: That's right. When the government has excess cash in the Consolidated Revenue Fund, the government lends out that cash and makes, basically, as you suggested, a deposit rate, or what typically is the Bank of Canada's overnight rate.

Senator Massicotte: The Consolidated Revenue Fund, what is that in real life? Is that a bank account with the Bank of Canada?

Mr. Wu: The technical answer is it's actually a number of accounts that represent the accounts of the Government of Canada. The account that we're speaking of here is one specific account that the Bank of Canada itself manages. That is the key part of the Consolidated Revenue Fund, because all the money the government collects eventually goes there. The Bank of Canada acting as the government's fiscal agent manages the process of gathering that cash and managing the large fund.

Senator Massicotte: The idea is good. It's so obvious you have money sitting there, let's earn interest on it. Why wasn't it done a hundred years ago? I can't figure this out. All these years money was sitting there and nobody clicked to say, "I'm going to make some money on the dead money I have sitting in some account someplace?''

Mr. Wu: My apologies if I was not clear. I believe I stated that this is an ongoing activity that the government already does. We do this on a daily basis under the more general powers that the minister has in the Financial Administration Act. In the process of conducting our legal review, it was seen as prudent to make it a more explicit power because this is such an important operation of the government.

Senator Massicotte: The way I heard what you just said is that what you've been doing has maybe been illegal for the last five years and now you want to make it legal so you don't go to jail.

Mr. Wu: That's a very interesting interpretation. I'm not a lawyer, but in my analysis of this part of the act and in discussions with our legal counsel, the view is that we have always had the power to engage in these activities under the broader authorities of the FAA. It's just prudent sometimes to be a little clearer.

The Deputy Chair: You're pretty close to a lawyer.

Mr. Wu: I guess I'll say thank you.

Senator Tannas: I want to make sure I understand the hedging. This would be if the government were to issue a bond in euros and it's going to take X number of days to collect the money from the fiscal agents, get it in and get it converted. You want to be able to, on the day of the auction, hedge. There's no intention of a big forward program or anything along those lines; it's simply in the context of the market in those few days. Is that right?

Mr. Wu: It may help if I give you some clear examples I had in mind.

This hedging amendment was a little less about the issuances of debt as opposed to management of the government's assets. It's actually meant to be reflective of financial positions. If you read the proposed section, it's about managing the risks related to existing financial positions of the government.

You may recall that a year or two ago the government sold off its shares of General Motors and acquired approximately $3 billion Canadian dollar equivalent of U.S. currency. There was a large foreign exchange-rate exposure. It took us a number of days to convert it without impacting the markets, but during that process, there's foreign currency exchange rate risk.

Additionally, in 2013, the government entered into a contract to sell the Canadian chancery building in London. The amount from that sale was fixed at a certain point in time, but it took a number of months for the transaction to close and to receive a large amount of pounds sterling. During that period, the government was exposed to exchange rate risk. The question from these two examples was, could the government have used a contract to hedge against that exchange rate risk?

Senator Tannas: So it's really not about borrowing; it's about the assets you've got.

Mr. Wu: That's right, the financial positions. Again, the provision specifically states that it's in respect of financial positions. For the larger part that would be created, the title is actually "financial transactions related to asset management.''

Senator Tannas: Fair enough. Thank you.

Senator Enverga: Is this part of the creation of the infrastructure bank? Is there any relation to this?

Mr. Wu: There is no direct relationship to the Canada infrastructure bank.

I think about this as a sort of — I'll borrow the word again — infrastructure of Canada's treasury operations. Any Crown could be involved in, for instance, the Crown Borrowing Program.

Senator Enverga: But this could be a tool, right?

Mr. Wu: This is just part of the general treasury operations of the government.

The Deputy Chair: Thank you. I have no other senators who have asked to intervene.


Mr. Joshua, Mr. Wu and Mr. Moreau from the Department of Finance, we thank you for having appeared before our committee today.


Colleagues, we meet at our normal time tomorrow. This concludes the meeting for today. We have been through everything that has been referred to us, and we will have witnesses who will explain how this impacts their particular interests. We hope to finish our dealings with this bill, Bill C-29, budget implementation act, 2016, No. 2. We'll have a short discussion at the end of our witness meetings to see where we go.

Senator Massicotte: I like the time we're finishing. I must observe that we should do this every time — sit while the Senate is sitting so we finish earlier. It would be a good idea.

The Deputy Chair: I'll take that under advisement. The meeting is now concluded.

(The committee adjourned.)