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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Mr. Moreau: One hundred per cent of it belongs to the Canadian
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
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
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
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
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
Mr. Moreau: There will not be any more money for the government in the
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
The Deputy Chair: Thank you. I have no other senators who have asked
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