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

Issue No. 10 - Evidence - December 1, 2016

OTTAWA, Thursday, December 1, 2016

The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:36 a.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: My apologies, honourable colleagues: We were just releasing the report on the Copyright Board of Canada. It turned out that the news conference was in an arts collective building at the University of Ottawa campus, so it was a little bit far away, but we had a lot of artists and collectives in attendance, which was very good.

My name is Joseph Day. I'm deputy chair of this committee, filling in for Senator David Tkachuk, who is our chair and is regrettably unable to be with us today.

Today, we continue our subject matter examination of Bill C-29, Budget Implementation Act 2016, No. 2. In particular, we're looking at Divisions 3, 4, 5, 6 and 7 of Part 4, all of which were referred to us by the Senate chamber for pre-study.

Honourable senators will know that our committee must report our findings to the Senate by Tuesday next, and that is part of the order that we received from the Senate Chamber. In that regard, I would seek your consent at the end of the meeting to go in camera to discuss our findings and have a brief discussion on what our report should entail.

Today, we will begin with witnesses at the table who will speak to Division 3 and Division 5. We will begin with Division 5, and that can be found at page 181 onward of the bill itself.

I should note that there are additional witnesses with respect to Division 5. Division 5 was the first one we did last evening, and it is the longest one of all of the divisions so we have the most witnesses in that regard. If there is another witness who is not at the table but would be the appropriate person to comment on a particular aspect, we will call that person forward at that time.

Mr. Schwartz, please make your statement regarding Division 5, which, I understand, has a bit of minor commentary with respect to Division 3, and that's fine because that is also within our mandate. You have the floor, sir.

Saul Schwartz, Professor and PhD Coordinator, School of Public Policy and Administration, Carleton University, as an individual: Please allow me to thank the committee for allowing me to appear before it.

I want to briefly mention three points related to Division 5 of Bill C-29 with, as you said, a few minor comments about Division 3.

My first point is simply to say that I support the inclusion of a federal consumer code in the Bank Act, a code that is laid out in Division 5 of Bill C-29. A national banking system like ours will function better with one consumer code, as long as that code is at least as strong as the provincial codes it will supersede.

My second point is that mainstream Canadian banks treat low-income consumers with manifest indifference, and on occasion with outright disrespect. Several authors have documented that treatment. Among others, I can mention John Stapleton's report Welcome to the financial mainstream? Or Jerry Buckland's book entitled Hard Choices: Financial Exclusion, Fringe Banks and Poverty in Urban Canada. Such treatment clearly goes against the principles stated in section 627.02 of the amended Bank Act, a principle stating that "an institution's customers should be treated fairly.''

Because Division 3 of Bill C-29 proposes some seemingly minor changes to the Canada Education Savings Act, it will be of interest to the committee that one commonly cited reason for the low take-up of the Canada Learning Bond, currently at about one-third of eligible Canadians, is the difficulty that low-income parents have in establishing a Registered Education Savings Plan as required. One would think that the obvious place to go to set up such an account and RESP would be the neighbourhood bank branch, but mainstream banks have evidently been less than enthusiastic about helping low-income parents to set up such RESP plans, no doubt because of the dim prospects of generating future business from such customers.

Going forward, I would hope that the regulations that arise from the amended Bank Act will require banks to investigate empirically — and I stress "empirically'' — their treatment of low-income consumers. Empty rhetoric about fair treatment is simply not enough.

Such empirical investigations could be made the responsibility of the committee of the board of directors mentioned in section 195.1. Furthermore, the directors of the bank should be liable if they do not meet this requirement.

Should the substance of the Canada Education Savings Act, as opposed to the minor amendments in Division 3, ever be taken up, the link between the Canada Learning Bond and Registered Education Savings Plans should be broken, as my colleague Professor Jennifer Robson has suggested.

My third point is that the federal consumer protection code in Division 5 applies only to the 50 or so banks and is simply not broad enough to protect Canadian consumers of financial services, especially low-income consumers.

What is needed is an American-style Consumer Financial Protection Bureau. In the Canadian context, of course, such a bureau could not be as strong as its American counterpart, but it could be vastly more effective than Canada's Financial Consumer Agency, hobbled as that agency is by its limited ability to make and enforce rules.

In particular, more attention needs to be paid to the alternative financial services sector, payday lenders, pawn shops and cheque cashers. We need to know more about that sector, and more needs to be done to regulate its behaviour.

In addition, a low-cost bankruptcy procedure — currently bankruptcy costs about $1,800 and could be done for $500 — similar to the low-income bankruptcy procedures in place in the United Kingdom and Australia would be useful and important for low-income debtors.

A Canadian Consumer Financial Protection Bureau could, at a minimum, generate the knowledge that provinces need to take action. At best, it could develop federal regulations that better protect Canadian consumers of financial services.

Thank you for your attention.

The Deputy Chair: Thank you very much, Mr. Schwartz.

Sarah Bradley, Ombudsman and CEO, Ombudsman Banking Services and Investments: Honourable members, good morning, and I want to thank you for the invitation to present to the committee today.

For those of you not familiar with OBSI, let me provide some background. OBSI resolves disputes between participating banking services and investment firms and their customers if they can't resolve those complaints in a timely basis on their own. We are independent of the firms. We are impartial, and our services are free to consumers. We operate as an alternative to the legal system. We began operations over 20 years ago in 1996. The country's largest banks were our first participating firms. We were then and are today a not-for-profit corporation established to meet the needs of the Canadian public, and we take our public service mandate very seriously.

In 2002 our mandate was expanded to include firms regulated by the Investment Industry Regulatory Organization of Canada, IIROC, and the Mutual Fund Dealers Association, the MFDA.

In 2012, we were mandated by the Canadian Securities Administrators as the sole provider of mandatory dispute resolution services to the Canadian securities industry.

In 2014, our mandate broadened again to include other financial services firms registered with the Canadian Securities Administrators, including portfolio managers, exempt market dealers and scholarship trust plan dealers.

In 2015, we were approved as an external complaints body under the then-new Bank Act regulations concerning ECBs.

Our banking activities are overseen by the Financial Consumer Agency of Canada, and our investment activities are overseen by the members of the Canadian Securities Administrators.

Today, we have almost 1,400 participating firms. This includes over 1,280 mandatory participating firms, which includes about 80 federal banks, 270 IIROC and MFDA member firms, and 935 exempt market dealers, portfolio managers and scholarship plan dealers. We also have over 100 voluntary participating firms, including about 25 trust and loan companies and about 60 credit unions.

Under the current bank regulations, banks have the option of selecting which of the two approved ECBs they wish to use. I note that Royal Bank and TD Bank use ADRBO banking ombuds services, which will be presenting here today for their banking complaints, but these banks are required by securities law to use OBSI for resolving their investment-related complaints.

Turning to our volumes, in 2015 we received more than 18,000 telephone and electronic contacts from across the country and over 5,000 formal inquiries; and we opened 571 investigations, 273 of which related to banking cases.

In 22 per cent of these banking cases in 2016, we found in favour of the consumer. However, even when we do not find fault with a bank, many consumers tell us how much they appreciate having an independent expert take the time to investigate their complaint and explain why compensation may not be warranted in the circumstances of their case. This is reflective of the vital public service that financial ombudsman services provide.

Our underlying public purpose is to support confidence in the financial services sector. The products offered in this sector are complex. The information asymmetry between consumers and firms in our sector is immense. Consumers know this. They also know that the legal system is not practically available to them.

Our average compensation recommendation in banking disputes last year was $5,669. The largest recommendation for a banking complaint last year was $86,000.

Without access to the services of a financial ombudsman, consumers would have no practical mechanism for redress and confidence in this sector, which is vital or our economic prosperity would suffer. This is why we're supported in our work by the public mandate of regulators, as well as by the industry and consumer advocates. It's why financial ombudsmen exist in virtually every developed country in the world.

Our experience also allows us to gather valuable information about the points of highest friction in the financial services sector across firms, jurisdictions, product lines and sectors. We're very well-positioned to share this knowledge with regulators and industry participants, with a view to improving the overall consumer experience in our sector and ensuring that fair practices prevail.

Regarding our views on Bill C-29, it's worth emphasizing our role as an impartial dispute resolution provider. We do not advocate for consumers or the financial industry, but, rather, we serve a role intended to strengthen the overall confidence in the sector for all participants. With that role in mind, I will limit my remarks to Division 5 of Bill C-29.

In my view, this division of the bill provides a useful consolidation of the provisions that apply to banks in relation to the protection of banking consumers and the public. The bill clearly articulates the principles and purposes of these provisions, which is important because those principles and purposes will serve to inform future interpretations of the provisions. In particular, the inclusion of principles emphasizing the importance of fair treatment to consumers; the impartiality, transparency and responsiveness of the complaints process; and the general responsibility of financial institutions to consider the interests of consumers, and the public, are appropriate and well-founded. The bill's enhancements in the areas of corporate governance and access to banking services, disclosure of information, business practices and public reporting are also important clarifications.

Looking forward, we will continue to work with FCAC in meeting our mandate and the important role we play in supporting the consumer framework outlined by the government in this bill. We believe that the principles outlined for dealing with the consumers and the public align with the practices and procedures we follow at OBSI. We'll support any efforts to ensure access to fair, independent and impartial dispute resolution services for consumers. As the government looks to improve financial consumer protection, we emphasize the importance of legislative and regulatory clarity to promote and safeguard fair outcomes for financial complaints.

Thank you again for giving me this opportunity to speak to you today. I would welcome your questions.

The Deputy Chair: Thank you, Ms. Bradley. I understand you are accompanied by Mr. Mark Wright who is here and will be available if you need some back up.

Ms. Bradley: That is correct.

John Lawford, Executive Director and General Counsel, Public Interest Advocacy Centre: Mr. Chair, honourable senators, we'll focus today on Division 5, Part 4 of the bill. Our main message is that the bill's financial consumer protection framework will not improve the protection of banks' customers and may in fact make things worse.

In its 2013 budget, the Minister of Finance announced the government's intention to develop a comprehensive financial consumer code to better protect consumers of financial products. This was followed by further announcements on the topic in every single budget, including Budget 2016 which promised a comprehensive consolidated framework that included targeted and more flexible consumer protection rules to better respond to Canadians' changing needs.

We were cautiously hopeful that needed change was coming. The current rules are deeply unsatisfactory. The Financial Consumer Agency of Canada, FCAC, website lists over 50 provisions of the Bank Act, 28 regulations under the act, 6 voluntary codes of conduct and over half a dozen public commitments claiming to protect consumers. Very few consumers know these rules or understand what they mean. Many of them are not strong enough or are not legally enforceable by a consumer. Often there is no rule beyond general legal principles to protect the consumer.

Bill C-29 moves around the existing rules between acts and regulations, making the framework more rigid at a time when swift market evolution would require a more flexible set of rules. It does add five new principles, the legal impact of which actually is unclear, and some small changes regarding other issues, but it also adds provisions that are clearly unhelpful to consumers.

Bill C-29 does not address real problems such as banks being able to unilaterally change any provision in their terms and conditions or disclaiming in their terms and conditions any liability for mistakes or negligence. As an example, we provide in the annex to these remarks a provision from CIBC's current terms and conditions. There is nothing in the Bank Act or in Bill C-29 that prohibits such provisions. Contrast it to the Consumer Protection Code established by the Central Bank of Ireland, which requires banks to act with skill, care and diligence in the best interests of consumers and which prohibits in principle exclusionary clauses.

Complaint resolution is not addressed by Bill C-29, even though the current regime allows a bank to choose its external ombudsman, which is an obvious conflict of interest. FCAC remains the watchdog under Bill C-29. However, it was given limited powers in 2001, and they have not been significantly increased over time. Simply compare it to the United States Consumer Financial Protection Bureau.

This is a weak framework that is full of gaps. We are therefore worried by C-29's apparent attempt to confine protection of banks' consumers to this regime, as we understand the intent behind new section 627.03 is to thwart the application of provincial consumer protection legislation in banking. This is not a good idea.

First, consumers of banks would then be less well protected in some provinces than if they did business with, say, a local credit union that would be subject to the provincial rules. In effect, Parliament would be creating a disincentive for consumers to do business with banks.

Second, consumers of all provinces may not be treated equally. This is a more fancy legal point, but it is settled law that federal legislation is not paramount to common law. In the absence of any provision regarding unfair transactions in the Bank Act, it may have no impact on, say, the application of a common law rule about unconscionability in nine provinces. However in Quebec, where similar rules are legislated in the provincial Civil Code and the Consumer Protection Act, those provincial laws could be found to be inoperative under the constitutional theory propounded by this bill. More simply stated, Bill C-29 invites constitutional wrangling instead of promoting legal certainty, which will harm consumers and banks.

We have an even more fundamental issue with what the minister is proposing. In effect, he is inviting Parliament to declare that in Canada, the convenience of bankers is more important than the protection of consumers. We believe this is mistaken and it will not be popular.

Financial service consumers would gain by the implementation of a strong, coherent and comprehensive set of legally enforceable rules that would be consistent with the Canadian constitutional framework and established through an open consultative process. This set of federal rules could act as a floor and, if the floor was high enough, provinces would likely not feel the need to offer additional protections to their residents, which would add further consistency. This is not, however, what Bill C-29 currently does.

In conclusion, we suggest this committee recommend to the minister that he take stock of these issues, withdraw this division from the bill and consult again in order to implement, in the context of the upcoming global review of the Bank Act, a truly effective financial consumer protection regime.

The Deputy Chair: Thank you very much for your direct recommendations. We appreciate that. We will certainly take those into consideration.

Marshall Schnapp, Ombudsman, ADR Chambers Banking Ombuds Office: I would like to thank the Standing Senate Committee on Banking, Trade and Commerce for inviting ADR Chambers Banking Ombuds Office to participate in the committee's review of this bill.

We are presently the external complaint body for the Royal Bank of Canada, TD Bank Group and DirectCash Bank. We have been providing banking ombudsman services since 2008.

Our office reviews complaints brought by customers of member banks after the customer has exhausted the bank's internal complaint system and is not satisfied with that outcome. If a complaint falls within our mandate, we will conduct a full investigation, if that's warranted, or we will also try to mediate a resolution between the parties.

Our investigations are undertaken by experienced, independent investigators. Upon conclusion of an investigation, an investigator may make non-binding recommendation to the bank and the complainant, which may include a recommendation for financial compensation.

Our process is confidential. However, either party may share the report with their advisers, including legal advisers, if they are dissatisfied with our findings.

If a member bank does not accept our recommendation, we will post our recommendation and the member bank's refusal on our website. As well, we'll describe the complaint in a general way that does not reveal any confidential information of either party. A member's bank's refusal to accept a recommendation and the general circumstances of the complaint shall also be reported in our annual report.

With respect to governance, we're governed by a board of directors, which oversees our business and administration and establishes and monitors our standards of performance.

To give the committee an idea of the work we do, last year, we took approximately 1,173 intake calls and opened 226 files. Last year we completed 86 investigations. We note that last year there was a significant increase in the volume, with an increase of 13 per cent of initial calls and an increase of 36 per cent of complaints. In 2015, we completed 53 investigations, while last year we completed 81 investigations.

The average time it takes us to close an investigation is 54 days from the date that we receive all of the required information.

We also strive to help the parties come to a joint resolution through mediation, wherever possible. Last year, we were able to do that on approximately 11 per cent of the matters that were investigated.

With respect to the language of complaints, last year, 212 were made in English and 13 in French.

In terms of the breakdown of the type of complaints we handle, the six main categories of complaints last year were, one, poor customer service; two, mortgage complaints mainly having to do with prepayment penalties and poor advice; three, debit and credit card fraud; four, termination of the banking relationship; five, inadequate or incorrect advice; and six, new employment or Internet fraud.

In terms of how we maintain our independence, we follow the general ombudsman principles, which include that we are independent, neutral and impartial, that we act confidentially and that we act informally trying to resolve the complaints. We are also under the oversight of the Financial Consumer Agency of Canada, and that includes an annual review.

We also develop specific policies and procedures to ensure independence and that our processes are balanced and transparent. As well, every five years, we have to submit to an evaluation of the discharge of our functions and performance of our activities, which is conducted by a third party.

While we are not an advocate, we do recognize that the proposed changes in Division 5 put some proper policies in place. For example, section 627.88 proposes:

An institution shall provide the external complaints body of which it is a member with all information in its possession or control that relates to a complaint without delay after the external complaints body notifies it that the complaint has been received in respect of it.

This is going to ensure that we have all of the necessary information and documentation required to carry out our functions and conduct our investigations in a thorough and meaningful investigation.

As well, we note that, in the proposed section 627.89:

If an institution or a body corporate is required under this Division to provide information, it shall do so in a manner, and using language, that is clear, simple and not misleading.

Again, this is a positive measure that will help to ensure that the information received is clear, straightforward and transparent, and this will help the consumer.

In conclusion, we feel that some of the changes in Bill C-29 strengthen the tools of the external complaints body to carry out our work for consumers. They will enable us to carry out our mandate and conduct fulsome investigations and help to resolve disputes from consumers.

Thank you for inviting me here. I look forward to hearing any questions.

The Deputy Chair: Thank you, Mr. Schnapp.

Anthony Polci, Vice President, Government Relations, Canadian Bankers Association: Good morning. I'd like to thank the committee for inviting the Canadian Bankers Association to participate in its review of Bill C-29.

The CBA works on behalf of 59 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 280,000 employees.

My opening remarks will address the provisions contained in Division 5 of Part 4 of Bill C-29. These amendments to the Bank Act consolidate and streamline the consumer protection provisions that apply to banks under a federal financial consumer protection framework. My introductory comments focus on the broader aspects of the amendments that will affect the banking industry.

Building and maintaining strong client relationships is of fundamental importance for Canada's banks. Banks are an active and essential part of the daily life of Canadians. Ninety-nine per cent of Canadians have an account with a financial institution, so millions of Canadians turn to banks every day for products, services and financial advice.

Banks help Canadians safeguard their money, finance a home, manage their savings, plan their investments and prepare for retirement. Banks in Canada take very seriously their role in the lives of individual Canadians, and Canadians trust their banks and value the products and services they provide.

In fact, Canada's banks have been recognized for the commitment to providing a good consumer experience, having been ranked first out of 32 countries in the Capgemini and Efma World Retail Banking Report's Customer Experience Index every year since 2012.

Bill C-29 consolidates the consumer protection provisions that exist in federal legislation, as they have evolved over many years, as well as new measures into a single financial consumer protection framework within one part of the Bank Act.

By creating a clear federal framework, Bill C-29 ensures that Canadian consumers continue to benefit from consistent, safe and high-quality banking services and products. Consolidating consumer protection and establishing a uniform set of standards under a single framework will improve the efficiency of financial services regulation, ensure consistent policy across the country, prevent consumer confusion, maximize product availability and enhance the capacity of the Financial Consumer Agency of Canada to fulfill its mandate and protect consumers.

We support the consumer protection framework being placed under the oversight of a single regulator. The FCAC was created in 2001 to strengthen oversight of consumer regulation and expand consumer education. The industry has a long-standing relationship and strong working relationship with the FCAC. In fact, the CBA and member banks often partner with the FCAC on consumer initiatives, particularly in the area of financial literacy.

We also support a framework of consumer protection principles that are not overly prescriptive and can adapt to change. Allowing and encouraging further innovation in the financial services sector is essential so that banks can continue to serve the needs of consumers by developing and enhancing financial products and services and how they are delivered to consumers.

As leaders in financial technology, banks in Canada are constantly innovating, developing new products and services to meet the demands of their customers for greater convenience. Canadians can now bank at any time, from virtually anywhere, through online or mobile banking. Every year, more and more Canadians are adopting online and mobile as their preferred means of banking. Despite this trend, however, banks have maintained an extensive branch network across the country.

More clarity about the implementation of the federal consumer protection framework will be provided through the development of subsequent regulations. We look forward to engaging in that process with the government to achieve a workable, efficient and flexible approach for the benefit of Canadian consumers.

With the start of the global financial crisis now nearly a decade behind us, it is important to keep in mind that Canada's prudently managed banks, combined with an effective financial services regulatory and supervisory framework, were key reasons for the strength and resilience of Canada's banks. A key lesson of the crisis was the importance of a streamlined, coherent and unified regulatory system as we have in Canada, with a single regulator responsible for safety and soundness, the Office of the Superintendent of Financial Institutions, and a single regulator for consumer protection, the Financial Consumer Agency of Canada.

The CBA and its members have long supported a strong federal regulatory framework for consumers. Although Canadian consumers already benefit from a strong consumer protection regime for financial services, the federal framework proposed in Bill C-29 is an important step to further improve upon that regime with clear, streamlined and consistent regulations that are applied across the country.

Thank you again for inviting the CBA to be here today, and I look forward to your questions.

The Deputy Chair: Thank you very much, Mr. Polci.

Richard Bilodeau, Director, Supervision and Promotion Branch, Financial Consumer Agency of Canada: Good morning, everybody. Thank you for the opportunity to be here today to speak to Bill C-29.


As a federal agency, the Financial Consumer Agency of Canada, or FCAC, is responsible for protecting consumers of financial products and services. FCAC monitors and supervises the practices of banks, federal credit unions, and trust and loan companies. It also develops resources and organizes activities to strengthen the financial literacy of Canadian consumers. FCAC is mandated to stay abreast of trends and emerging issues that may have an impact on consumers of financial products and services.

In addition, we supervise external complaint bodies, meaning ombudsmen. Each bank and federal credit union must belong to one of the two approved external complaint bodies. If a consumer feels that their financial institution failed to appropriately address a complaint about banking activities, that individual can then turn to one of the two complaint bodies.

Furthermore, we ensure that the operators of debit and credit payment card networks comply with certain obligations and adhere to commercial practices intended to protect merchants. Those networks include Visa, MasterCard, American Express and Interac.


FCAC welcomes the new financial consumer protection framework included in Bill C-29. If adopted, it will better protect financial consumers. We are particularly pleased with the introduction of guiding principles that set out expectations to guide banks' conduct and that will help FCAC interpret and enforce the legislation.

Other enhanced consumer protection measures include improving access to basic banking services by allowing the use of a broader range of personal identification documents to open an account or cash government cheques; strengthening business practices oversight by introducing a new prohibition on applying undue pressure on a person and by adding cancellation periods to a wider range of products and services; enhancing disclosure of key information by expanding the use of summary information boxes to all banking products and services; enhancing transparency by requiring banks and external complaint bodies to report on the nature of complaints received; and finally, improving accountability by requiring the banks to report on how they are addressing the principles of the consumer framework and the challenges faced by vulnerable Canadians.

In anticipation of this new consumer framework, FCAC has spent the last year revising its supervisory framework. I am pleased to announce that our new supervisory framework will be launched in the spring of 2017. Three pillars underpin our new supervisory approach.

The first pillar focuses on promotion, as FCAC believes that compliance is facilitated when obligations are clearly identified and accessible to regulated entities.

Second, FCAC proactively monitors regulated entities to determine whether they are complying with their obligations. FCAC also gathers information on current and emerging issues that impact financial consumers.

Finally, FCAC enforces the financial institutions' market conduct obligations. When a potential breach of a compliance obligation is identified, we investigate and take the appropriate action to respond to non-compliance and deter any further non-compliance.

With this new supervisory framework, we will proactively identify issues in the marketplace and take a more risk- based approach in our supervision and enforcement activities. We believe this approach will better position us to implement the legislative changes proposed in Bill C-29.


To facilitate the adoption of this new financial protection framework, FCAC will work closely with a variety of stakeholders, including consumers, federally regulated financial institutions, and provincial and territorial regulators. Cooperation is at the heart of all FCAC activities.

Once again, thank you for inviting me to appear before the committee. I would be happy to answer any questions you have.

The Deputy Chair: I will start with senators who have questions or comments.


Honourable senators, we have other divisions to look at and we have quite a panel, so short, snappy questions and answers would be very much appreciated.

Senator Massicotte: Ms. Bradley, you acknowledge you have an extremely important role, as well as your colleague, relative to the whole banking sector, relative to the issue of fairness and transparency. But many people still to this day doubt your effectiveness to constantly be an independent arbitrator. People are often suggesting that not you personally but your agency, as well as the others, are more closely aligned with the banks' interests given that you constantly deal with them and the consumer is a stranger to you until he files a complaint. How do you respond to that? What sector do most of your employees come from? Give me your arguments why you are truly independent and seeking the best interests of the consumer and not trying to please a major customer of yours. He has a choice of you or somebody else, and obviously you want to keep him because that's your livelihood. How do you deal with that issue?

Ms. Bradley: I think the fundamental answer is in the structure of our organization. We are a not-for-profit organization. We do not need any particular financial institution to remain a member of OBSI to ensure our continued viability.

We do have a repetitive relationship with many of the larger financial institutions in Canada; you're correct about that. It's very important for us to maintain a relationship of mutual respect with those institutions. When I attend group gatherings with them, I'm very often confronted with the opposite presumption to the one that you just stated, which is that they feel we are at times too consumer-centric. It's very important for our organization to perhaps, in a sense, keep everybody equally unhappy.

It's very much the case I think for any financial ombudsman that although the parties are treated fairly and equally, the treatment is not the same. As I mentioned previously, there's a significant information asymmetry. It's very important for us to be able to level the playing field, but it is a level playing field as between the consumer and the firm.

Firms often disagree with our approach. In every instance where we recommend in favour of the consumer, we are by inference recommending against the original decision of the firm, and that is a regular occurrence for us. As long as we are clear in our reasoning, the firms will accept and in the banking sector have always accepted, ultimately, our recommendations.


Senator Massicotte: I have a question for the FCAC director, Mr. Bilodeau. In recent years, debate has raged over the role of banks and brokers and their duty to consumers. A number of countries have passed legislation imposing a fiduciary duty towards clients on banks and brokers, requiring them to act in their clients' best interests. Today, in Canada, the issue revolves mainly around transparency and information. Why not go all the way, as other countries have done, and add to the legislation a fiduciary duty to clients, to ensure they are satisfied and well-served and have all possible information? Brokers have extensive expertise and information to pass on, after all.

Mr. Bilodeau: I cannot speak for the government as far as its decisions are concerned.

Senator Massicotte: What would your recommendations for us be?

Mr. Bilodeau: I can tell you what we are doing in an effort to make more information available to consumers, as well as to ensure that banks disclose all the information they should. Whether we are talking about the current legislation or the framework being developed through Bill C-29, more information should be disclosed to consumers. As things stand, that is the case with certain products, but if the bill is passed, that will be the case for all products, making more information available to consumers.

We, at the agency, also have a role to play in educating consumers. We work very hard to develop resources to help consumers learn more about the banking products they use. We conduct campaigns to inform consumers of their rights and responsibilities, addressing, for example, what they need to know about mortgage prepayment and whether they need to calculate three months or more of interest, depending on the remaining term. We try to improve consumers' knowledge to better position them in their dealings with banks.


Senator Ringuette: I want to particularly thank Mr. Lawford and Mr. Schwartz for their presentations this morning. I've been on this committee for over 10 years, and we're going around in circles in the fact that we have a code that has not been enforced; we have the Financial Consumer Agency that provides oversight, that licenses the third bodies that are the ombudsman organizations; the Financial Consumer Agency reports on complaints, monitors, education, information. It's a vicious circle. Some people would say it's almost incestuous. I would say it is an unhealthy trio of accommodation.

In the end, it's the Canadian consumers who are not really being protected. I don't see, and I haven't seen in my 10 years here, any instances where the Financial Consumer Agency had a real impact for the financial consumer.

Yesterday at our committee I raised the issue that OSFI seems to be playing the role that they were meant to play, but I have not seen any other stakeholder, except for this morning Mr. Lawford, and Mr. Schwartz, that really is there to protect consumers from banking abuses.

Mr. Chair, these are my comments, and I strongly hope that in the not-too-distant future we start to review the Bank Act and provide real consumer protection in different agencies that we've seen so far. All of you know, and you've known for a period of time, where I stand with regard to what we're discussing.

Thank you very much, Mr. Chair.

Senator Tannas: Thank you all for being here. I do have a couple of short, snappy questions. I think I understand the funding arrangements for each of you, with the exception of Mr. Lawford. I wonder if you could tell us where you get your funding from.

Mr. Lawford: Certainly. We exist without core funding from any government. We do work in regulatory boards such as the Ontario Energy Board and the CRTC, where there is a cost awards rule where if we represent public interest groups we're allowed to get cost awards from the commission which are paid by those companies. From that money, which is a large portion of our budget, we do other work. We are able to do financial services work. We are also very occasional, and we'd like more, recipients of Cy-pres Awards from class-action lawsuits given to groups to do public interest work.

Senator Tannas: I had asked officials about this yesterday and I want to get a confirmation from industry on the record, so I'll ask this to the Canadian Bankers Association.

Do you see, with this bill, the principles or with the current rules and regulations, any conflict that your members would have in terms of access to open an account for people, and the rules around access, identification, all of those things, and the rules that come from anti-money laundering, anti-terrorist financing?

Mr. Polci: The short answer to the question is no. The slightly longer answer is that I think both the industry and the government take that dynamic very seriously to carefully balance that. But in terms of the straight-up answer to the question, no, I'm not aware of a conflict.

Senator Black: Thanks for being here. It's very helpful. I want to understand the dichotomy that I'm hearing between principally Mr. Lawford, what you're saying in respect of Division 5, which is it just isn't good enough; let's don't pretend, and other evidence that I'm hearing principally from Mr. Polci and also Mr. Bilodeau, saying it gets the job done; it's a great improvement. Have I summarized that accurately?

Mr. Polci: Enough.

Senator Black: So there is this dichotomy. What I would like to understand, Mr. Lawford, is when Division 5 was being prepared, were you or your organization consulted?

Mr. Lawford: Yes, we were consulted.

Senator Black: Did you clearly indicate your points of view?

Mr. Lawford: Yes, we did. Basically what we have here, Senator Black, is a bait-and-switch on consumers. When this was starting to be discussed, we were promised a financial consumer code. Somewhere along the way, Finance dropped that; whether that was at the change of government or earlier or later, I don't know. But the promise was we were going to have more substantive consumer rights and what was going to be in exchange for the bankers was this federal paramountcy. What we're getting with this bill is just the federal paramountcy, which brings other problems I told you about and none of the substantive improvements. All we're doing is sweeping the old provisions that are all over the place into this division and doing nothing more for consumers.

Senator Black: Given that you undoubtedly made forceful representations when you were consulted, why were your recommendations not accepted, in your view?

Mr. Lawford: In my view, it is a matter of fundamental importance to banks to have control over who tells them how to run their business. They don't want to have consumer issues get in the way of product development. They've seen financial consumer codes come into place in Australia, Ireland, and I believe Singapore, and it's an unwanted interference, whereas we believe it would be something that would improve the market and banks overall.

Senator Black: So if this committee were to consider that there is merit in having a consumer bill of rights — I'm sorry, I don't have your language, but that's the concept — do you think there would be merit in us observing in our report that that would be a useful addition, that Division 5 would move forward but we observe that an advance could be to accept your suggestion?

Mr. Lawford: Absolutely, because you've got this framework now set up so that something could be added to it that's substantive, but that's what's missing. So yes.

Senator Black: Recognizing that wouldn't have the force of law?

Mr. Lawford: Recognizing that at this stage, to be honest, that's probably the best that we can ask for.

Senator Black: Thank you very much.

Senator Enverga: Thank you for being here today. I understand from some of your observations that it's more of a cosmetic thing. You put it in one piece of legislation to make it easier and it is more consumer-friendly. Right now we have FCAC, the Canadian Bankers Association, PIACand the ombudsman for banking services. My question is: Is there any part of the law right now that gives you some sort of tools so you can fight for the consumers? Is there anything there, or is there anything there that you want us to put in there? Anybody can answer.

Mr. Lawford: I'll start quickly. We wanted more, as Senator Black mentioned, like a code, more substantive sections to deal with particular problems as are in the other codes around the world. The principles that were mentioned by several of the people, it's encouraging to hear the ombudsman and the FCAC say they will have regard to it when they make decisions. I guess my concern would be at the end of the day, if a bank wishes to fight that and say it has no real force of law and they will stand their ground, will the principles just on their own, without substantive changes to consumer rights, be enough?

Mr. Schwartz: I want to put on the table something from the FCAC annual report — correct me if this is wrong — 4,236 cases were investigated, and only 345 were deemed to be within its mandate, indicating the limits of its mandate. In that year, zero dollars — zero dollars — were levied in fines. So it is only a cosmetic change bringing these provisions together in one section. I don't see that there will be any major change in the ability, despite perhaps its willingness, to actually act on behalf of Canadian consumers.

Mr. Bilodeau: I don't know those numbers by heart. I apologize for that. We do a lot of intake of calls from consumers, and they're not all complaints. They could be information requests about our financial literacy mandate as well. They get dispersed throughout. We do supervise banks and fix problems with them when they're identified, when we find systemic issues. We have a variety of tools we can levy to correct non-compliance, and we use those tools depending on the issue before us when we investigate it.

Senator Wallin: I have a question to you, Mr. Lawford, on your reference to the Consumer Protection Code and the Central Bank of Ireland. Is the language pretty literal that banks should act with skill, care and diligence?

Mr. Lawford: That's right out of the code.

Senator Wallin: That's the translation.

To the Canadian Bankers Association, is that so difficult? Does that language exist anywhere else?

Mr. Polci: The principles that have been inserted into this new financial Consumer Protection Framework, they may be different words, but these are new and sort of the fundamental basis for the code to be interpreted from here forward. This will have to come out as things advance.

I will say in terms of the reference to Ireland, we can look at regulatory regimes around the world, and you as legislators might find elements of regulatory regimes around the world that you like, and you are free in your discussions to look at adopting them in the Canadian context, but at the end of the day, I will always take the Canadian regulatory landscape in financial services over any other in the world. It was proven as the best in the world following the financial crisis. That includes the consumer regulatory regime.

I must say in response to some of the comments that were made that I wouldn't want the impression left that somehow our regime isn't already a very robust regime that protects consumers. There is a theme that perhaps it's not. I haven't heard yet specific examples about why that is the case. I think consumers are protected, and banks take that responsibility to treat their consumers fairly and appropriately very seriously. It's actually the basis of their entire reputation. There is no interest in a bank in having a consumer with the wrong product or service. It's not good business.

Senator Wallin: I guess that's my sense. If you have people showing up, if you're mediating these complaints or dealing with these complaints, most of them, by the stats, are in favour of the consumer. The banks are responding in some way. I mean, isn't that kind of the point and the system is sort of working?

Mr. Lawford: Not from what we hear from consumers. There are situations where they go through the bank ombudsman, and then they go through the OBSI or ADRBO chambers, and they still complain to us because they haven't got what they want. There are always people that don't get what they want, and I understand that, but there are a number of people who don't even know that the two ombudsman systems work or are in existence. There are lots of folks who don't know their rights or know that they can even make a case to their own branch manager, let alone get up to this level. So partly education, but partly they have no substantive right to really hook on to, and there is no code so they can't read it themselves. It's very frustrating.

Mr. Schwartz: I actually think the Canadian banking system is great. I agree with you. Compared to other systems, it may be one of the best. That does not mean that it's universally great or unreservedly great.

I think in regard especially to low-income consumers, it performs quite poorly. You can tell that by these reports that I mentioned in my comments. John Stapleton followed low-income people into bank branches. He stood behind them while they interacted with the bank personnel, and the stories are bad. I mean, they were treated badly. They were treated without respect. They didn't get what they wanted.

I think you have here the possibility in the regulations of asking the board of directors of these banks to investigate empirically how those low-income customers are treated. They can follow them around with body cameras just to see how the bank staff interacts with the consumers. If it turns out that they are handled well, that's great. Then I withdraw my complaints. But let's see those results empirically.

Senator Wallin: In this assessment that was done, somebody was just literally standing behind them in a bank?

Mr. Schwartz: Yes. You can read the report on-line.

Senator Wallin: How many people were looked at?

Mr. Schwartz: A small number. I think the number was twenty. Not a big study, but I would encourage the banks to do a bigger study.

Senator Wallin: Thank you.

Senator Wetston: Just to preface my comments, some of you may not be aware of the fact I know Ms. Bradley. I was chairman of the Ontario Securities Commission before coming to the Senate. I have spent a lot of time with OFSI, the CBA and with PIAC. At one time in my career, I was general counsel of the Consumers Association of Canada. It was so long ago that I can hardly remember.

The Deputy Chair: We're glad you're here.

Senator Wetston: I spent lot of time doing what you're doing today, Mr. Lawford.

I would preface my remarks and ask a simple question, but the answer is not quite so straightforward. I'm not going to get into the constitutional issues. We have been fighting that battle for quite a while in the securities industry, as you know, with the Supreme Court of Canada decision a number of years ago, trying to find some way to reduce fragmentation when it comes to consumer protection or investor protection.

I have two questions, and perhaps we could have a longer discussion outside of the committee meeting.

Do you distinguish between consumer protection and investor protection? That's my first question. I would like anybody to take that question on, if you could.

Second, I would like to discuss with you and ask your views on fragmentation. In Canada, we have over 30 agencies dealing with some aspect of financial markets. We recognize it's provincial, some federal. We think of the big agencies like OBSI; we think of smaller agencies like, perhaps, FCAC. We think of all of the securities commissions and all those that also deal with insurance products and other areas. There is a lot of fragmentation in this country.

The challenge, therefore, in consumer protection is more difficult, unlike a country like Ireland. Australia conquered their constitutional problems a number of years ago. They are able to move federally with greater ease.

For consumers, that's a very difficult nut to crack. A lot of efforts have been made to protect consumers or investors. If you look at the OSC website, you'll see a fabulous "Get smarter about money.'' If none of you have seen it, you should look at it. It's terrific. It provides tremendous information for investors, I believe.

Does this code, particularly with respect to Division 5, assist in reducing fragmentation and allowing consumers more clarity and more opportunity to be able to access the grievances they have, whether it be an ombuds service or directly with a bank or investment dealer? I would just raise this issue with you. The banks do banking as well as investment services. It's very difficult to look at a bank and say: What do you do? Where do you provide that service? How are you protecting your consumers/investors in the context of this code recommendation?

So really the question is a general one: Does fragmentation assist or does it inhibit the opportunity to assist consumers/investors in Canada?

Mr. Lawford: I would like to start. Fragmentation doesn't help consumers. The first step here of sweeping all the regulations into one place is not a bad first step, but it's very much a first step.

What would help to reduce fragmentation would be to give more substantive consumer rights on top of that. Because at the moment, the provinces feel driven, especially Quebec because of their legal system, to pass more and more statutes of general application based on consumer protection under property and civil rights, which they can keep doing and they will insist on doing from now until the end of time if consumers aren't protected. Because consumers will continue to bang on provincial doors and say, "My rights aren't good enough. You help me because the federal people aren't doing it.'' That is the problem with not raising the floor by adding consumer substantive rights to this bill and just sweeping all the present provisions in there, which, as you have heard, I don't think are adequate.

That's the way I would solve fragmentation. Raise the floor, and then provinces won't feel the need to interfere.

Ms. Bradley: I'll make an observation about that as well. I think fragmentation is an enormous problem for consumers in Canada. I mentioned our statistics earlier. We deal with thousands and thousands of inquiries that never become OBSI cases because they are usually about something that we do not have a mandate to deal with. We do our very best to redirect consumers to the appropriate place that might be able to handle their complaint, but there is a very low level of consumer awareness, I think, of the vast array of different regulatory bodies, ombuds services, dispute resolution, regulators, et cetera that may be able to be brought to bear on their issues.

I think there is fragmentation between banking and investments. You asked the question about consumers and investors. You know, I would use those terms interchangeably with respect to securities because the investor is investing in a company, but what they are normally doing is purchasing a product or purchasing something that they hope will go up in value. A lot of investment products are sold as products.

To a consumer, they may walk up to a business, and the sign out front might say "retirement planning'' and "financial planning,'' and the persons who are located or doing business inside that building may be licensed insurance agents. They might only be licensed to sell mutual funds. They might be licensed to sell all sorts of other types of financial investments and products. They might have none of the foregoing licenses, and they might just be offering general advice. But to the consumer, that is completely invisible and inaccessible.

It's a very significant problem. I don't think it's really addressed by this bill. As Mr. Lawford mentioned, there is somewhat of a consolidation happening with this bill, which is not a bad thing, but I don't think the bill attempts to address some of those very significant problems that exist.

Mr. Polci: Congratulations on your appointment.

From the banking perspective, clearly fragmentation as a regulatory regime is a concern. The main driver of our support for Bill C-29 and the financial consumer protection framework is that it's clear. It says, "These are the rules that apply to banking products and services.'' We think that kind of simplicity saying, "This is what it is,'' is a good thing.

I agree with the comments in terms of the consumer verses the investor. Banks look at their clients. Where you get into who regulates what is the legal question behind the scene. So I agree with that entirely. But walking in the door, a bank client is both a consumer and an investor.

Mr. Bilodeau: I'm not going to answer directly on fragmentation, but I will say that we do work with provincial and territorial regulators in this space, and we will continue to do that if Bill C-29 is adopted.

The Deputy Chair: Thank you. We're really in early stages with this bill. As you know, we are doing a pre-study so that we will be ready when it comes here. It hasn't come to the Senate yet.

We had five different divisions that this committee was asked to look into. We have just dealt with Division 5, and we thank you for your input, help and guidance in that regard, relating to financial consumer protection.

Divisions 3 and 4 are two other divisions that are quite short in terms of the number of words and how much paper is taken up in the bill on these particular divisions. Division 3 is the Canada Education Savings Act. Professor Schwartz, why don't I look to you? Do you have any comments in relation to that?

Mr. Schwartz: I don't have many comments about this. I'm not an expert, but I don't know why this Division 3 was put forward except it seems to simply reflect a change in the structure of the programs. It's renaming various parts of the bill. I don't think there are any substantive changes here. The force of my comment was that there is a need for substantive change, but it's not addressed in Division 3.

The Deputy Chair: It's not there. Right.

What we're looking for at this stage is to know whether there is any reason to applaud or be concerned about any of these divisions, from your point of view. We have heard about Division 5. Division 3, which Professor Schwartz just commented on, is the Canada Education Savings Act. Division 4 is the Canada Disability Savings Act amendments. Have any of you or your colleagues with you any familiarity with that particular area?

Mr. Schwartz: Again, for me this is the same kind of thing. There is no substantive change. It's simply a necessary change in wording.

The Deputy Chair: Seeing no other comments, it's for me, on behalf of the Standing Senate Committee on Banking, Trade and Commerce, to thank you for being here and helping us understand the impact on the industry of these particular provisions.

Senators, I will point out that we have received a letter from the Royal Canadian Mint. That is one of the divisions — Division 6. So we have that letter. There were some questions asked yesterday in relation to the Mint, and we understand the Mint is working on follow up in that regard. They weren't able to be here but they are providing us with their position.

We do however have three officials before us from the Bank of Canada, which is great because that's the other division we're dealing with; namely Division 7. I'm glad that you were able to be with us on very short notice. It's very helpful to us. Thank you.


Ms. Couture, would you like to speak on the group's behalf?

Thérèse Couture, Director, Funds Management and Banking, Bank of Canada: Certainly.

Mr. Deputy Chair, distinguished committee members, good morning. My name is Thérèse Couture, and I am Director of Funds Management and Banking at the Bank of Canada.

Joining me this morning are Toni Gravelle, Chief of Financial Markets, and Andrew Kidd, Counsel, Executive and Legal Services.


We appreciate this opportunity to speak to the provisions in Bill C-29, Division 7 of Part 4, that are relevant to the Bank of Canada. These are found in clauses 140 and 142 through 144 of Bill C-29.

The Bank of Canada supports these provisions, which are within the scope of our mandate as fiscal agent to the Government of Canada and our role in promoting the stability of the Canadian financial system. The cost implications pertaining to these provisions are small, as they refer to types of activities that the Bank of Canada currently performs.

The first provision relates to clause 143, which establishes authority for the Bank of Canada to manage the lending operations of the government to its Crown corporations. These are ongoing lending operations to facilitate Crown financing needs, and the front office operational elements of this activity have been managed by the Department of Finance since the program began in 2008.

The proposed amendment will facilitate the transfer of the operational elements of this activity to the Bank of Canada. This will require an amendment to section 24 of the Bank of Canada Act by adding applicable wording after subsection (2).

A second provision in Bill C-29, clause 140, while not requiring amendments to the Bank of Canada Act, is related to operations that the bank conducts daily on behalf of the Government of Canada, this being the lending of excess Receiver General cash balances. The purpose of these operations is for the government to help manage the cost of holding cash to cover expenditures. The applicable amendment will clarify authorities for these existing operations by establishing an explicit authority for the Minister of Finance to carry out these operations.

The final provision relates to clause 142. This provision interacts with clause 144, which revises the Canada Mortgage and Housing Corporation Act and would allow the Bank of Canada to provide custodial services to CMHC. This is consistent with the Bank of Canada's role in promoting the stability of the Canadian financial system and is in line with services the bank already offers to a number of clients.

The provision of custodial services by the bank will support CMHC's prudent risk management by providing a reliable option that facilitates access to liquidity in certain exceptional circumstances in a timely and discrete manner without posing undue risks to the financial system. To facilitate this access, CMHC would transfer to the Bank of Canada a portion of the securities from its investment portfolios currently held in the private sector.

A similar provision was made to the Bank of Canada Act in 2014 to allow these services for the Canada Deposit Insurance Corporation. We are in fact amending the same provision, which is paragraph 18(m.1) of the Bank of Canada Act.

Currently under the act, the bank may hold custody of securities for foreign central banks, certain international financial institutions and CDIC, but we lack the power to hold custody of securities for CMHC. This proposed amendment will enable the bank to act as custodian of the securities of CMHC. Given that the bank currently offers these types of services to other clients, there are minimal cost implications for the bank to provide these same services to CMHC.

The bank may also, under existing legislation, take deposits from the government and its agents. While the bank may pay interest on these deposits, we currently lack the power to pay interest on deposits from CMHC or other agents of the government, with the exception of CDIC.

To place deposits with a bank that do not pay interest would not make economic sense for CMHC. The amendments to the CMHC Act in clause 144 of Bill C-29 will interact with paragraph 18(o) of the Bank of Canada Act to enable the bank to pay interest on deposits from CMHC. Again, this is similar to the revision made to the Bank of Canada Act in 2014 for the Canada Deposit Insurance Corporation.

I would be pleased to discuss in more detail these amendments and to answer your questions. Thank you.

The Deputy Chair: Thank you very much, Ms. Couture, for going through the clauses and telling us what you're trying to achieve in relation to each of the clauses.

We had a question yesterday, and I'll repeat it today. Is there anything in this particular grouping under Division 7 of funds management, Financial Administration Act amendments and I guess also amendments to other statutes, including CMHC, that takes away from the power and the responsibility of Parliament to do certain things?

Ms. Couture: With respect to CMHC, this does not take away any powers of Parliament. The reason being, the proposal is for the Bank of Canada to act as custodian for a portion of the securities held by CMHC. CMHC currently has a custodian in the private sector. We would simply be another option, a tool, to provide access to liquidity, which is part of CMHC's prudent risk management operations. It is seen as an additional option that the bank can offer.

Toni Gravelle, Chief, Financial Markets Department, Bank of Canada: Very similarly, we are in some respects clarifying activities and authority of activities that are already taking place. They are very technical amendments. Nothing is changing in practical terms of who has authority, for example, on the Crown borrowing program. The minister has all the authorities. The minister, as set out in the FAA, has all the authorities to set the parameters, limits and various things. Nothing is changing there. It's just clarifying that he is delegating some of the activity to the Bank of Canada.

The Deputy Chair: As you're aware, it was the borrowing aspects that prompted that question a few years ago. Parliament always voted on providing authority for borrowing, and then that was taken out and became a ministerial discretion, which some parliamentarians were unhappy about because it really had not been thought out. We just want to make sure that there isn't something we're missing here.

Mr. Gravelle: Not that we're aware of.

The Deputy Chair: You're indicating not that you're aware of, and that's comforting.

Senator Wallin: I have just a quick question. We had a brief conversation with the governor of the bank. This does sort of seem to imply a closer relationship now, so that in addition to just access to liquidity and all of those things, there will be some merging of research or assessments of what is going on in the broader economic picture. Is this more than what it seems? I know we're just dealing with this aspect here, but that seemed to be the suggestion.

Ms. Couture: No. This provision is really a custodial arrangement, which we already provide to various clients.

Senator Wallin: So it's nothing new from this perspective?

Ms. Couture: That's right.

Mr. Gravelle: It's very much a banking technical question. We do policy discussions.

Senator Wallin: Okay. Thank you.

Senator Wetston: Welcome, Mr. Gravelle. We did some work together at the Bank of Canada when I was at the OSC, so it's good to see you all.

I have a quick question about the CMHC issue. Does that mean you would exclude private custodial services or that these services would no longer be available for CMHC funds? Is this purely a matter of cost? Are you saving money? What is the purpose of this? You want to have private custodial services; they are very important to the markets, obviously. So I just wonder whether that's the rationale for this.

Second, what are you going to do with the money? You're going to invest it, I hope. We're in a low-for-long environment, unless the Bank of Canada is aware of something that I'm unaware of. Would you continue to engage in similar transactions that you would with money that is held as a custodian at this time?

Ms. Couture: CMHC, first of all, will maintain its current arrangements with its private sector custodian as well as its private sector liquidity facilities. What we are offering is another option in their tool kit for prudent risk management and enhancing that risk management operation. The private sector will continue to do what they offer today to CMHC. We will provide the custodial services for a portion of those securities, which will be transferred from the private sector to the Bank of Canada. We will also offer access to liquidity in exceptional circumstances where there is a need for quick access to liquidity as well as discrete access so that CMHC may fulfil its obligations.

With respect to the cost aspect, this is not being done for a cost reason. The Bank of Canada offers banking and custodial services to support the stability of the financial system, and that's the rationale. The costs, as I mentioned, are very minimal because the processes, staff, capacity and the services already are in place for many other clients. However, we do charge fees in a cost-recovery manner, so there really is no extra revenue from them, in a sense, because they recover costs that we are incurring. I hope that answers your question.

Senator Wetston: You didn't say what you're going to do with the money.

Ms. Couture: The deposit, you mean, or the securities?

Senator Wetston: I'm sorry, I meant securities.

Ms. Couture: The securities are held in safekeeping, so there is no money that comes to us. The assets do not belong to us; they continue to be owned by CMHC. Any entitlements, such as interest payments, would go to CMHC's account.

Senator Enverga: I think my first question is a simple one. Why is the Governor-in-Council seeking the power to authorize the Minister of Finance, subject to any terms and conditions that it may specify, to enter into any contract or agreement of a financial nature on any terms and conditions that he or she considers necessary? Haven't you been doing this already? Why are you seeking it at this point?

Ms. Couture: I just want to clarify your question.

Senator Enverga: The Governor-in-Council is seeking the power to authorize the Minister of Finance, subject to any terms and conditions that it may specify, to enter into any contract or agreement of a financial nature on any terms and conditions that he or she considers necessary for the management of risk related to the financial position of the Government of Canada. Is that part of your mandate?

Mr. Gravelle: Could you clarify what part of the division you're asking about?

Senator Enverga: I'm talking about section 42.3(5). Which one takes precedence: 42.5 or 42.3?

The Deputy Chair: That's the Financial Administration Act.

Mr. Gravelle: It's related to the RG.

This is actually a Department of Finance answer. My understanding is that this is about the FAA, and we are more informed about the Bank of Canada Act changes and the reasons behind them. It's a clarification of authorities that the minister already has: a clarification that the minister has parallel authorities over what he already has in terms of borrowing and lending some of the assets. In some respects, it's being more precise about what he can and cannot do at the end of the day. Honestly, I would defer to our Department of Finance colleagues for clarifying some of the reason behind that.

Senator Enverga: I'm expecting it to be that you guys are doing it already.

Mr. Gravelle: We are. Under our act, we act as a fiscal agent to the Government of Canada. Under various parts of the fiscal agent's activities, we would do this kind of work for them. We're the banker for the Government of Canada, so this naturally already does fall under what we already do.

My understanding is the Department of Finance was trying to clarify what the minister's narrowly defined authorities are in terms of lending. It doesn't affect our act because we already do banking stuff for the government, and that's natural banking stuff. We cash manage for the Government of Canada.

Senator Tannas: I just wanted to clarify something. I'm sure it's just that I'm not understanding, but your answer to Senator Wetston was that you will take assets into safekeeping. Part of the service that you would also provide, potentially, would be liquidity relief in exceptional circumstances. Regarding the safekeeping of assets, is there any collateral arrangement between the two? Is that part of why you're taking some assets into safekeeping? Is there safekeeping for you if you need it to advance cash?

Ms. Couture: That is correct. By holding those securities in safekeeping within the Bank of Canada, we can immediately take ownership of those through a purchase-and-resale agreement. By purchasing those assets, we transfer the funds, and those underlying assets form the collateral to the transaction.

Mr. Gravelle: In an economic sense, it's a collateralized loan.

Senator Tannas: Understood. So that would be part of the rationale for becoming a safe keeper. You want to have somebody pledge those assets, and you hang on to them.

Ms. Couture: Correct.

Senator Tannas: The other thing I thought we heard yesterday was that you would provide a service where excess cash would come your way and form part of what you would be doing overnight, to the extent you do that. Is there anything to that? I thought we heard that yesterday, chair. I can't remember. Is efficiently managing excess balances that some of your clients would have part of the service as well?

Ms. Couture: In offering custodial services, it always comes with a cash deposit account, and the client can choose the level of cash they want to maintain there. For instance, as I mentioned earlier, when interest payments come in, for example, we would deposit those in the client's account, but the client will determine the amount of cash they want to leave with the Bank of Canada.

Senator Tannas: And they get paid for that, right?

Ms. Couture: We will pay compensation, interest on those balances.

The Deputy Chair: Thank you very much to the representatives from the Bank of Canada. We appreciate your helping us out with respect to Division 7. Thank you for the good work you're doing as servants of Canada.

We are ready to go in camera to talk about the report.

(The committee continued in camera.)