THE STANDING SENATE COMMITTEE ON BANKING, TRADE AND COMMERCE
OTTAWA, Wednesday, October 4, 2017
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:17 p.m. to study the present state of the domestic and international financial system.
Senator David Tkachuk (Chair) in the chair.
The Chair: Good afternoon and welcome, colleagues, invited guests and members of the general public who are following today’s proceedings of the Standing Senate Committee on Banking, Trade and Commerce either here in the room or listening via the web.
My name is David Tkachuk, and I’m the chair of the committee.
Today we are continuing with our study on the topic of credit unions and the use of the words “bank,” “banker” and “banking” by financial service providers that are not banks.
In the first portion of our meeting, I’m pleased to welcome, from the Department of Finance Canada, Leah Anderson, Assistant Deputy Minister, Financial Sector Policy Branch; Eleanor Ryan, Director, Financial Institutions Division. From the Office of the Superintendent of Financial Institutions, Judy Cameron, Senior Director, Legislation, Approvals and Strategic Policy; and Jean-Pierre Girouard, Managing Director, Approvals and Precedents.
Ms. Anderson, I understand you will begin, followed by Ms. Cameron from OSFI. Please proceed and then we’ll go to the question and answer session.
Leah Anderson, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance Canada: Thank you, senator.
I appreciate the opportunity to speak with the committee today as part of your study of credit unions and the use of the word “banking.”
I’m Leah Anderson, the Assistant Deputy Minister, Financial Sector Policy Branch with the Department of Finance. I’m joined by my colleague Eleanor Ryan, Director, Financial Institutions Division, also Department of Finance.
I will begin my remarks today by outlining the principles and considerations that have supported the federal restrictions on banking terms. I will then speak to the work the Department of Finance Canada is undertaking to consider the restrictions in the context of its review of the financial institutions statutes for Parliament.
Canada has a well respected, stable and resilient financial sector that is supported through a well-functioning legislative framework.
Parliament has set out sound principles for the regulation of financial institutions through statutes such as the Bank Act, which are enforced by my colleagues at the Office of the Superintendent of Financial Institutions.
These principles are rooted in the objectives of maintaining financial stability, supporting consumer protection and fostering effective competition and innovation in the financial sector.
Canadians know that banks are subject to rigorous prudential and consumer protection standards that support proper management of their deposits and require prudent lending practices.
Examples of bank-specific prudential regulations and requirements include things like capital adequacy, liquidity risk, credit risk, market risk, concentration risk and large exposure limits. Deposit-taking banks must also be members of the Canada Deposit Insurance Corporation, CDIC, which protects deposits in line with the requirements under the CDIC Act.
Banks are subject to a distinct framework under federal legislation for crisis management, recovery, and resolution. Banks are also subject to targeted consumer protection measures under the Bank Act. The Financial Consumer Agency of Canada supervises banks for compliance with these provisions.
The core principles for effective banking supervision, which set the minimum standards internationally for sound prudential regulation and supervision of banks provide that the permissible activities of institutions that are licensed and subject to supervision, as banks are clearly defined, and that the use of the word “bank” in names is controlled.
The principles say that the use of the word “bank,” and any derivation such as the word “banking,” in a name, including domain names, should be limited to licensed and supervised institutions in all circumstances.
Allowing non-banks to use such terms could mislead the public into thinking that they are dealing with a federally regulated bank, regulated under the Bank Act, and subject to the protections and obligations of the federal banking framework as well as supervision of the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada.
It is important that consumers know whether and how a financial service provider is regulated and are able to distinguish between the different financial service providers. Canadians need to know and trust that a bank is really a bank with a full related suite of obligations and protections.
Section 983 of the Bank Act currently prohibits the use of the terms “bank,” “banker” and “banking” by non-bank financial service providers. The section also limits the use of banks’ corporate trade names and identifying marks.
Historically, Parliament has endorsed the principle of only permitting those institutions which are federally regulated as banks to describe themselves as banks or use the terms “bank,” “banker” and “banking.”
In 2010 the Bank Act was adapted to add a federal framework for credit unions. In addition to setting out the legislative approach to establishing federal credit unions, the framework stipulates that only those credit unions which are federally regulated can use the terms “bank” with the terms “credit union” or “cooperative,” and this is owing to the fact that federal credit unions are subject to the same regulatory oversight system as federally regulated banks.
The restriction on the use of the banking terms is broad, and it goes beyond provincial credit unions to include other federally regulated financial institutions and unregulated entities such as FinTech companies.
Each type of institution provides different financial services and are subject to different regulatory frameworks that give rise to different prudential and consumer protections.
For example, other federally regulated financial institutions, such as insurance or trust and loan companies, cannot describe themselves as a bank, nor the services they provide as banking.
Provincial credit unions are subject to the distinct frameworks in place in their respective provinces, which is reflective of their local objectives. Provincial approaches to oversight, prudential protections and consumer protection may differ from province to province and may not be the same as the oversight applicable to federally regulated banks.
At the Department of Finance, we regularly review the federal financial sector policy framework to ensure that it is nimble and well-adapted to shifts and evolutions in Canada’s financial system. Currently, the department has undertaken a comprehensive review of the financial institution statutes.
Our objective in this is to remain aware of and be responsive to changing dynamics within the financial services sector.
Finance Canada has undertaken two periods of consultation on how best to position Canada’s financial sector with respect to financial sector stability, efficiency and utility. These consultations will inform potential policy measures and are directions for future work.
On the current topic of study by this committee, the department has included the issue related to the usage of the banking terms as an area for further consultation and study under the review of the federal financial sector framework.
The department has sought views from stakeholders on whether targeted modernization of the current policy should be considered for prudentially regulated non-bank deposit-taking institutions, and on how to avoid marketplace confusion and appropriately protect consumers.
We are aware that provincial credit unions have indicated that if they cannot describe their services in a way that Canadians understand, it could undermine their ability to effectively compete with banks.
We treat stakeholder concerns on the competitiveness of the sector as a very important consideration. Credit unions are an important provider of financial services to Canadians and contribute to a competitive and dynamic financial sector.
Throughout this process, credit unions have indicated that they share the government’s strong commitment to supporting consumer protection and transparency.
The input from a variety of stakeholders is informing our assessment of this important issue, as we seek to balance the consumer protection, financial stability, and competitiveness policy objectives for the financial sector.
The department welcomes this examination by the Standing Senate Committee on Banking, Trade and Commerce. It is an opportunity for parliamentarians to consider the principles underlying the current restrictions in the Bank Act on banking terms and provide views on any targeted changes that may be considered to the framework to appropriately balance financial stability, competition, innovation and consumer-related policy objectives.
These key questions arise: Should the restrictions be maintained? Should flexibilities be provided, for example, to distinguish between the activities of an entity and the products and services they offer? Which types of entities should have flexibility to use terms and when? Should protections be put in place to ensure consumers understand the entity they are using for financial services? For example, should prudentially regulated entities be required to identify their incorporation status in their trade names to increase transparency? For example, bank trade names include the word “bank,” credit union trade names include the words “credit union”?
This concludes my opening remarks. I will now turn to my colleague at the Office of the Superintendent of Financial Institutions to share their perspectives on this important issue.
Judy Cameron, Senior Director, Legislation, Approvals and Strategic Policy, Office of the Superintendent of Financial Institutions Canada Mr. Chair, honourable senators, thank you for the invitation to appear before you today.
I am Judy Cameron, Senior Director, Legislation, Approvals and Strategic Policy at OSFI. With me is Jean-Pierre Girouard, Managing Director, Approvals and Precedents, also at OSFI.
The Office of the Superintendent of Financial Institutions is an independent federal agency. It was established in 1987 to contribute to the safety and soundness of the Canadian financial system.
OSFI supervises and regulates banks and insurers, trust and loan companies, as well as private pension plans subject to federal oversight. OSFI representatives have met with the committee on many occasions to discuss issues related to OSFI’s approach to supervising and regulating the institutions under our purview; so I will not repeat what you already know.
OSFI is also responsible for administering the federal financial institutions statutes, namely the Bank Act, the Trust and Loan Companies Act, the Insurance Companies Act and the Cooperative Credit Associations Act.
My comments today will focus on this aspect of our duties, and specifically in relation to administering the Bank Act.
Most of the provisions of the Bank Act apply solely to federally regulated banks or entities that are applying to become banks. For example, the act sets out the requirements for incorporating a bank, the types of activities banks can engage in, which activities or investments require regulatory approval, et cetera.
Banks generally strive to comply with the act, and, if OSFI becomes aware of non-compliance, we have various supervisory and regulatory tools for addressing the situation.
Sometimes certain provisions of the act are misunderstood, which can lead to non-compliance. An advisory can be used to promote a common understanding and uniform application of the rules. Advisories, which are posted on OSFI’s website, add clarity by communicating how we interpret a specific provision of the statute. As I mentioned, interpreting the statute is part of our job.
A few provisions of the Bank Act apply to non-banks, including the issue that this committee is reviewing. Section 983 of the Bank Act prohibits use of the terms “bank,” “banker” or “banking” by non-bank financial service providers, as my colleague Ms. Anderson, from the Department of Finance, has described.
As you can imagine, because OSFI does not regulate and supervise most of these entities, our tools for promoting compliance with this section of the statute are much more limited.
In recent years, we have observed an increasing use of the prohibited terms in the signage, websites and advertising of non-banks. We anticipate that this issue could become even more prevalent as FinTechs become more active in delivering financial services.
We determined that an advisory would be an appropriate tool for addressing the growing use of prohibited terms by non-banks because it would curtail any possible misunderstanding or confusion in relation to the language in the statutes. The advisory was posted on OSFI’s website in late June 2017, along with a note that set out the reasonable time frame for coming into compliance with the statutory prohibition.
When the Department of Finance announced that it was seeking comments on the policy underlying the prohibition, OSFI chose to suspend its compliance expectations for the advisory pending the outcome of that consultation.
OSFI and the Department of Finance work together on any number of issues, but our respective roles are clear. OSFI is responsible for administering and interpreting the statutes under its jurisdiction, including the Bank Act, and taking necessary action to ensure compliance with those statutes.
The Department of Finance, on the other hand, is responsible for proposing modifications to the Bank Act to reflect government policy, and Parliament decides whether to accept, amend or reject those proposals.
In the meantime, OSFI remains responsible for administering and interpreting the statutes under its jurisdiction and for applying regulatory, supervisory and legal analysis.
Thank you, Mr. Chair. We now look forward to your questions.
The Chair: Thank you, Ms. Cameron. Could you tell me, Ms. Cameron: How long has this provision been in the Bank Act without the advisory being issued?
Ms. Cameron: I think the provision dates back to the 1800s. Isn’t that the case? So it predates OSFI by quite some time. It’s probably been modified over the years and certain clarifications added.
The Chair: What brought on the advisory?
Ms. Cameron: We were observing a growing use of the terms by non-banks.
The Chair: Like?
Ms. Cameron: Like, growing use?
The Chair: Give me some examples because credit unions have been around for a long time.
Ms. Cameron: Some examples on the websites of various non-bank financial services entities.
The Chair: Could you give any names? Do you have any names?
Ms. Cameron: I can’t cite names, but I can assure you that, as part of our work on the advisory, we got on the websites of a number of non-bank financial services providers. It was credit unions.
We looked also at federal trust and loan companies, and, where we determined that some federal and trust loan companies were misusing the words, we approached them. It was easy in that case because we’re their regulator. We went to them and said, “This is what the statute says; this is what you’re doing.” It’s most prevalent on websites. We have many examples, but the websites are the easiest to modify. I think some of the expansion of the misuse has come with the prevalence of Web-based advertising.
Senator Tannas: I accept your explanation, but, for the record, could you just clarify that it had nothing to do — was entirely coincidental — with the fact that the first federally regulated credit union, which would be, in fact, I think, allowed to use the words “bank” and “banker,” was recently approved and is now operating under those auspices? No connection?
Ms. Cameron: I can clarify that it had no connection to that because we’ve been looking at this issue for a number of years. To say there’s an increase requires monitoring over a number of years. So we have been monitoring for many years as the increase became more pronounced.
Senator Tannas: Thank you.
Senator Wallin: As I’m sure you can imagine, I think there are many people, including some in this room, who believe we are dancing on the head of some semantic pin here. It just strikes us as odd — and we went through some of this with the credit unions last week — why now we’ve touched on this.
Do you really believe that there is confusion in the minds of people who go to a bank and people who go to a credit union? I will just say, anecdotally, that I grew up in Saskatchewan. I never walked into a bank until I was an adult, and I was never confused as to the difference between the two. I was a member of one, a client of another. What leads you to believe that the public is somehow out there being confused and misled?
Ms. Anderson: I think the issue is really around — and I think Judy touched on it — with more technology, newer platforms, is it okay for people to call what they’re doing banking? I went through, in my remarks, the very distinct and unique rules that surround banks, both prudential and consumer-related ones, capital standards, liquidity standards, consumer protection standards, deposit insurance. I think it is important for consumers to know who they’re dealing with, and, if it’s not clear —
Senator Wallin: But do you think they don’t? Is there something that leads you to believe that people are confused?
Ms. Anderson: To the extent that names are misused in titles and in the various communications, there’s a potential that they could be misled. So it is a balance between clarity and common sense and clarity of what they’re buying.
Senator Wallin: The credit unions say they’ve put forward some 140 submissions to the Department of Finance in your various forms, on this issue. Is there confusion, do you think, in terms of what they’re doing or your understanding of what they’re attempting to do in the use of things like online banking, which is pretty common for all of us regardless of who we’re dealing with? It’s a phrase that kind of stands alone because of the technological developments, not who’s providing the service.
Ms. Anderson: I think they’ve been very clear. We’ve heard from them, as I mentioned, on the competitiveness issues. I think it’s a question of judgment. It is balancing their competitive concerns with clarity to consumers. Are alternative words as clear? This is a matter of judgement. Come do your banking with us. Come manage your money with us. Are they equivalent? Is one clearer than the others? These are important questions that we want to surface through our consultations.
Senator Wallin: Just one more, if you don’t mind. We asked the credit union people, so I’ll ask you as well. Are there other phrases that you have come up with that you think would be clear? We almost joked last week that maybe the credit union should be arguing that the banks can’t use the word “credit” in any discussions with consumers for fear of confusion.
Have you come up with other phrases that you think are neutral that would make sure the situation was not confused?
Ms. Anderson: I think there are a range of alternatives that you could think about.
Senator Wallin: Such as?
Ms. Anderson: Such as, instead of “Come bank with us; come manage your money with us,” instead of —
The Chair: It’s the word “bank” that’s the problem. The credit unions aren’t using that word. They do not use that word. They only use the terminology for describing an event. “I’m doing my banking,” which is common phraseology that is used all the time by everybody for everything to do with finances. So why would that be problematic?
Ms. Anderson: It’s this trade-off for consumers knowing who they’re dealing with and who they’re not. Just back, again, to the example of an online provider. A new platform pops up on your screen, a new FinTech company, let’s call it New Tech Bank —
The Chair: But you can’t use that word.
Ms. Anderson: No, but that’s the question we have.
The Chair: You can’t call yourself a bank.
Ms. Anderson: It comes down to the questions of should the restriction be maintained, but then what scope of institutions should we consider being able to use such terms and the nature of their use, whether it be in a trademark name or to describe their products and services.
Senator Massicotte: Thank you for being with us. And we will all basically repeat the same point. I guess what we’re saying to you is we don’t see a major risk of confusion with the word “banking” for credit unions. I guess that’s our conclusion, especially given if you’re a federally registered credit union you can use the word “bank.” I’m not sure it’s very important to the person on the street, “Oh, I’m going to the credit union; is that a federal one or provincial? Is that a bank? Do I open a bank account or a credit union account?”
I think we are all a little surprised. We would urge you strongly to find a solution because if you had to go to the courts and say the word “banking” it’s now so generic that it’s not associated to a certain institution. I suspect it’s like Kleenex or whatever. I strongly urge you to show some flexibility to find a solution there. Thank you.
Senator Unger: How often has a financial services provider been found liable for an offence for using the words “bank,” “banker,” or “banking” when describing a business or financial service?
Ms. Cameron: OSFI has never taken action to impose any form of penalty on a financial services provider for using the word. As I mentioned in my remarks, it’s a court process. That’s not the way OSFI likes to operate. The advisory was our first step in promoting compliance. We felt if we could be very clear as to what the statutory language meant, then that was the first step and we gave the non-bank financial services providers timelines for coming onside with the expectations in the law. So no steps have been taken.
Senator Unger: Are there a lot of offences?
Ms. Cameron: We looked at the websites of a number of credit unions, probably over 100, and found only a handful that were not misusing the terms. There were a number of credit unions where you couldn’t find the word “credit union” anywhere on the website. So there are a lot of offences.
The Chair: Like Vancity in Vancouver, which I thought was a bank, but it is a credit union, I know. And Conexus now. They’re all using different words to establish themselves, but it is clear it’s a credit union, right?
Ms. Cameron: Yes, but some of the websites don’t have the words “credit union” on them.
Senator Ringuette: From my perspective, it’s a question of legislation following the people’s evolution, and we have an evolution here. The word “bank” as an entity, from the people’s perspective, “banking” as a verb or as an adjective is completely different. What I’m saying is that legislation is made for the people and you have to understand the use of the language and the evolution.
I’m a francophone.
You go to France, where the model is much like a credit union, as you say, and everyone there uses the word “banking.” More and more French Canadians are using the term, too.
I feel that you are looking to stir up a tempest in a teapot, when the rest of us are just enjoying our tea. I hope that you understand the distinction we want to get across to you. The idea of the legislation is to protect consumers. They are perfectly fine with the distinction between the word “bank” to describe an entity, and the verb and the adjectives that can be used as derivatives. You certainly have not convinced me.
Senator Enverga: Actually, like everybody else, I think the words “bank” or “banking” are just too generic to be changed at this time. I’m just wondering, are you just targeting credit unions or maybe insurance companies or other financial institutions? Are you just targeting them? I’m thinking of some other entities that use the word “bank.” I would say “infrastructure bank” or maybe “blood bank.” Are you going to be targeting all these things too or is it just credit unions?
Ms. Cameron: The way the legislation applies is that you have to be a financial services provider so the name “blood bank” I think is pretty far from financial services. Also in the legislation, if there is a federal statute that permits you to use the name, any federal entity like the Business Development Bank of Canada, their statutes permit the use of that term and so it’s carved out from the Bank Act restriction. But it applies to any financial services provider that is not a bank, other than those that have a federal statute that allows them to use it.
Senator Enverga: There are many credit unions and insurance companies that have been using the word “bank” and “banking” for the longest time. They have been using those terms for decades actually. What do you think will be the repercussion for these companies? Could some of them fail because of just the word “bank”? How will it affect their performance?
Ms. Anderson: We have heard from the credit unions that they feel this is important to their competitiveness and, as I mentioned, we take that very seriously. I think a lot of good points are raised here in terms of the issues at hand that we need to consider. There is a balance between the competitiveness issues and the consumer protection issues, whether it’s a verb or a noun or an adjective.
Just to the chair’s point about thinking Vancity was a bank; well, it’s not. That goes right to the heart of the issue in my mind that it is important for folks to know who it is they are dealing with. Reasonable people will disagree on this point in terms of how best to interpret, but is it appropriate to use it in describing products and services with different financial service providers versus use and name. There are various distinctions we need to think through. It’s actually quite a complex issue, but a key starting point is — as I mentioned in my opening remarks on the core principles in banking — it must be clear in the name of an institution that you’re not being misled in terms of who you’re dealing with because of all the important protections which differ among all those institutions. It would be very unfortunate if something did happen to an institution, not for reasons of their marketing and communications, but for other reasons if they were to fail or something had to happen for somebody to say, well, I thought I was dealing with a bank with these different protections. It’s striking that right balance on the appropriate clarity given the potential consequences.
Senator Moncion: You mentioned that credit unions do not necessarily use the term “credit union” in their names. Today, RBC, Scotia, CIBC, BMO and the National Bank do not use the word “bank” in their names either, although it may appear in the acronyms they are best known by.
Meridian, Vancity, Northern, and the like do not use it either, although the name of the last one is Northern Credit Union. They do not always use the term “credit union” and banks do not always use the word “bank.”
In the document that the Canadian Bankers Association produced, there is a section on pages 24 and 25 entitled “Limitation on using the terms ‘bank,’ ‘banker’ and ‘banking.’” They accept the use of some words. They also recommend that the use of the words be better defined, but they are not against the use of the word “banking,” and the associations its use implies.
Internationally, only the word “bank” is regulated. In Canada, we have the words “bank” and “banking operation”, which is much broader.
I am kind of going back to the question the chair of the committee asked. You are telling us that the objective is to avoid confusion. But where is the confusion? I am not just talking about your thinking. How many complaints have you received that express any confusion, where people may have told you that they do not understand what a bank is? What are the complaints? Where is the problem? How many complaints about this issue have you received?
Ms. Cameron: OSFI is not a consumer regulator, so these are not the types of complaints that we would likely get. I can ask my communications colleague. Do we get complaints about this?
No, we do not get complaints about this, nor would we be the agency that complaints would come to because we are a prudential regulator, a solvency regulator. There is a consumer regulator, the Financial Consumer Agency of Canada.
Senator Moncion: If you don’t have that information, how can you turn around and bring out a situation like this and say there is a problem?
Ms. Cameron: We simply issued an advisory to explain what the legislation says. It was purely legal analysis based on an interpretation. Where we believed there was potential confusion was on the part of the credit unions.
Senator Moncion: I like the word you choose, “believe.”
Ms. Cameron: The credit unions are either misinterpreting the legislation or choosing to act in non-compliance because the legislation is very clear. It says that these words can only be used by banks, and they are using the words, the prohibited terms on their websites and their signage, et cetera. So we prefer to believe that it is confusion.
Senator Moncion: But the provision has been in place since the 1800s. That was one of the answers you gave us at the beginning.
Ms. Cameron: Yes.
Senator Moncion: Isn’t that irrelevant in 2017, 150 years later, saying that you can’t use the words, even if they are in the legislation?
Ms. Cameron: Our advisory spoke to the legal interpretation of the words that are in the legislation. The legislation has been in place since the 1800s. However, the use of the terms in advertising by credit unions does not date back to the 1800s.
Ms. Anderson: If may add a point. A lot of good points are being raised in this balancing act. I would say Canada is very blessed to have a very sound and stable financial services sector. So I think it’s typically in situations where if something goes wrong, then consumers will say, “Well, I had no idea.” There is that question about appropriate transparency, so that after the fact, if something does happen, people will know with whom they are dealing. But it’s a balance.
Senator Moncion: We have been told by the credit unions that it will cost $80 million to bring in the change, just to go through all the papers and websites and information that they provide, where the words “bank,” “banker” or “banking — I would say more ”banking” than anything else is being used.
There are a lot of large chartered banks that have left small towns. In a lot of areas, the only financial institution that you will find in a small town is a credit union or a caisse populaire. By putting this in place, you do hurt the system by obligating them to spend the money to correct, and you give them two years to do the corrections. Do you think that’s fair?
Ms. Cameron: I guess I would reiterate that nothing was actually put in place. It was simply a measure of transparency to explain the legislation that has been in place for quite some time.
Senator Tannas: Thank you for being here. A couple of things come to mind. I don’t know the legalities of selective enforcement, but I certainly believe, taking credit unions aside, that you have to be vigilant with the protection of that word. Fred’s Bitcoin Bank. You can see it, can’t you? Somebody loses their fortune and says, “I thought this was a bank,” and they go to the Bank Act and there it is. All of a sudden, the government is on the hook for Fred’s Bitcoin Bank because we didn’t shut them down because they were using the word “bank.” It’s not that crazy a scenario.
So I have a great deal of sympathy for this. I hope that there is some capacity within OSFI, as you sort through this, to selectively enforce. We do have a practical issue that has to be dealt with, and it is funny that it has taken this long. It is just one of those things where the credit unions didn’t use the word “bank” before and now they do. It’s become ubiquitous.
I come back to our work here and some kind of a recommendation. Obviously, there is a need for an amendment to the Bank Act. What sits there now, with the credit unions and with Alberta Treasury Branch, an arm of the Alberta government, is illegal. There is no question about that. So we need to make the change.
If we were to make a change in the Bank Act to say that the noun “bank” can only be used by banks and really shouldn’t be used by federally regulated credit unions — it should be used by trust companies; it should be used by banks. Then “bank” and “banking” as a verb would be okay for entities that are overseeing and where deposits are guaranteed by an agency of the Crown. That can be a provincial government, a credit union central that is created under that same scenario, CDIC, et cetera.
Would something like that work? In the meantime, if we urged you to selectively enforce this, is that a way out of this for the next little while? Does that make sense?
Ms. Cameron: I will defer to my colleague from Finance. This is a policy decision.
Ms. Anderson: This committee is very timely. We are reviewing our legislation as we speak. Our consultation period just ended Friday, in fact, for the current round of statutes review. We are looking at this question very closely. We have had a lot of input, very good input today, so it is a balance. These are all good questions that you raise.
In the consultation paper, we asked a similar type of questions. Is it appropriate to scope it to prudentially regulated institutions in some fashion, and the noun-verb question. It’s how to scope it so that you don’t run into the consumer protection challenges that you reflected on earlier.
Senator Tannas: Have you had any advice on your flexibility, in terms of selective enforcement, where you ignore it with one group but enforce it with another?
Ms. Anderson: I think the first step is to figure out, with the benefit of everybody’s input and this committee’s recommendations, what we should write in the act and what the appropriate policy is. We have an open mind about this. Then OSFI will take that and enforce it in a way consistent with the policy. So they find it helpful when we’re as clear as possible in the policy. It helps them in their enforcement.
Ms. Cameron: To the example with reference to Fred’s Bitcoin Bank. There is a separate provision of the Bank Act that prohibits using the name “bank,” quite apart from the words “bank,” “banker” and “banking.”
We have approached institutions like Fred, for example, and told them that you better stop that. You can’t portray yourself to be a bank and leave consumers exposed.
The Chair: I think we’re fully in agreement on that.
Senator Massicotte: We are sensitive to the use of the terms. As Senator Tannas said, we are aware that the word “bank” is more sensitive than the others. So perhaps there is a good solution.
If I understand correctly, there have been no incidents, no surveys, no specific facts that have revealed a problem. What you are trying to do, perhaps rightly, is to make sure that the current legislation is adhered to. There have been no incidents or surveys showing any potentially dangerous confusion. If I understand correctly, there are no facts of that kind.
Ms. Cameron: We have not done any surveys with customers, so we do not know if any confusion has arisen. It is difficult to form an opinion on that.
Senator Massicotte: Are any examples we could start with? How do other countries like the United States, or England and France, deal with generic terms that are commonly seen? How do they avoid the problem of confusion?
Ms. Cameron: I think that their legislation is very different. Take Europe as an example.
The regulatory system focuses more on activities than on entities. It’s a different system.
Senator Massicotte: The challenge is the same for everyone. Your objective is to make sure that there is no confusion. In other words, to make sure that people know exactly what kind of institution they are doing business with. All those countries have various kinds of institutions, including the United States. What do they do to make sure there is no confusion?
Ms. Cameron: I’m not familiar with the restrictions in the United States.
Senator Wallin: There is no actual evidence that there is a problem. It’s just trying to sort out whether you are sending the right signals to her, given what your legislation says. There’s no evidence that there’s a problem or a crisis or an issue?
Ms. Anderson: Well, there’s not a problem until there’s a problem. I was referencing back that we’ve benefited from great stability in Canada, so whether it’s Fred’s Bitcoin Bank, you know —
Senator Wallin: But that’s dealt with separately. We’re dealing with the other issue here.
Ms. Anderson: I’m referencing across the use of the term. It’s not typically we find, until things go wrong, where people say, “I had no idea. This should have been more clear to me.” I think people appreciate good transparency. I know credit unions want to provide that to their consumers as well. Good questions, but it is a matter of being clear so that people know with whom they’re dealing, and we don’t have an issue where people think they are dealing with a bank and they’re not.
Senator Wallin: It might be helpful if you are trying to make this case that you had some evidence that there was a need for it. That’s all I’m saying.
Senator Moncion: When you become a member of a caisse populaire or a credit union, you have to buy a share. When members buy a share, they ask, “Why do I have to pay $10 or$20 or $50?” At the time of opening the account, they receive the explanation that they’re dealing with a credit union, and they understand they’re not dealing with a bank.
I find it unusual that you would think that members — because there are other benefits to being a member of a credit union, and there’s a large difference between being a client of a bank. These differences are very important.
Some of the examples that were provided to us last week was that every year Ipsos-Reid does surveys on the quality of the service they receive from their financial institutions, and credit unions are always very highly regarded as good and stable financial institutions.
Again, going back to what Senator Wallin was saying, the confusion does not exist, other than in the word “bank.” But when we speak with members of credit unions, they do their banking at the credit union. They know if they’re banking with a credit union or a bank.
I go back to the actual evidence. There is confusion. It’s going to be very important that we get that information.
The Chair: I’d like to thank OSFI for providing Canada with probably one of the safest and best banking systems in the country. This little hiccup we have here is we’re all trying to do a difficult job.
I mentioned Vancity because I know in my own province of Saskatchewan, they call it — credit unions want everyone to believe they’re pure of heart, but they’re in business, too, and they want depositors; so they’re doing their business. I know there is Conexus, and there must be three or four credit unions with names I’ve never heard before. Banks are doing the same thing. Tangerine. And what’s the other one? Orange, which is a foreign bank. Everyone is trying to be hip and modern, and it is causing confusion in the marketplace.
We also know that the credit union has said, when this matter came up before — and it has come up before — they’ve always been able to meet with you and work it out.
We’re going to take you up on the fact that perhaps we can have some recommendations from this committee to change the Bank Act to make it more clear. But, at the same time, all the committee members urge you to have one last crack at a meeting with the credit unions and wait for the changes to come so they’re not worried about whether this will affect their business in the long run. That’s the way we feel. I know you only want the best for the country.
Ms. Cameron: As I mentioned, the enforcement of our advisory is suspended until such time that Finance decides on their policy. At that point we will plan a path forward.
The Chair: So the minister can remain responsible in-house, and that’s a good place to keep it.
Ms. Anderson: Back to my remarks, we are forward-looking, and this review is timely for our work. We met with the credit unions last week to discuss this issue, and we look forward to further input from them and this committee to guide our future policy.
The Chair: Great. Thank you very much, witnesses.
We’re continuing with our study on the topic of credit unions and the use of the word “bank,” “banker” and “banking” by financial service providers that are not banks.
It gives me great pleasure today to welcome, from the Canadian Bankers Association, Darren Hannah, Vice President, Finance, Risk and Prudential Policy. Thank you for being with us today, Mr. Hannah. Please begin with your opening remarks, and then we’ll go to a question and answer session.
Darren Hannah, Vice President, Finance, Risk and Prudential Policy, Canadian Bankers Association: Good evening. I’d like to thank the committee for the opportunity to provide the banking industry’s perspective on OSFI’s advisory on June 30, which set out how it will interpret and administer the Bank Act restrictions on the use of the words “bank,” “banker” and “banking.”
The CBA is the voice of more than 60 domestic and foreign banks that help to drive Canada’s economic growth and prosperity. The CBA advocates for public policies that contribute to a sound, thriving banking system to ensure Canadians can succeed in their financial goals.
While I recognize that the specific topic that the committee has invited us to speak on today is credit unions and the use of the word “bank,” it’s our understanding that a significant impetus behind OSFI’s recent advisory is the changing nature of financial services, including the emergence of unregulated financial service providers, many of which are financial technology companies or FinTechs.
Financial services in Canada are highly competitive. Banks, provincially regulated financial institutions and new business models, including FinTechs, compete vigorously to provide financial products and services to Canadian consumers. Of course, increased competition has a positive effect on the marketplace, accelerating innovation and increasing choice for Canadians.
Financial services is undergoing a dynamic and transformative change in how all providers deliver products and services to consumers. As the committee is aware, Finance Canada is in the midst of its review of the financial services framework. A key focus of that review is updating and modernizing the Bank Act and related statutes to reflect this changing landscape for financial services.
Increased innovation and competition must be balanced with appropriate consumer protection and prudential oversight to protect the strength and integrity of Canada’s financial services sector. Over many years, banks have been able to provide continuously innovative products and services, while working within a comprehensive consumer and prudential regulatory framework that has benefited Canadians and the national economy. Canadians have trust and confidence that their interactions with banks will be efficient, accurate and secure.
While banks are federally regulated, credit unions and other financial institutions fall under the responsibility of provincial governments. Provincially regulated financial institutions are not subject to the same policy, supervisory and regulatory framework as federally regulated deposit-taking financial institutions. Similarly, many new entrants into the financial services marketplace are not subject to similar regulatory requirements.
As competition and choice in financial services continue to grow and evolve, it must be clear to Canadians what type of financial institution they are interacting with. Canadians’ confidence in their financial institutions is ultimately rooted in clarity with respect to their rights and protections that are derived from the corresponding regulatory oversight.
We believe it is necessary to have clear parameters around certain terminology, particularly around which institutions are permitted to call themselves a bank. A starting point is that only a federally licensed bank should be able to call itself a bank. As far as I’m aware, that point is not in dispute, but it does bear emphasis because it is foundational to consumer protection. In this instance, the issue seems to be around the use of related terms to describe product and service offerings.
Our view is that acceptable use should be centred on the principles of reasonableness and clarity. Use of a derivative of the word “bank” would be acceptable if there were no other term available in the common parlance to describe the product or service offering and where the service provider is making it clear that it’s not a bank. Appropriate parameters around the use of terminology should be focused on ensuring that it is clear to Canadians when they are interacting with a bank and when they’re interacting with a financial institution that is subject to a different set of consumer and prudential rules. In addition, the parameters should be guided by necessity rather than simply by marketing considerations.
Thank you very much for your time, and I look forward to your questions.
The Chair: Thank you.
Senator Wallin: We’re going to start in the same place that we did with our other witnesses on this topic. We can understand your competitive concerns or reasons and that you want to guard the use of the word. Is there some issue that you have seen? Has this impacted your customers, your profits, your ability to do your job, that a credit union might say, “Come and do your online banking here”?
Mr. Hannah: Let me go back to what I said in the remarks. We’re trying to take a very reasonable position in all of this. Our interest is in making sure that, if a service provider is holding themselves out as providing financial services, they need to be clear about what sort of entity they are. They need to be up front and clear about that. If they’re going to use a term that connotes bank services, it should be because there really isn’t another acceptable choice. If there are other terms in common parlance, we’d prefer they use those.
It really comes down to where there is a significant chance of consumer confusion and where there isn’t. The best example I can give you would be — And I’m making this up because I know, senator, you had mentioned, in the past, how it would be clear when you were dealing with a credit union versus a bank. If I or you went back to our younger days, if it was called Community Credit Union and had a slogan “Bank with us,” that would be relatively clear. The challenge is that now, increasingly, what you are seeing is Community Savings, “Bank with us.” That’s far less clear. That’s where the issue of context becomes important.
Our real concern is just to make sure that, ultimately, however this restriction is administered, it’s clear to people who are using it and reasonable both to consumers and to institutions.
Senator Wallin: I know that there are some institutions that don’t say “credit union” in the title. All the ones that I have in my province do, as far as I am aware. It actually says Conexus Credit Union or whatever it is.
To the other point that we’ve discussed, if you don’t know standing outside, you do know once you walk in because a different process kicks into gear when you go to establish a relationship, open up an account, cash a cheque, whether you’re a member or a client.
Mr. Hannah: With due respect, though, senator, if the consumer experience is that I go through the entire process of trying to both understand who my provider is, talk through what my interests are and then, only when I get to the point where I sign on the dotted line, do I know who I’m dealing with, that doesn’t strike me as a very effective consumer engagement or very effective disclosure. It would be far more effective if I knew up front, before I stepped in the door, who it is that I’m dealing with.
Senator Wallin: But I actually believe most people do. This assumption that the public is walking around with cash in its pockets and not knowing what to do and that they walk into some building and have no idea whether it’s a bank or a credit union, honestly, I’m amazed that there is this sense that consumers are so ill-informed and dumb. So it brings me back to the question: Is there any evidence that this confusion is reigning supreme out there?
Mr. Hannah: Again, senator, I’m trying to be quite reasonable about this. That’s not my point.
Senator Wallin: I think your position is sort of reasonable. I’m questioning why you would allow non-regulated institutions to use it, but that’s a separate issue.
Mr. Hannah: That’s actually part of the challenge here. That’s I think part of the discussion that isn’t happening here and I’m glad to see it started to come out in the past panel.
As I noted in my opening remarks, one of the bigger challenges in this issue is that the space is changing. We are seeing a proliferation of new models and new entrants providing financial services that look like those you might get at a bank or at a credit union, for that matter. And I appreciate the challenging space that OSFI finds itself in. They need to be able to stake out clear rules and clear ground in this space before the facts on the ground unfortunately establish themselves. I understand fully that they need to do that.
The Chair: Which in this case, I think, is what happened. Because they never enforced it, it became part of the lexicon and part of the common language. Therefore, now it’s kind of too late to deal with this matter with the credit unions.
Mr. Hannah: Well, as I said, senator, from my point of view, we are always strongly supportive of starting from principles and then having flexibility. At the end of the day, what do we need here? Well, we need a couple of clear principles, which from our point of view are clarity and reasonableness, and then apply those as appropriate. In some cases — back to my example — community credit union, bank with us, relatively clear. Community savings, bank with us, that’s more complex. Maybe you need to have an adjustment there of some variety to reflect the fact that the facts on the ground are different.
I think that’s where we’re at here. This is I think what’s making the issue challenging both I suspect for the regulators and for yourselves around the table, and that is that the facts on the ground can affect the result. That’s what makes the issue challenging.
Senator Massicotte: Thank you very much for being with us. When you cite your objectives and principles, we largely agree. I think people would not disagree with that. The issue is the application of those principles and it requires judgment where it is you cut the line. One of your principles is whether there is another term that could be acceptable and that’s probably where we would disagree. You would probably see something more distinct than our group would find acceptable, but we’re not here to make a deal with you or negotiate the words with you. We all agree the requirement to be very clear — a type of institution.
Going back to the issue, I gather from your information we’re not aware of any significant problem with this issue; am I correct? There’s no group of people who have lost money or it resulted in a loss? There’s no polling to say there’s dangerous confusion here; am I correct in saying that?
Mr. Hannah: Well, the short answer is I don’t know the answer because I can safely say we don’t poll on that issue. We haven’t. Consumers wouldn’t be coming to us. They would go to a consumer regulator.
Senator Massicotte: Is there a problem?
Mr. Hannah: I’m not aware if there’s a problem or not. I simply don’t know the answer to that question. I approach this again from a principle base.
Senator Massicotte: Thank you.
Senator Moncion: To go back to what you were saying about not knowing if they’re protected or not, the rules that are in place at OSFI are in place in every province where there are credit unions and caisses populaires that are regulated by a provincial entity. The same liquidity rules apply, the same risk base and the same capital rules apply. Sometimes they’re even more enduring on the business because the levels need to be higher and there are all kinds of rules. And there’s also the insurance they have to pay just to protect the consumer deposits. So there are many similarities and many things that are the same.
My question is more about the international aspect of the use of “bank,” because on the international level “bank” is a protected name, as “credit union” or “caisse populaire” are also protected names in every province. You cannot open a business and call yourself a bank on the international level if you are not a bank. I think that’s the protection that banks are looking for here. The fact that it’s gone further than just the use of the word “bank” is an unusual aspect that we have in the act.
You’ve mentioned that you have concerns about the use of the words “banking” or “banker.” You gave us the example of a community savings, but do you have examples where caisses populaires or credit unions have used the word “bank” and it wasn’t clear? One of the comments you make in here is about the clarity of dealing with the credit union and caisse populaire and dealing with a bank. Do you have instances where that has happened?
Mr. Hannah: Senator, from my point of view, am I going around polling, looking for instances where this is happening? No. From my point of view, what I’m doing and I think from our point of view we think the government should really be doing here is taking a reasonable approach and say, “Look, let us focus on clarity, let us focus on reasonableness, and then apply that against the existing use.”
If it’s the case that both of those things are met in all cases, then you don’t have a problem. If it isn’t the case, then some corrective action needs to be taken. I think if one starts from the premise that these are two relatively reasonable principles that I think can and should be foundational and then apply that onto existing treatment, you should always come to a reasonable result.
Senator Moncion: We agree. Would you oppose a change to the legislation on the use of “banking” and “banker”?
Mr. Hannah: I’d have to see what the change is. But again, we would look at it through the lens of the principles I just articulated and how they might apply under different circumstances.
Senator Moncion: All right, thank you.
Senator Wallin: I want to come back to that issue we touched on quickly. First, you’re fine with “banking,” just not “to bank”?
Mr. Hannah: No, I don’t think I quite said that. What I said is it’s context-dependent.
Senator Wallin: Okay. “To bank” might be okay but it might not be — come to our credit union to bank?
Mr. Hannah: Well, “come to our credit union to bank” might be one thing. “Come to our savings to bank” might be entirely another. This is the context that matters.
Senator Wallin: Am I understanding this correctly: You think non-banks should be able to use the term “banking” whether they’re federally regulated or not?
Mr. Hannah: No, I didn’t say that either.
Senator Wallin: Okay, let’s clarify.
Mr. Hannah: What I said was we have to start from the principles of reasonableness and clarity and build out from there.
Look, it is certainly the case where the further you go out — we’ll call it the novelty curve of business models — the more complex these issues become and the more risk-sensitive if I’m a regulator I’d have to be. I would expect that seems like common sense and I think that’s the approach. But I think it’s also the case though that since the topic matter here seemed to be initially focused on credit unions, I wanted to be clearer about where I would land on that particular issue.
Senator Wallin: Okay. So to be absolutely clear, then, this freedom to use the term “banking” should go to regulated institutions, period?
Mr. Hannah: Provided they are being clear about the type of institution they are.
Senator Wallin: Okay.
The Chair: Senator Tannas, do you have a follow-up?
Senator Tannas: That answers my question. You bet.
The Chair: Senator Moncion, you have a quick follow-up?
Senator Moncion: Yes. The paper provided to the federal government in its submission, on page 25, “therefore we believe it is necessary that Finance and OSFI continue to have strict parameters around the use of the terms ’bank’ and ’banker.’ It may be appropriate to permit non-banks some flexibility in the use of the term banking when they are describing their services, provided that there continue to be parameters around that use and provided that it is made clear to customers that they are not being served by a bank.”
And I think we all agree on that, so I really like that recommendation.
The Chair: Thank you very much, Mr. Hannah.
Tomorrow we’re going to be meeting in the morning. It shouldn’t be a long meeting. We are going to approve the resolution on our study that I have to take to the Senate in the afternoon. We’re going to have a little discussion on this credit union follow-up on what we’re doing right now, and also a follow-up on the copyright legislation as to where we are. Then that should give us a program for the fall, and we should be away.