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

Issue No. 40 - Evidence - May 3, 2018

OTTAWA, Thursday, May 3, 2018

The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:32 a.m. to study the subject matter of those elements contained in Divisions 2, 4, 5, 6, 7, 12, 16 and 19 of Part 6 of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.

Senator Douglas Black (Chair) in the chair.


The Chair: Good morning and welcome colleagues 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 Doug Black. I am a senator from Alberta and I chair this committee.

I will ask the other senators around the table to introduce themselves, please, starting with Senator Marwah.

Senator Marwah: Sabi Marwah, Ontario.


Senator Ringuette: Pierrette Ringuette from New Brunswick.


Senator Unger: Betty Unger, Alberta.

Senator Tannas: Scott Tannas, Alberta.


Senator Dagenais: Jean-Guy Dagenais, from Quebec.


Senator Wetston: Howard Wetston, Ontario.

Senator Day: Joseph Day. I am from the area being flooded right now.

Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.

The Chair: Thank you very much. Of course, we are ably assisted by our clerk and our analysts from the Library of Parliament.

Today we begin our subject matter examination of eight divisions of Part 6 of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures, otherwise known as the budget implementation act.

Honourable senators will know our committee must report our findings to the Senate by no later than May 31, 2018.

As senators also know, unfortunately, because of the untimely passing of our colleague, we elected to cancel the meeting last evening, so the clerk, of course, is in the process of rescheduling those witnesses.

Today we will focus on Division 16 of Part 6, which amends certain acts governing federal financial institutions and related acts.

I am pleased to welcome, in the first portion of our meeting, from the Canadian Bankers Association, Angelina Mason, General Counsel and Vice President and Marina Mandal, Assistant General Counsel. From the Canadian Credit Union Association, Marc-André Pigeon, Assistant Vice President, Financial Sector Policy and Athana Mentzelopoulos, Vice President, Government Relations.

Thank you for being with us today. If you would begin with opening remarks and then senators will have questions. Please proceed.

Angelina Mason, General Counsel and Vice President, Canadian Bankers Association: I would like to thank the committee for inviting us here today to discuss Part 6 of Bill C-74. The CBA always welcomes the opportunity to share our perspectives on new legislation before Parliament.

The CBA is the voice of more than 60 domestic and foreign banks that help drive Canada’s economic growth and prosperity. The CBA advocates for public policies that contribute to a sound and thriving banking system to ensure Canadians can succeed in their financial goals.

This morning we focus the majority of our comments on Part 6, Division 16, which contains amendments to the Bank Act. Given the dynamic nature of today’s financial services market, updates to the legislative framework are critical to ensure responsiveness to the evolving needs and expectations of consumers. The amendments in Part 6, Division 16 are a result of the consultation process which the government undertook as part of the regular review of the federal financial sector framework.

I will also discuss towards the end of my remarks Part 6, Division 12, which takes steps to consolidate cybersecurity activities across the federal government under the Communications Security Establishment.

Over the last several years, consumer demand has produced a dramatic shift in the financial services landscape. Today consumers expect safe and convenient access to banking services 24 hours a day, in real time, from anywhere in the world. In response, banks in Canada continue to innovate and develop new technologies to provide better products and services to their customers.

The Internet brought online banking into homes and offices and mobile is now eclipsing that technology. Everyone with a smartphone has a bank in their pocket. Banks have mobile apps which are constantly updated with new features. A thumb scan can now verify your identity, an e-transfer is a quick and simple way to send money to a friend and a cheque can be deposited by snapping a photo. Over a few short years, the number of Canadians using mobile banking has grown dramatically, with 44 per cent of Canadians using it in 2016, up from 5 per cent in 2010. In fact, more than two thirds, 68 per cent of Canadians, now do most of their banking digitally using online and mobile banking.

Clearly Canadians are embracing technology in banking and we believe the legislative framework that supports financial services must be modernized to reflect this reality.

Banks are strong proponents of an open, competitive and innovative financial services sector. There is already an impressive number of fintech startups in Canada that have brought expanded competition and customer choice in areas such as payments, investments and budgeting.

Currently there are barriers in the Bank Act that restrict certain types of relationships among banks and fintech companies. These include lengthy regulatory approval processes and restrictions on the type of investments that banks can make in fintech.

For example, if a fintech has a small line of business in something other than financial services — say a food delivery service — bank investment is restricted because that company offers a non-banking service.

In terms of the regulatory approval process, it can take months; an eternity for fintechs. This can deny fintechs access to the brands, customer reach and partnerships banks can offer. It can also push innovative Canadian fintechs to other countries.

Many of these current barriers to collaboration between banks and fintechs were imposed at a time when fintechs were not even conceived of and when technology was not as fundamental to banking products and services as it is today. These barriers are outdated in a world where technology is integral to financial services and they inhibit innovation.

If passed, Bill C-74 will ease many of these existing barriers in the Bank Act and will allow for greater collaboration between banks and fintech companies.

In addition, the Bank Act framework needs greater clarity regarding the nature of fintech activities in which banks may engage in-house. Even more fundamental is the need to update references to the types of relevant technologies in the Bank Act, such as sites, platforms and portals since the current language in the statute is quite outdated.

Canadian consumers will benefit by having new channels of distribution as well as new applications, products and services. fintechs will have access to banks for capital, funding, distribution and advisory needs.

These provisions will also bring Canada more in line with other jurisdictions around the world actively encouraging growth in their fintech sector.

I will move to cybersecurity now. The CBA has long advocated a collaborative approach between different levels of government across critical pillars of infrastructure. When we appeared before the committee on the topic of cybersecurity in October 2017, we argued the cybersecurity framework would benefit from having one lead agency to deal with cyber threats. In Budget 2018, the government announced the creation of the new Canadian Centre for Cybersecurity and the National Cybercrime Coordination Unit. Changes proposed in Bill C-74 will help consolidate cybersecurity expertise across the federal government under one central agency. As leaders in digital security, banks are eager to share their expertise and to participate in this new hub.

In conclusion, the proposed amendments in Division 16 will encourage greater collaboration between fintechs and banks. If passed, Bill C-74 will foster innovation and financial services, promote competition and ensure consumers have access to better products and services.

With respect to Division 12, we support the consolidation of cybersecurity activities across the federal government under the Communications Security Establishment. Cybersecurity is a top priority for the Canadian banking industry and these changes will help improve Canada’s resiliency against cyber threats.

We look forward to your questions.

The Chair: Thank you very much, Ms. Mason.

Ms. Mentzelopoulos, please proceed.

Athana Mentzelopoulos, Vice President, Government Relations, Canadian Credit Union Association: Mr. Chair and committee members, thank you for the invitation to speak with you today. The Canadian Credit Union Association represents almost 260 on credit unions and caisse populaire outside of Quebec. Our members are full service cooperative financial institutions serving over 5.6 million Canadians.

Credit unions contribute $6.5 billion to the country’s GDP and we help create over 58,000 direct and indirect jobs. Credit unions are the only brick and mortar financial institutions in over 369 mostly rural communities across Canada. We provide an important alternative to the big banks for Canadians from coast to coast, but it can be difficult for us to compete fairly in a marketplace dominated by large banks which enjoy a competitive advantage due to their size. Among other things, this enables them to adapt more easily to compliance obligations.

Our members were pleased with the commitment in Budget 2018 that changes would be made to allow credit unions and other entities to use generic banking terms, subject to disclosure. We owe a lot of thanks to many members around this committee for that change. The commitment is now reflected in the amendment to the Bank Act in Bill C-74.

This change would allow our members to continue to speak to Canadians about the services they offer in language that Canadians understand. We are grateful to the Minister of Finance, members of the all-party credit union caucus and this committee for helping to ensure credit unions can continue to use these terms.

The credit union system acknowledges that federal policymakers appear to have concerns with consumer awareness of the regulatory structures surrounding financial institutions, particularly due to the emergence and growth of unregulated financial institutions and the fintech sector in Canada. These concerns are at the root of the phrase “subject to disclosure” reflected in the budget documents. It is a phrase that means federal policymakers are looking for standardized practices about what information is shared with members and potential members about who regulates credit unions and provides deposit insurance.

Credit unions and caisse populaire are regulated, deposit-taking financial institutions with over 100 years of history as the only domestic competitors to the banks. Our members remain concerned about the impact of extensive regulation on their ability to compete, especially when such regulation does not contribute to the safety and soundness of the financial sector.

Provincial credit unions are incorporated, regulated and insured. Regulatory authorities at the provincial level set prudential standards and conduct reviews appropriate to cooperatively owned, deposit-taking institutions. Institutions with little exposure to international or foreign exchange markets.

Through good times and bad, credit unions out perform other institutions in making high quality loans. In fact, credit union losses have averaged less than half a per cent of total loans over the last two decades compared to over double that for our competitors, admittedly in both cases very low. For this we credit the knowledge of local credit unions about those who whom they lend.

Provincial deposit insurance provides credit union members with protections equal to or greater than those available to bank depositors. In addition, credit unions take extra steps to ensure every dollar is protected. About 8 to 10 per cent of deposits are held by credit union centrals and for extra security many credit unions also hold lines of credit with other financial institutions.

I share this information because we believe at the root of the desire for disclosure is likely a continuing misunderstanding amongst policymakers about provincial regulatory structures. Provincial regulation is equally effective as the regulation of federal financial institutions.

The credit union system is committed to providing leadership in the area of consumer protection and to ensuring we continue to provide outstanding service. The system puts the interest of its members first and foremost and does so without the government requirement.

To this end, we are developing a national market code that will support and help to advance best practices we have learned from providing award-winning customer service. Our voluntary market code will ensure Canadians understand the credit union difference and are reassured about our commitment to transparency, integrity and outstanding customer service.

Among its many benefits, a voluntary code is the most effective way to ensure consumers understand the regulatory and deposit insurance framework of their credit union. In other words, we aim to meet the disclosure requirements through a voluntary code. The code can complement or expand traditional regulatory regimes while stimulating public participation in the development, implement and modernization of standards. It can also help ensure smaller credit unions, who do not have the scale to handle expansive new compliance obligations, can remain competitive.

In closing, I would like to underline I am here representing support from credit unions from coast to coast who are asking for flexible use of generic banking terminology and for a reasonable approach to disclosure requirements. Thank you.

The Chair: Thank you very much. Unless there are any other presentations, we will move to questions.

Senator Stewart Olsen: Thank you for your presentations. I will address my questions to Ms. Mason. They will deal mostly with security and protecting the security of your customers with the addition of the fintechs.

How are you going to protect customer information? Are you giving that information to the fintechs? Now you are introducing a third party. I am a bit worried about cybersecurity. I know we have a lot in here, a cybersecurity establishment that was said to have begun in the last budget. I don’t think it is up and running. How on earth can you manage to protect and ensure customer and information security?

Ms. Mason: There are a number of ways we could collaborate with fintechs. One of them is in a networking arrangement where we refer our customers to fintechs. We would not directly provide the customer information; the customer would engage with the fintech directly. We enter into those types of relationships and do significant due diligence to ensure any parties we are referring our customers to have appropriate security standards.

In cases where we are collaborating with fintechs directly on a particular product and service, we are right at the table and ensuring appropriate security measures are in place. At all times customer security is a top priority for banks and we ensure any engagements with fintechs also take that very seriously.

Senator Stewart Olsen: In working with fintechs, banks are going to be picking and choosing to which fintech they will give customer information. I am quite nervous about this whole scenario. I wonder if you could you reassure me a bit?

Ms. Mason: Sorry. The banks aren’t giving customer information to fintechs.

Senator Stewart Olsen: If you are referring customers, though.

Ms. Mason: If a customer is working directly with a fintech, that fintech would be expected to have the highest forms of security.

Senator Stewart Olsen: If I go back to your answer to my first question, you mentioned about referring bank clients to fintechs. Are you picking and choosing? I don’t understand.

Ms. Mason: Sorry, yes. As I said, there are various ways we could engage with a fintech collaboratively. One would be a referral type of arrangement. When you say “pick and choose,” we would look at relationships we felt were worthy of pursuing. When we do choose, we make sure we have done appropriate due diligence. There are a number of fintechs out there we could partner with.

What is most important is we want our customers to be secure. We want to protect our reputation.

If we are engaging in a relationship of that nature, we are making that choice with all of that in mind.

Senator Stewart Olsen: I find that worrisome but thank you for your answers.

Senator Marwah: Again, this is addressed to both of you. I can see you are reasonably happy with the changes imposed in BIA1.I am glad we are modernizing the framework to deal with today’s rapidly changing technological world. But there were previous constraints that when a bank made an investment in a fintech, if that fintech in turn made an investment in another company for services provided to a delivery company, that was not permitted. The other constraints were sometimes the banks had to get permission from OSFI or from the Minister of Finance which took months sometimes and in the world of a fintech is a lifetime.

Do you have enough flexibility? Do these rules provide you enough flexibility to cope with this new world or are there still restraints that puts you at a disadvantage?

Ms. Mason: We are pleased with these changes. They provide the clarity and flexibility we were looking for. They have done it in a measured approach. There are obviously regulations still to come, but we feel this will give us the flexibility we need to provide the products and services and to compete.

We have to continue to watch the space. Things are evolving at a rapid pace, but we are obviously very pleased with this direction.

Senator Marwah: Let me ask a question in reverse, then. If you are really happy with it, are there enough adequate constraints on what you can do? Previously there were constraints that you cannot invest heavily in commercial organizations. Are they still there?

Ms. Mason: That is why I say finance has taken a thoughtful and measured approach. There are still constraints. When you talk about investing in a fintech that may have a food delivery service, there is still a requirement that a majority must be in financial services.

Also, if you look at how we are participating in other types of technology, again, it is in support of financial services. We are still doing banking, but we are adapting so we can offer the user experience expected from our consumers. The reality is consumers aren’t expecting just to do their banking.

I will give you an example. You have a wristlet that can pay all your purchases at a hotel, but it may also open the door to your suite or measure how much walking you did on your vacation. It is the ability to do those additional activities and give that experience to our consumers in the context of providing a financial service. At the core, we are still providing a financial service and dealing with fintechs involved in financial services.

Senator Marwah: Payment modernization is also a critical part of this. I am pleased that we are launching a review of the Canadian Payments Act. It helps modernize the payment system to deal with the efficiency, safety and soundness of the system. As part of that modernization there are two plans. One is to modernize the Automated Clearing Settlement System, the ACSS and the SOE system. There is another one for a real-time rail. Are we capable of doing both in the timeframes that we need or should we be attaching priority to one versus the other? What is industry’s view?

Marina Mandal, Assistant General Counsel, Canadian Bankers Association: They are happening in parallel. As part of payments modernization, finance has undertaken work for a couple of years on the national retail payments oversight — that is a mouthful. They are happening on parallel tracks within government and within the industry.

I take the point about resources. It does put a strain but the time is now. You need to modernize the legislative framework for banks and federal credit unions and at the same time you can’t ignore or defer payment modernization to a future date. I take the point it is difficult but all the players are at the table and I think it has to happen in the next few years.

The Chair: A supplemental, if I may. Ms. Mason, would you have gone further with the changes?

Ms. Mason: There were probably other things we would have asked for, but I am very pleased with what we have before us. I think this is enough to allow us to compete and to do the types of innovation we are looking to do.

Senator Marwah: Do the credit unions have any comments on either of those two in terms of investment? I am sure you are making investments in fintechs to meet the needs of your customers. Were there any constraints you feel you are disadvantaged?

Marc-André Pigeon, Assistant Vice President, Financial Sector Policy, Canadian Credit Union Association: Like the CBA, we were pleased with the proposed changes, keeping in mind we have only one federal credit union but we have several that are in training and hope to be across the line in due time. In that respect, we are supportive.

Apart from expressing support for the general approach, we have commented to be mindful of the competitive balance implications. We have a market characterized as an oligopoly dominated by five or six large banks. In the back of my mind, there is always a concern about those large banks taking up space in fintech space and taking over whatever is out there.

We have been speaking with the Department of Finance to look for ways of levelling the playing field so that smaller entities, banks and federal credit unions aren’t disadvantaged in whatever comes out of this.

Senator Marwah: Do you feel that is being adequately addressed?

Mr. Pigeon: This is framework legislative changes. This is not getting into that level of detail. In the regulations, we could advocate for something in that space.

Ms. Mason: On that point, when you are talking about fintech, you are talking about participating in the space not owning the space. It is about a collaborative approach and who is our competition. It is not simply banks, it is alternative types of companies. What we are talking about is participating in the space and ensuring we are not restricted in a fashion that our customers are having to go somewhere else to get the consumer experience that they are looking for and demanding in today’s technology.

Senator Wetston: I would like to continue to pursue this issue to understand what the market structure will look like.

As I understand, you are fairly supportive of what we are seeing in the pre-study of this bill. I think there was an extensive review by finance to get to this point.

How do you see the ongoing development of fintech, which would include AI, machine learning, block chain technology and digital issues within that whole environment? How do you see that evolving when it comes to fairly significant organizations like Apple, Google, Amazon, e-wallets, payments systems and financial services? That is a broad question, but I wouldn’t mind your take on how you see that market structure evolving?

As Mr. Pigeon as indicated, the notion of the market power of the banks is considerable. I know they are investing directly in fintech and working on a collaborative basis with fintech companies. Can you give me a sense of that?

Ms. Mason: Well it is a multifaceted answer because there is a lot at play and there are different ways we can engage with fintechs. Within that spectrum, things are moving so quickly and evolving that there are a variety of ways we would play in that space.

For example, take digital ID. We see that evolving under a federated model. It will be a collaboration amongst multiple players within the marketplace, a combination of government and various players in the private sector. You have banks being a stakeholder that brings a lot to the table given the efforts we make to identify our customers because of AML and various other customer requirements. We see participating with a collaborative approach in the market.

In other situations where we are dealing with types of collaborations, sometimes through investments; sometimes through joint development.

What we bring to the table in the context of fintechs is brand scale distribution channels and a strong customer base. We also bring regulatory oversight. We operate under a comprehensive regulatory framework. Our consumers trust us. That is what we also bring to the table.

Mr. Pigeon: From our perspective, when we think of the non-banking space, the Googles and the Apples, we always keep in mind are you deposit taking or not? If you are going to get into that business, we want you to be subject to the full suite of regulatory oversight we are currently subject to.

That is one point. There is a concern in the industry. We had colleagues from the European Association of Co-operative Banks speak the other day, and they’re preoccupied with Google and Apple potentially being able to use their vast knowledge of my transactions, your emails, and whatever else to get into this space. That is something that does concern us. We need to think hard.

I just want to go back to the comment about the banks and the sector. There are proposed changes around permitted investments here. There are restrictions, currently in sections 477 and 478, that make it more challenging for small entities to do some kinds of investments. We have seen the past trajectory of the trust and insurance businesses being opened up and large banks taking up a big part of that space. Even the mortgage business, when they were excluded, they quickly assumed a dominant position. As we know from the Google and Apple examples, there are tremendous networking effects, it’s like a language. When you have a dominant position, it tends to lock in and make it difficult for new players to come in or existing smaller players to compete.

Senator Wetston: Absolutely.

Mr. Pigeon: These are legitimate concerns based on what we know about economic theory and past trajectories. It’s something we will continue to discuss.

Senator Wetston: As you know, the three or four entities I mentioned have considerable global market power and they continue to acquire and acquire, and Canadian banks have considerable market power — perhaps you don’t agree with that — and they can acquire and acquire as well. You want to ensure you have a market working effectively for small and minimum sized business and consumers. That’s just a comment. Here is my question.

I know you probably understand this better than I, but in subdivision B, Part 6, Division 7, dealing with payments — I’m trying to understand this oversight information and how the bill is addressing it. Do you have any comments on how the bill is addressing this information, and how it’s being used? If it’s too technical I wouldn’t be concerned about the response, I’m just trying to understand how they’re dealing with it.

Ms. Mandal: Was this the Payments Clearing and Settlement Act changes?

Senator Wetston: It’s dealing with oversight information not being used as evidence in civil proceedings, for example. It may be too technical but I couldn’t understand why it is that only the Minister of Finance, the Governor of the Bank of Canada, the bank or the Attorney General — subject to regulations, we’ll see what’s going to happen — can use this information as evidence in any proceedings but no-one else can.

Ms. Mandal: Senator, can we come back to you on that?

Senator Wetston: Absolutely. It may be more appropriate for officials than yourselves. I was just wondering about that.

Ms. Mandal: We’re happy to look at it and come back to you.

The Chair: Come back with a response, yes.

Ms. Mason: Can I chime in on buying up everything? I want to make it clear there are different ways we can collaborate with fintechs. There are fintechs who don’t want to be bought, who want to have a place in the space and would rather collaborate with multiple financial institutions. I don’t think it’s a question of buy them all up. Some will want to be bought, others will want to have their own place in the space and to collaborate. That’s why I want to emphasize that the ability to collaborate is also very important.


Senator Dagenais: I’d like to thank all our witnesses for being here today. Ms. Mason, I listened to your presentation and I think you’re completely right. Soon, we will no longer have to go to the bank thanks to all of the apps that are available. I use these apps myself, and I find them practical, particularly when one travels a lot.

My question is for all four witnesses. You represent very large associations, namely the Canadian Bankers Association and the Canadian Credit Union Association. When a government plans new measures in its budget that can affect your activities, do they consult you? Do they ask your opinion? This can of course have an impact on your operations.

When you change activities as a result of new measures in the budget, do you know whether this will increase fees for your members or not?


Ms. Mason: I’ll start with the consultation process. As mentioned at the start of my introduction, this was part of the federal financial framework review. There were two consultation processes. We made two public responses. What we see in this bill is the response from the government to our request. As I mentioned, it is not exactly what we asked for but it is a balanced approach where the government feels they have oversight as we move into this era of change. There are some regulations also in play that will influence the clarity and the specific powers they have provided us. In that context, yes, we were consulted but now as we look through the bill we have commented based on what was put before us.

On fees, often financial technology has a benefit for consumers in reducing fees. As we see with online and mobile banking, it allows consumers to access banking that is less expensive and often results in a reduction of fees. With this technology there is also a greater awareness of clients managing their finances, including knowledge of fees. There are apps to let them know where they are in their banking and how to be more efficient in transferring money. In that way it can be beneficial.


Senator Dagenais: If I’ve understood your answer correctly, the more technology evolves, the more costs go down for your clients, right? If this is the case, this is very good news.


Ms. Mason: I’m saying it can be a good news story.


Senator Dagenais: Thank you, madam.


Senator Ringuette: I have two questions. The first is in regard to the cybersecurity aspect of this bill. I would like to have your perspective in regard to the recent events with Equifax and the data that was supplied by the different financial institutions in Canada. How will this legislation remove that risk from private information transmitted by your organizations?

Ms. Mason: The point of having a centralized hub for sharing information and best practices on cybersecurity would apply to all important financial sectors. It would include the credit reporting entities. They should also take care in securing their customer information.

Senator Ringuette: That applies for entities in Canada.

Ms. Mason: Yes.

Senator Ringuette: What about the information you supply to entities that are not in Canada?

Ms. Mason: When we’re dealing with entities outside of Canada, are you talking about service providers?

Senator Ringuette: I’m talking about an entity such as Equifax.

Ms. Mason: In the case of Equifax, their security standards should be consistent with what they’re doing in the Canadian market. Also, in the case of cybersecurity, there are international components. It’s not just sharing within Canada but also sharing what’s happening in other countries. That’s why a centralized hub for sharing and dealing with international players will help increase our awareness and our fight for cybersecurity.

Senator Ringuette: Chair, moving on, because I know other colleagues wish to ask questions.

The Chair: It’s a very good question. May I ask a supplemental to yours?

Senator Ringuette: Yes.

The Chair: Is it your view that the changes provided here will prevent, or help to prevent, a future Equifax breach?

Ms. Mason: First of all, there are robust privacy laws in play here on Equifax and they have to meet those requirements. When you’re talking about cybersecurity in the context of sector players, any enhancements to cybersecurity would have the potential to help prevent any sort of cybersecurity attacks.

Senator Ringuette: We still have to acknowledge this is applicable on the Canadian landscape and not elsewhere. We can’t apply Canadian laws to a foreign resident entity.

That being said, I want to go to my other line of questioning. I’m looking at clause 312(2.2)(b), which reads that “. . . a company may acquire control of” — and when we’re talking about “company,” we’re talking about a financial entity here — “or acquire or increase a substantial investment in [an entity] under subsection(2.1).”

Now, that brings me to the question, and I hope you will understand. A major financial service entity is not necessarily an entity under the Bank Act of Canada. It could include efinance, payday loans, all kinds of other financial service entities.

You said you wanted to participate in this space of finance, technology, service providers and so forth. How do you define “majority financial services entity” so when I read your presentation — this is principally to Ms. Mason — I have a safe feeling our banking institutions won’t be moving into the kind of payday loan, ecommerce, efinancial entities we see in the public space right now?

Ms. Mason: That is not the intent of this particular investment power. The intent is if a majority of financial services are being conducted, even though they’re doing some non-financial services of a nature that we would not be prohibited. To the extent we would be able to invest in a company because they provide financial services, we wouldn’t be precluded because a small proportion was not in financial services.

Senator Ringuette: Who would establish what is the reasonable financial content of this entity?

Ms. Mason: The government will. The majority will be prescribed by regulation.

Senator Tannas: Thank you for being here. At the risk of being pedantic, let me talk about insurance, for a minute. I know we have insurance folks coming up.

Could you just be clear, is there anything in here that would allow banks to further the sale of insurance through a relationship with a financial intermediary or a fintech company, either through the payment of a referral fee or a reduction in an outsourcing cost?

Let me give you an example. There’s an interesting company I came across that does an enormous amount of mortgage fulfillment on behalf of banks, presumably because the costs are attractive. Lo and behold, they also own a title insurance company, and they sell an awful lot of title insurance. I’m sure they don’t pay a commission to the banks. In fact, I’m sure they get paid by the banks for their fulfillment duties. Maybe they don’t pay as much as they would if there was no title insurance.

I’m wondering if this is a potential example of where we go with all of this. If you can give me the assurance that in terms of the pillars we have stuck to, does this provide any opening beyond what I’ve just described — or maybe including what I have just described — that weakens that?

Ms. Mason: To my knowledge, no. That is not the intent, for sure. If you look at the specific networking provision, it makes it subject to section 416. There should be no legislative reason why that would be possible, and there’s no intent, from my understanding, that would be the case.

Senator Unger: Thank you for your presentations. I have a follow-up on changes to the Bank Act. I would like to ask Ms. Mentzelopoulos and Mr. Pigeon. Does the bill capture all of the changes you feel are necessary to the Bank Act? Are there any proposed amendments you don’t agree with?

Ms. Mentzelopoulos: In terms of banking terminology, what’s laid out in the legislation does capture our desires. The concern is the extent to which a regulatory process contracts that. We will be on alert.

Senator Unger: Going back to cybersecurity, there are a lot of changes being made, and you’re addressing those concerns. I’m wondering if some things have the potential to be missed that might allow a breach of sorts. The other is the new Canadian Centre for Cyber Security. Everything will be under one roof, per se. I don’t know what that looks like, but if someone really wanted to harm our country, now that everything is under one roof, is it easier to attack?

Ms. Mason: Just to clarify, what’s under one roof is the sharing of information to protect us against cybersecurity. The actual data itself still remains within the specific sector participants.

What it’s really doing is facilitating a streamlined approach for the sharing of information on potential risks. The CBA has already been involved in efforts across multiple sectors through our own members and committees of sharing information to help reduce cybersecurity risk. What this will do is take it to the national level. By having the government involved at a national level, there will be far more players in a streamlined approach. It will open up the opportunity for international learning and relations.

Senator Unger: That won’t allow for the possibility?

Ms. Mason: It reduces the possibility. There’s always that risk. Banks are leaders in cybersecurity and have invested significantly in protecting against cybersecurity. It is an ongoing threat, and takes a village. What this is about is getting all the sectors together so we can look out for each other and not have the infiltration of one section impact another.

Senator Unger: Thank you.

The Chair: I would like to follow up on that excellent question, if I may. We are currently at this committee studying cybersecurity. I would be very interested in your comments. Do you feel this bill goes far enough to meet the threats we are facing?

Ms. Mandal: I don’t want to say it’s early days, because it really isn’t early days on cybersecurity. It’s been at the forefront for the banks and financial institutions. We see and read the news. It’s definitely been at the forefront of our minds. That said, this budget and the budget bill sets up the centre. It’s early days in that sense.

Does it go far enough? It’s hard to tell. It’s something we have been advocating for. We think it’s amazing.

To Angelina’s point about streamlining and having an effective process, to have all the necessary regulators, from the Privacy Commissioner to FINTRAC to Finance and Public Safety at the same table and have those representatives able to talk to their international counterparts, we think is a great knowledge and information-sharing hub. Down the line, depending on how we’re able to keep the momentum going — and I think we will, because it’s one of the top three considerations for any players dealing with sensitive client information — is very good news ahead. We’ll see how it plays out.

The Chair: Had you made any recommendations to government respecting cybersecurity that were not accepted during their consultations?

Ms. Mandal: We provided remarks to Public Safety Canada on their consultation a while ago, about a couple of years now. Our consultations reflected in the budget bill, it’s exactly what we asked for. We asked for that hub.

The Chair: Thank you very much. Any comments from the credit unions?

Ms. Mentzelopoulos: No, thank you.

The Chair: Thank you very much. Let’s move to second round, starting with Senator Stewart Olsen, please.

Senator Stewart Olsen: Actually, Mr. Chair, I’m going to let this go for officials. It’s more a question for them. Thank you very much.

Senator Wetston: Just a follow-up on innovation. We hear about, and you’re familiar with this on the banking side, open banking. A number of countries have established open banking review committees to look at it perhaps more holistically. I don’t think we have done that in Canada, have we?

Ms. Mason: It was actually mentioned in the consultation and the government is currently studying it.

Senator Wetston: For the benefit of the committee and perhaps myself, can you describe what that would mean in terms of the existing banking system?

We’ve talked a lot about fintechs this morning. How do you view open banking and how do you view its legitimacy and potentially its progress?

Ms. Mason: I’ll start with what open banking is, which is the movement towards an increased level of competition by granting greater control over data to consumers. It’s the ability of a consumer to port their data to another participant in order to have a different consumer experience.

We commented in our submission of basically identifying some markets that had moved there quite quickly because there was a specific need. There was a lack of competition. In Canada we are a highly competitive market. As we look at whether open banking is appropriate for our market, our submission really focused on the key considerations of open banking. Obviously privacy and consumer consent and knowledge in how their data is being used, security of information, that’s top of mind.

You have to make sure if this is something to be considered that you have an appropriate framework, but it is early days. We know the government is studying it and we have indicated we are open to participating in those discussions and bringing our breadth of knowledge to the table.

Senator Wetston: Thank you. Any other comments?

Mr. Pigeon: I think we have engaged in a very similar way, actually, on this issue. I mentioned earlier we had someone from the European Association of Cooperative Banks speaking to us. It was precisely on open banking and their experience. They highlighted some of things our friends at the CBA mentioned, like reviewing the consent terms. For example, if I click okay on cookies, does that mean I’m okay with information sharing?

There’s a lot of work that needs to be done, even in Europe where they’re moving full steam ahead.

The data issue. How much do the lending institutions, deposit-taking institutions, have responsibility for breaches at the third-party fintech companies leveraging this framework?

I think it’s important to understand it’s a legislative framework that sets a standard, at least in one conceptualization of open banking, an API standard that banks and credit unions have to provide information in a form designated by that standard. That’s the key. There’s almost a third language being created that everyone has to communicate in. That’s how the data is shared.

Real implications for how the sector evolves — I would love to come and talk to you about it another time. It’s a big issue and very interesting as well.

Ms. Mason: Different entities have taken different approaches. Some have gone for a more regulated approach and some more organic, so there’s a fair bit of study there as to what’s appropriate.

Senator Wetston: It’s always good to know we have more work to do.

The Chair: I have one last question. Ms. Mentzelopoulos, I listened carefully to your presentation, but I’m uncertain, at the end of the day, what you want us to take from what you’ve told us. Are you concerned that you’re being overregulated? And/or are you concerned on issues of disclosure, you’re being overregulated?

I would like a summary as to what you want us to take away from your excellent presentation.

Ms. Mentzelopoulos: Thank you. Our concern is we will end up with an extremely onerous regulation that has a prescriptive approach in terms of what credit unions are required to do to disclose how they’re regulated and who provides deposit insurance.

We already have proactive practices across the sector in terms of communicating with members and potential members. We would like to avoid regulation on disclosure altogether and include it in a voluntary code we’re working on.

The Chair: I see. You have expressed this point of view to Finance?

Ms. Mentzelopoulos: Yes.

The Chair: Am I able to ask you what kind of a reaction you get to that point of view?

Ms. Mentzelopoulos: They appeared thoughtful.

The Chair: Thank you very much. That was very helpful for me.

Senator Ringuette: But you’re provincially regulated.

Ms. Mentzelopoulos: Yes, we are.

Senator Ringuette: The provinces have deposit insurance schemes of their own. I’m trying to put together what your comments and us dealing with this review of the Bank Act, which is a federal regulation.

Ms. Mentzelopoulos: The Bank Act is a federal statute and it was that statute that had the prohibition on using the terms bank, banker, banking. It’s through the federal statute they’re now allowing the use of generic banking terms and it’s the implementation of the disclosure that we are preoccupied with.

The Chair: The question is: Is that a provincial issue or a federal issue?

Ms. Mentzelopoulos: It’s a federal issue as a result of the provision in the Bank Act.

Senator Tannas: So that I’m clear, because remember that we had a hearing or two on credit unions wanting to use the words bank, banking, banker, or whatever. What you got as a compromise, I gather, is yes, you can do that but you must disclose who you really are. Right?

Ms. Mentzelopoulos: Yes.

Senator Tannas: That’s it. Thank you.

Senator Wetston: Thank you for the opportunity, chair, just to put on the record you’re all well aware of the fact there are 13 securities regulators in this country also engaged in fintechs, engaged in it to a very extensive level depending on whether or not they’re dealing with securities. Some of these fintech companies are in that space, both from the point of view of clearing payment as well as trading in securities using whatever facilities they have.

I realize we’re dealing with federal legislation here, but Canada can’t forget the fact there’s a fragmented regime dealing with financial services in this country. What are you doing about the provincial securities aspect of this?

Ms. Mandal: Great point. I think initiatives by the OSC and AMF have been a role model for us at the federal level to say, wow, the OSC is doing great things, entering into agreements with Australia and countries in Europe. So I take that point 100 per cent.

We have explicitly asked in our submission on the Bank Act review that the federal government, federal Finance primarily, create innovation hubs that will bring different federal policymakers together and then reach out to the provinces and highlight the OSC and AMF and their work, enter into cooperation collaboration protocols to learn from each other and think about things like passporting. If a fintech, under provincial regulation, if there’s a way to passport that into the federal system so the bank can engage with that fintech, we’re extremely supportive of that. We’re watching that. I think we kind of need the first step of the banks being able to get into that space in the first instance.

Senator Wetston: Thank you very much.

Senator Wallin: Just a follow-up to Senator Black and Senator Tannas, as well. Our friends from the credit union, we have gone over this many times. My sense is what we’re hearing is you’re concerned that the double standard you feel has been in play between banks and credit unions will not only continue but be exacerbated?

Ms. Mentzelopoulos: As a result of regulation, yes. That is our concern.

The Chair: Thank you very much. That was very helpful.

Panelists, thank you very much. As you can see it’s always a pleasure to appear before Senate committees. We’re glad you’re here and you can take the rest of the day off. Thank you very much.

We are continuing our subject-matter study of Bill C-74, the budget implementation act, 2018, No. 1.

I am pleased to welcome the witnesses on the second panel. From the Digital Finance Institute, Christine Duhaime, Founder and Lawyer, Duhaime Law; from the Canadian Association of Mutual Insurance Companies, Normand Lafrenière, President; and, accompanying Mr. Lafrenière, from SkyBridge Strategies, Steve Masnyk, Principal.

Welcome. Thank you very much for being here. I understand that we are going to have an initial presentation from Mr. Lafrenière. Is that correct?

Normand Lafrenière, President, Canadian Association of Mutual Insurance Companies: In fact, it’s one that we would like to share.

The Chair: Very well. Please proceed.

Steve Masnyk, Principal, SkyBridge Strategies: Good morning, senators. I will be sharing my time, as Mr. Lafrenière just mentioned, with him, the president of CAMIC.

The Canadian Association of Mutual Insurance Companies represents about 76 mutual insurers across the country, generally insuring people’s homes, autos and commercial property.

We are here today to raise some concerns about two sections contained in Bill C-74. These sections will have a dramatic impact on the current regime governing chartered banks in the insurance sphere, as well as on all Canadians who bank with these institutions.

As you well know, successive governments have, for good reason, prohibited banks from dealing in insurance. The reason is a simple one: Consumers are extremely vulnerable at the point where credit is granted. This prohibition also applies to banks sharing, using or referring their customers’ banking data for any insurance purposes.

Clauses 316 and 317 of Bill C-74 would allow banks to share, refer, sell or transmit their banking customers information to so-called fintech entities, which you were in conversation about with the panel before us.

This is a really big step. By banking data, we mean not only name and address of the customer but every transaction that customer has incurred. This includes their chequing accounts, credit cards, debit cards, investment, et cetera. This fintech entity would then be able to use this data to underwrite and tailor products for any purpose, including, in our sector, to underwrite insurance products.

As you all know, unlike banks and insurance companies, fintech entities are unregulated companies. We feel this could have major implications for the insurance sector as this is not only irresponsible, from the insurance sector’s perspective, but will have major implications for most other sectors of society.

Our concern is the wealth of banking data banks possess will be used for purposes we cannot predict. We have seen data misuse and abuse recently.


Mr. Lafrenière: Just to give you an example, we believe that banks will be able to sell data to financial technology companies, which will allow them to find out what you pay for your insurance policy and whether you represent a good insurance risk. They will be able to make you an offer to compete with your current insurance company.

This bill will allow banks to achieve in two stages what they cannot currently do in one stage.

The clauses of the bill under study, namely clauses 416 and 417, are subject to regulations that have not yet been put into place. We understand this concept very well. However, since this is an exceptional measure, the new clauses and their potential impact should be studied in depth. We feel it would be both premature and insufficient, given the need to protect personal information, to announce a regulatory framework that would make it possible to protect personal information of banking customers and at the same time comply with the two clauses of the bill. We believe it would be wise to remove these two clauses from Bill C-74 and to ask Parliament to conduct an in-depth study on them in the interest of all Canadians. This in-depth study could be done under the open banking approach, already announced by the Department of Finance.

All parliamentarians and Canadians should have an opportunity to speak on the powers banks have to collect and sell their personal data. Even Facebook believes that legislators should regulate them, so why should we rush to adopt the section of Bill C-74 that would make it possible for banks to share Canadians’ banking data? Thank you for your attention.


The Chair: Very interesting.

Ms. Duhaime, have you anything to add to that?

Christine Duhaime, Founder and Lawyer, Duhaime Law, Digital Finance Institute: Yes. With respect to financial technology, there will always be a bit of a nexus between whether we want to support innovation and allow something like open banking and allow more information held in large part by big banks and cooperate with little fintechs or we don’t. We at the Digital Finance Institute support the sharing of more information and are more supportive of digital technology to remain competitive.

The Chair: Do you have a presentation as well?

Ms. Duhaime: I do not; no.

The Chair: As Senator Tannas has to leave us earlier today, we will start with him.

Senator Tannas: It is your position that this really does open the door for the use of bank customer data to further the sale of insurance. You are pretty clear on that.

You heard what the Canadian Bankers Association folks said. They said the opposite, that was not the intention. It is sufficiently unclear, I would suggest.

What is it about this wording in particular? Is there an amendment that we need to bring? We will hear from the officials as to whether or not they intended this and if there is a need for clarification in the wording such that if they want an ice cream shop, that’s fine. However, if this is all part of a plan to do one way what can’t be done another way and receive a benefit, either by virtue of reduced cost in a service or a referral fee, or through the ownership of it, or whatever; if that is truly not the intention, perhaps we need some kind of amendment. What are your thoughts?

Mr. Masnyk: That is a great question, senator. If you read the wording of those proposed sections, 316 and 317, it is such that subject to the current section 416 of the Bank Act, which is the prohibition, the current law, in both legislation and regulation, governs the relationship between the bank and an insurer, two regulated entities. This creates a new avenue between the bank and a fintech. It doesn’t change the current law on the books as it is today, which is the wall. That is still on the books. The relationship between a bank and an insurer will be the same and that wall will still be up. However, if you can jump over that wall and jump on top of the fence and deal with that fintech, that fintech, which is more or less unregulated, will be able to use that bank data to underwrite to you, in our case, an insurance product, or any other type of business they are in.

The current wall of the relationship between the bank and the insurer will remain. However, this goes above and beyond the wall. Basically, it does in two steps what is forbidden in one step.

The Chair: What if you were to provide something like a clause for greater certainty, such as, “the insurance industry is exempt from this contemplation.” I am not advocating that; I am asking you that.

Mr. Masnyk: That’s a tough question because fintechs aren’t regulated. You can regulate the bank and how the bank behaves but not the fintech who has sold your banking data. What that fintech does with that data, who knows?

Mr. Lafrenière: That is what was mentioned. Some of those fintechs are provincially incorporated; some are federally incorporated. That makes it more difficult to regulate.

Senator Stewart Olsen: I share your concerns, actually, on this particular clause. You have suggested a good thing, namely, removing the clauses and studying them separately, because there is probably more regulation.

I will go to a question on infrastructure investment by health and life insurers, which is noted in the budget. Division 16, Part 6 amends the Insurance Companies Act, “to permit life and health insurers, including fraternal benefit societies and insurance holding companies, to make long-term investment in infrastructure that generates predictable return subject to,” and so on.

Was that something that you asked for, to your knowledge?

Mr. Lafrenière: We are on the property and casualty side of things. These are life insurance companies. I can only suggest that it makes sense for them to be able to make investments that will generate the revenue that will allow them to —

Senator Stewart Olsen: Perhaps the officials can answer but would investment be through the brand new infrastructure bank the government has put together?

Mr. Masnyk: Senator Stewart Olsen, I would suggest you speak with the Canadian Life and Health Insurance Association. CAMIC members don’t represent life companies. That would be a matter more directed toward them.

Senator Stewart Olsen: Thank you very much.

Senator Marwah: To go back to the issue of insurance, the fact is the banks do sell insurance today. They have separate insurance subsidiaries through which they can sell insurance. They are in the insurance business today whether or not we like it. Every one of the banks has a separately regulated insurance subsidiary.

The activity of the banks are always governed by section 416. Even if you go to a fintech, they are still governed by section 416 that prohibits them selling insurance. I don’t see why the concern is in studying this for two years. The Bank Act is already two years late; it is seven instead of five years. You’re just talking about delaying for the sake of delaying here. Where is the problem?

Mr. Masnyk: Senator Marwah, I have two thoughts for you on your question.

First, there is that wall between the bank and the bank-owned insurer. The bank cannot share any kind of banking data for the insurance company to underwrite you a policy. The insurance company owned by the bank starts from zero. They have no bank data to underwrite an insurance policy. It is as if it doesn’t really matter who owns the insurer, there is no data transfer from the bank to their sub. That is point one.

Second, the bank in this case would share all their banking customer data, such as your chequing accounts, or 10,000 points of data, let us assume, to a fintech. There is no wall as there is between the bank and the sub insurance company. That sharing of information happens even though it is currently not allowed between the bank and the insurer. It is a very different scenario because the fintech, acting as an insurance provider, will not have a clean slate to start underwriting you on but 10,000 points of data given to them by the bank.

Senator Marwah: I don’t see why that matters. Let’s say a bank provides information to a fintech and that fintech starts selling insurance. To me, that is good for customers because you are offering more insurance products. That is good competition. As long as the profits don’t go back to the bank, that is good competition. Why would you object to that?

Mr. Masnyk: I don’t know if many Canadians would agree for a bank to sell all their banking data to a fintech.

Senator Marwah: That’s between the bank and the consumer to decide.

Mr. Masnyk: Well, when you sign those 120-page document agreements at the end, the last page, there is a section on page 75 that —

Senator Marwah: But they are still governed by section 416 which says they can’t sell insurance, so they can’t sell insurance.

Mr. Masnyk: Section 416 doesn’t cover fintechs. It only covers the bank and insurer. Both the insurer and the bank are regulated by 416. If we introduce a new avenue, a fintech, that is not regulated by any law. In fact, this bill would allow that avenue to open up. The prohibition between the bank and the insurer will still be there, but a new avenue opens up.

Mr. Lafrenière: It will allow them to do in two steps what they can’t do in one step.

Senator Marwah: They’re not getting the profits, so what difference does that make? It’s good competition because humans have more choice.

Mr. Masnyk: Would you agree for your bank data to be sold to a fintech and then who knows what they do with it?

Senator Marwah: That’s up to me to decide.

The Chair: Ms. Duhaime, do you have a comment on that matter?

Ms. Duhaime: Yes. Thank you for asking.

I think what is not being said, which is probably in the minds even of the Canadian Bankers Association, is when you onboard a customer, whether you are a bank, a digital currency exchange or an insurance company, it is very expensive under our AML laws to onboard a customer. You are looking at hundreds of dollars per customer to onboard them, create an account, create that data, protect it and have a privacy policy. That is one of the expensive parts of providing financial services.

With the open banking concept in Europe, one of the big issues when they were deciding it is: We have spent all this money investing and building a bank or a financial services industry, and we have created the data, although, sure, it is owned by the customer in part, but it is also owned by us as a financial institution. Then, if I am a bank, you are turning around and saying, “Please share it freely with a fintech.” There is the investment cost you have lost. Now, by legislation you have to share it. For anyone in financial services, that is the competitive issue. You have invested and now are sharing it for free. No one seems to be addressing that issue, which is a big issue in Canada.

On the point of a fintech, it is true that you may be potentially handing it over to a company that is not as regulated as a bank. Not the same people can hold officerships or directorships in a bank, as opposed to a fintech. They don’t have the same type of training, maybe not the same education, and you are handing over sensitive customer data. We are saying treat it as you would a bank, but they are not a bank.

I think the regulations will have to say that for the sharing of that type of sensitive Canadian data, because we all take our data seriously, especially in financial services, we will want to make sure that if we are going to hand it off to a fintech, which I think is a great idea to support innovation, there needs to be some guidance for them on how to treat that data and how to protect it for Canadians.

The Chair: That is a very interesting intervention.

Mr. Masnyk: If I can follow up on Ms. Duhaime’s comments, we are not against fintechs. In fact, we are for them. What we are against is—and this might come as a shock, or hopefully, not—banks have more data than the Government of Canada on Canadians. Let us think about that for a second. Banks have more data, know more about Canadians than the Government of Canada. It is that data that we are afraid, if it goes into the hands of “unregulated entities,” should be checked.

Senator Ringuette: An earlier panellist said: “We want to occupy the competitive space.” Those words are very telling with respect to the intent of the law and intent of these financial institutions.

When I look again at subclause 316(5), it relates to financial services and information processing and technology activity, including the circumstances in which banks may collect, manipulate and transmit the information referred to in section 410. Of course, there is the regulation mechanism. But nowhere in there, as a customer of a bank, does it say that my authority to provide my information will be the first necessary step. It’s not here in the law. A leap of faith that it will be in regulation? I’m not sure that I am ready and willing to go there. What is your take on this?

Mr. Lafrenière: May I bring your attention to page 2 of the same document, where they say that a bank “will be able to refer any person to any other person.”

Senator Ringuette: That is true also. That is in there.

Mr. Lafrenière: It opens the door to sharing information that banks have with fintech companies. We are saying that should be looked at by Parliament — not through regulations, but through the study that is now taking place that is called “open banking.” Spend more time taking a look at this and make sure that we are doing it right.

Mr. Masnyk: Basically, what we would suggest is for these two sections to be taken out of Bill C-74 and kicked over to the open banking study, which the department has already begun. We are not opposed to the sections, except it should be looked at thoroughly by Parliament and by the legislator as opposed to regulations in six, nine or 12 months.


Senator Dagenais: I understand Mr. Masnyk’s fears concerning the transfer of data between financial institutions. However, people have to be able to shop around for insurance when they have to renew their policies. And this way of doing things would stop them from doing this, because they would receive offers. I don’t know anyone who likes to spend a day or two shopping around for insurance.

I understand the downside of data transfer, but there is an upside. People will receive offers and they will still be free to refuse them. Nothing will force them to accept them. On the one hand, this can be worrying, but for the consumer, unless they refuse to adopt this new technology, I understand that we have to amend Bill C-74. I would like to hear what you have to say on the topic. This could be good for consumers, right?

Mr. Lafrenière: As it now stands, there is a separation between insurance companies and banks. Banks are not allowed to direct their clients to an insurance company. A bank which is in negotiations with clients buying a car or who are shopping for a mortgage would clearly like to share their information with an insurance company. But that is prohibited under current rules. It would, however, be possible for this to happen with a financial technology company, which could benefit one company as opposed to other insurance companies. The financial technology company could give a loan to a client and encourage that client to take out an insurance policy. So that creates a link between the two parties which should actually not happen.

Mr. Masnyk: It doesn’t just apply to banks, but also to financial technology companies, and at the same time, you can also push clients to purchase insurance.

Senator Dagenais: What you’re saying, Mr. Lafrenière, is that if you are a credit union, like the Mouvement Desjardins, which also sells insurance, then you can offer up insurance to your clients, and you already have access to your clients’ banking information. Is that right?

Mr. Lafrenière: That’s allowed.

Senator Dagenais: It’s already being done.

Mr. Lafrenière: Yes. In Quebec, it’s allowed between credit unions. The Caisse Desjardins can have an insurance company on site. But that is prohibited in the banking sector at the federal level. There is a wall that separates insurance companies and financial institutions.

Senator Dagenais: What applies at the provincial level could also apply at the federal level. Thank you, Mr. Lafrenière.


Senator Wetston: I certainly understand your position regarding open banking and fintechs, but the fintechs’ base is not entirely unregulated. It is regulated to some extent. It will be by provincial securities regulators when fintechs engage in that space. They might engage in other products as well, and they might also become IIROC members, in which there are considerable requirements around privacy and personal information. I realize you’re talking about the federal space. You heard from the credit unions the extent of regulation which also affects them.

I think data is top of mind for everyone these days, whether it’s privacy issues or whether or not the data can be used for commercial purposes. We all understand that, I am sure.

One of the concerns I have about data and sharing data is not just about privacy. It is important, and I understand your concerns about regulations to come: What will they be and how will they frame the space? I think Ms. Duhaime mentioned that as well.

The issue I would be concerned about is innovation. Because, yes, you are correct; the banks have a significant amount of information in data, obviously, which would be of considerable use to fintechs. We are not going to get the innovation and the opportunity for additional consumer services without that information. It is critical information.

I take it you are not objecting to fintechs having that information because it is the only way we will be able to spur innovation. The data is clearly necessary, particularly for consumer services, et cetera. Would you not agree with that?

Mr. Masnyk: I would agree for consumers to be cognizant and to make informed decisions in terms of how their data is being used or sold by banks.

I would agree if a consumer says, “You know what? My bank — you can sell to whomever you want, my data.” That’s fine. What I’m worried about is that even Facebook currently says they should be regulated, and properly regulated, in spite of the 87 million people they’ve sold their data to.

To your comment about banks selling data, banks will now get into the data business. This will open up a new line of business for banks. Outside of the traditional mortgages, credit cards, and so on, they will be in the data business. They’ll be selling data. The question is: How will the owners of that data — i.e., the consumers — interact in that? For example, a bank may refer a person to another person. I don’t understand what that means. Perhaps the committee might have some ideas. Basically, to me, that reads — and I’m not a lawyer — like it’s the Wild West.

Senator Wetston: Ms. Duhaime, do you have any comments? You’re in this space.

Ms. Duhaime: I would say, first of all, that we support responsible innovation. Canada, at times, is not leading in innovation, despite what we may hear. As the world of machine learning comes along, and as AI takes over financial services, if you look at what they’re doing in China, it’s pretty phenomenal, and the United States as well.

I can give you the example of the Swedbank, which, I think a year ago now, got rid of 30,000 employees that were answering customer service calls and replaced them with one computer that’s a chatbot.

Every company in financial services is going to be doing the same. But in order for us to be leaders in AI, in financial services and technology, we’re going to need that big data. The banks are not exactly centres of innovation — or historically, in any event. They look to the fintechs — because they’re more innovative, they’re entrepreneurs, they’re start-ups, and because they think differently — to lead the charge on innovation. That’s one of the reasons why sharing of data and creating big data and being able to share it is necessary. If we delay we will just get further behind in innovation. We really believe in the sharing of the data, but responsibly. We think there’s room in Canada to have responsible innovation so we stay ahead and are leaders in fintech, but do that it in a way that protects Canadians.

The Chair: I would like you to elaborate on what you said. There’s the balance of “no” versus “but, yes, we need the data for innovation.” Senator Wetston has very articulately brought this to the fore. How do we achieve that balance, in your view?

Ms. Duhaime: I think by not over-regulating, first of all. I know you did a great study on digital currencies, which is one of my favourite areas. You’ll probably remember from that study that Ethereum, which was a Canadian invention, left Canada and went to Switzerland. All the initial offerings — of which many are not good, but some are good — result from that. The securities issue you brought up.

All of that is Canadian brains that left us. They left us because we started to overregulate that space when we were the world leaders. There has to be a way where we don’t lose our talent, we continue to be the leaders in innovation and talent, and our great minds stay here, but that we do it responsibly. When Canadians ask us, “Are you protecting our data? What are you doing for our privacy?” we have a response and we’re doing it all together. It’s not one reaction and then another; it’s that we will become an innovation centre, as we already are. We’ll support that. We have to protect consumer data. We have to have some sort of policies around it to make sure we are responsible about it.

In terms of how we do that, I think we don’t study it anymore. I think we just start to do it; and as things evolve, we put procedures and policies in place that people are bound by, including fintechs.

Senator Wetston: On the data issue and the importance of it for innovation — because we are not going to get it without the information that we need to do the predictive analysis, analytics and AI. We will always be behind other countries. There’s no question; you need the data. I think we could agree on that, potentially, unless we just want to say “same old” and carry on the way that we are. I don’t think you’re opposing that. I’m not hearing that whatsoever.

If we look at the framework, we know the Privacy Commissioner is looking for additional powers and authority. It’s important, obviously. Given the circumstances of what we’ve seen recently, there will be developments.

Specifically with respect to consumer transaction data, that’s really important. They are clearly matters that need to be maintained from the perspective of privacy. I think we all understand that. I think the question is how do we go about doing that? Well, we must do it. We have no choice but to find a framework in which we do that. Without it we will not progress and provide the kind of consumer benefits we’re all attempting to achieve.

My only thought about this would be: Do you have a specific recommendation as opposed to we must achieve the balance? We know we must achieve it, but do you have any thoughts about how we can? Because we’re not going to stop innovation; and if we stop it, we’re going to be behind other countries. What would be your view, if you took another approach?

Ms. Duhaime: I think what Canada needs is a bit of leadership in the innovation sense. I don’t mean that as an anti-political statement, but I just mean a person whose job it is to be in charge of innovation, including, importantly, AI, machine learning — all the interesting things that affect financial services, because it is one of our major areas that we excel at in this country. If I were Justin Trudeau, I would appoint a chief innovation officer federally to talk to the provinces, to get everybody onside and help build an innovation culture from sea to sea to sea, as corny as it sounds. To help develop policies and procedures so it is a responsible approach and not necessarily an economic or political one — or whatever happens to be driven by the banks — where everybody is in the same room talking about how to do it together. I’m not a politician.

The Chair: Are there countries you can draw our attention to that have wrestled with this problem?

Ms. Duhaime: I think in the fintech space, everyone looks to the U.K. because early on they adopted a fintech officer, someone who spoke for the country on innovation and science. They continue to lead in fintech because they brought all the really important regulators to the table with the Central Bank and with fintechs. They started an innovation hub and they made partnership deals with other countries so the fintechs could do a sharing of partnerships, data and commercial enterprises. People looked to them as a good example; and they continue to lead, because I think they stepped in early and they brought people together in a really inclusive way. They continue to lead the charge. I think that’s a great model for us to look at.


Senator Dagenais: At issue is the sharing of data between banks and insurance companies. Should banks not be required to communicate in writing with their clients? When they actually have time to write, they send us a lot of stuff. Every time banks share personal information and this information is transferred, should they not be required to communicate with their clients to advise them of what the bank intends to do? I understand that banks might not be thrilled at the idea, but that’s probably where we’re at right now.


Ms. Duhaime: Right now, you pre-consent when you open a bank account. Pursuant to the privacy legislation, of course, they have to tell you why they’re collecting your data, and then you pre-consent when you open a bank account. Unfortunately, in Canada, if you don’t consent to the providing of your information, they just won’t open a bank account for you. It really isn’t consent at all; it’s more like extortion. Sorry. It’s true, though; you cannot open a bank account unless — you’re forced to agree.

With open data, the customer is the one saying, “Royal Bank, give my data to X fintech; and BMO, give my data.” It is customer-generated. It’s not the bank who goes to the customer and says it. That’s why in Europe the banks are saying, “This costs me a lot of money. I really don’t want to be sharing all this data.” But it is already customer-generated.


Senator Dagenais: Would you go so far as to say that Bill C-74 gives banks the subtle right to do something which appears to be morally unacceptable and unfettered, namely the ability to potentially share personal data? You don’t have to answer that. You can just nod and I’ll understand.

Mr. Masnyk: Absolutely. One hundred per cent. Mr. Lafrenière can speak more to the relationship between a bank and financial technology companies.

Mr. Lafrenière: In The Globe and Mail today, there is an example of a financial technology company in British Columbia which does not produce reports and which, in fact, is an unregulated bank. This is the kind of situation we want to avoid.

What we are concerned about is insurance. In the insurance business, you can do in two steps what you’re not allowed to do in one step, namely to share with a financial technology company the information it needs to recruit clients. This is not allowed, it’s true, and the law is very good about making that clear. You can’t talk directly to an insurance company. However, in future, banks will be able to do so through their financial technology companies. And the same thing will happen in other areas.

Senator Dagenais: Are there any other amendments we should make to Bill C-74? Have you identified any other risks?

Mr. Lafrenière: We are concerned about several other risks. One of those is sharing client data with another person. We should take a closer look at that. We’re not saying we’re necessarily against the idea, but we’re asking you, as parliamentarians, to seriously think about it before allowing such a thing, and to not pass the bill as it stands. You will see in the regulation what works and what doesn’t. When information is shared with another party, it’s too late to ever take it back.

Senator Dagenais: It’s the same with several other bills. You want to prevent risk and take the time to properly assess them to avoid any repercussions.

Mr. Lafrenière: That’s what we are inviting you to do.


Mr. Masnyk: Norman mentioned a story in The Globe and Mail today about Mogo, which is a fintech in Vancouver, and it’s entitled, “Is it a bank or not?” They do deposits and lending, so it’s a fintech, and is it a regulated bank or is it unregulated?

The Chair: That would be today, May 2?

Mr. Masnyk: May 3.

The Chair: Time flies. Thank you very much.

Senator Unger: In listening to all this conversation, I don’t think I’ve ever been as concerned as I feel right now about my personal data. Yes, I have different accounts, but it seems to me it’s just getting easier for clients’ data to be shared among many different groups.

Ms. Duhaime, you mentioned the provinces need to sit down with the Prime Minister and work out the regulations at the provincial level. How likely do you think that’s going to happen?

Ms. Duhaime: I hope it will happen. I’m optimistic because I’m sure the Prime Minister’s office and his advisers look to other countries and see what’s happening in China on innovation. Big data is a big part of it. They collect data that would be offensive for us to collect and share but they’re way ahead of us. In Korea and Japan it’s the same thing. Robots are running banks. We’re way behind. When you look to what other countries are doing and when we open up trade and allow them to provide financial services for us, we’re going to be eaten for lunch.

How do we make sure Canada is an innovative place and that we can export our financial services, let alone continue to provide financial services competitively here?

Those are issues, but one big on the table is the protection of data. In my opinion, we unfortunately can’t hoard our data and protect it so much so that we stifle innovation. That’s why I would say we have to take a leap of faith and make sure we have policies and procedures in place so that we can be innovative and collect, use and share the data we need or we won’t be an innovative country for long when other countries have lesser standards than us. I’m not saying we should reduce our standards, but they have lesser data collection and preservation standards than we do — not to scare you any more.

Senator Unger: How will you help to educate, or who will educate ordinary Canadians who wouldn’t really understand these concepts? How do they get taught that sharing their data is a good thing, needed and necessary?

Ms. Duhaime: I think that’s why we should have a chief person in our country who is responsible for that under his or her mandate. One was that there’s an AI world coming and a lot of us will be shifting in terms of our jobs and expectations and a lot of financial services will be done by machines. I think part of that is the education process needed for us to stay competitive.

I think there are other things we can do, such as requiring customers consent to a number of things to have a banking relationship where they don’t understand what the repercussions are and it’s in 8-point font and granny can’t read it or even understand it, or you say, “Granny, go to the Internet and consent;” Well, she doesn’t have the Internet and she can’t read what’s on it.

As we move toward this technology world we’re imposing things, especially on our senior citizens, that they don’t understand and we’re not taking the time to stop and say we’re going to be closing 52 bank branches in these small towns and you won’t be able to bank any more. You’ll have to take a bus to the next big city because AI is coming and financial services are changing.

We don’t need more laws. I just think we need some policy and sit down and say, “Let’s actually be innovative but in a way that includes everyone and provides some education and enlightenment,” and get the consent of Canadians for the new Canada that is coming.

Senator Unger: Thank you.

Ms. Duhaime: You’re welcome.

Senator Marwah: What would be your view on the insurance industry investing in fintechs and the sharing of information with fintechs? I know Manulife and Sun Life and many others have invested in fintechs and have taken the position of sharing of data. What about that industry? Do you think that should be stopped, too? They have vast amounts of information. Maybe not as much as the banks but they are on the fintech journey as well and share that information with fintechs or potentially will. Should that be stopped as well?

Mr. Masnyk: The difference between insurance companies and banks is that insurance companies don’t provide credit.

Senator Marwah: They have health information that banks don’t.

Mr. Masnyk: Correct. But they have one hundred times more information than insurance companies do.

Senator Marwah: That’s a matter of degree. Now you’re mincing words in terms of getting to the degree. You’re saying what’s good for the goose is good for the gander. You’re saying that should be prohibited as well?

Mr. Masnyk: No, I think the question is credit. Credit is the key thing. It’s very influential. It forces people to buy additional products, which is unfair to the consumer. If the fintech does mortgages, lending and credit at the same point they’re pushing an insurance product — insurance companies don’t provide credit, banks do. There’s a privacy issue.

Senator Marwah: fintechs are not providing credit.

Mr. Masnyk: They could. Senator Tannas’ example in the previous panel of the mortgage provider discussed a fintech with title insurance at the same time. That’s credit and insurance in the same shot.

Senator Marwah: If fintechs didn’t provide credit you would be okay?

Mr. Masnyk: I would have an issue with the consent given by a consumer to their bank, whether their bank passes on information, sells it, shares it, transfers it or refers it; whatever you want to call it.

Senator Marwah: The same constraints should apply to the insurance industry?

Mr. Masnyk: Absolutely, yes.

The Chair: Senators, we’ve reached the end of the panel. Panellists thank you very much. You’ve identified a very interesting issue. We will look forward to hearing from officials from Finance on this matter.

(The committee adjourned.)