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BANC - Standing Committee

Banking, Commerce and the Economy


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

Issue No. 56 - Evidence - May 8, 2019

OTTAWA, Wednesday, May 8, 2019

The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:14 p.m. to study the subject matter of those elements contained in Divisions 1, 5 and 26 of Part 4, and in Subdivision A of Division 2 of Part 4 of Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019, and other measures.

Senator Douglas Black (Chair) in the chair.


The Chair: Good afternoon. Welcome to 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 call upon my colleagues to introduce themselves, please, to the witnesses currently empanelled and to the other panels who I know are in the room.

Senator Wetston: Howard Wetston, Ontario.

Senator C. Deacon: Colin Deacon, Nova Scotia.

Senator Duncan: Pat Duncan, Yukon.


Senator Dagenais: Jean-Guy Dagenais from Quebec.

Senator Galvez: Rosa Galvez from Quebec.


Senator Frum: Linda Frum, Ontario.

Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.

Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.

Senator Wallin: Pamela Wallin, Saskatchewan.


Senator Verner: Josée Verner from Quebec.


The Chair: We are very ably assisted by our clerk and our analysts.

Today we begin our subject matter examination of all or parts of four divisions of Part 4 of Bill C-97, the Budget Implementation Act, 2019, No. 1.

Honourable senators will know that our committee must report our findings to the Senate by no later than June 6, 2019. We will begin with Subdivision A of Division 1 of Part 4, which deals with amendments to the Bank Act.

Please welcome, from the Department of Finance Canada, Margaret Tepczynska, Director, Strategic Initiatives, Financial Institutions Division; Mary O’Connor, Senior Advisor, Strategic Initiatives, Financial Institutions Division; from the Office of the Superintendent of Financial Institutions Canada, Theresa Hinz, Managing Director, Legislative Policy, Interpretations and Compliance, Regulatory Affairs Division; and from the Canadian Credit Union Association, Jessica Brandon-Jepp, Advocacy and Government Relations Advisor.

My understanding is that this panel, and all subsequent panels with respect to officials, will provide a brief overview based on the material provided to us and then be available for questions.

May we please proceed first with Finance Canada?

Margaret Tepczynska, Director, Strategic Initiatives, Financial Institutions Division, Department of Finance Canada: Thank you, Mr. Chair. Part 4, Division 1, Subdivision A proposes three key technical amendments to the Bank Act in support of the Budget 2019 announcement that legislative amendments would be proposed to modernize corporate governance for federally regulated financial institutions.

The first amendment relates to federal credit unions. Budget 2019 announced that legislative amendments would be proposed to provide members of federal credit unions with more options for voting prior to and at annual general meetings.

Provincial law gives provincial credit union members a wide variety of voting options. Provincial credit unions that transition to the federal framework have asked for a similar variety of voting options.

The improved voting options will enhance means of participation in the voting process at annual general meetings for members. The proposed amendment will make it easier for members of federal credit unions to exercise their right to vote by adding more options — by phone, electronically or in person at a branch — prior to the annual general meeting, in addition to the current way of voting at the meeting and by mail. This amendment was identified by federal credit unions as a means of enhancing the members’ participation in the decision-making of federal credit unions.

The next amendments clarify proxy authorities contained in the Bank Act. They are technical changes that clarify the authorities for the form of proxy regulations and update existing language related to the solicitation of proxies to make it consistent with the Canada Business Corporations Act and in line with bijural drafting conventions.

The objective of the proxy-related provisions in the legislation is to ensure that companies provide shareholders with adequate information about their company so that shareholders can exercise their voting rights in an informed manner. To do so, the regulations are set out the form of proxy, the proxy circular and the powers granted in the form to enable a shareholder to appoint a proxy holder to act on their behalf and to receive the necessary information. The Standing Joint Committee for the Scrutiny of Regulations has highlighted the need to update existing, out-of-date references in the form of proxy regulations.

In response, and as a first step, a legislative amendment in the Bank Act is proposed to broaden the authority for regulations that set out the proxy regime. Provisions that define solicitation and the rules surrounding the soliciting shareholder’s proxy will be amended as well, to clarify language and make bijural updates. These changes are consistent with the Canada Business Corporations Act definition of solicitation and modern drafting practices.

The department conducted broad consultations in the context of the 2019 financial sector legislative review, as well as targeted consultation with industry on these amendments. The Canadian Credit Union Association and the federal credit unions requested that the Bank Act be amended to permit federal credit union members more voting options.

The department has had an ongoing dialogue with the Standing Joint Committee for the Scrutiny of Regulations in regard to updating the proxy framework for banks and bank holding companies. In February 2019, departmental officials appeared before the joint committee to present a planned approach to update the Bank Act and the form of proxy regulations. The joint committee was supportive of the proposed approach and requested a timely implementation.

This concludes my overview of the provisions. I will now turn to my colleague from the Office of the Superintendent of Financial Institutions Canada to provide her opening remarks.

Theresa Hinz, Managing Director, Legislative Policy, Interpretations and Compliance, Regulatory Affairs Division, Office of the Superintendent of Financial Institutions Canada: Good afternoon, everyone. Thank you for inviting OSFI to appear before the committee. I am joined by my colleague Isabelle Lepage, who is the manager of legislative interpretations. I will be brief today.

As you know, OSFI’s role in the federal financial oversight regime is to prudentially regulate and supervise banks and federally regulated credit unions, trust, loan and insurance companies.

My colleagues from the Department of Finance Canada have well explained the amendments under review today. OSFI was consulted on these proposed amendments, which appear to have no prudential impact on the safe and stable operations of federally regulated financial institutions.

Isabelle and I are happy to take any questions you might have. Thank you.

The Chair: Thank you very much. Ms. Brandon-Jepp, please go ahead.

Jessica Brandon-Jepp, Advocacy and Government Relations Advisor, Canadian Credit Union Association: Thank you, Mr. Chairman and all honourable senators on this committee, for the opportunity to speak to you today.

My name is Jessica Brandon-Jepp, and I am the Advocacy and Government Relations Advisor, at the Canadian Credit Union Association. We represent 248 credit unions and caisses populaires outside of Quebec. Collectively, our sector contributes $6.5 billion to Canada’s economy, we have 5.8 million members, we employ almost 29,000 Canadians and manage over $225 billion in assets.

In 2018, we donated $62.4 million back to community initiatives and projects across the country, a much higher share of our after-tax income than the large banks. Credit unions are owned by the people who bank with them, and that’s what sets us apart. We are only the banking services provider with a physical branch in 395 mostly rural communities across Canada. Despite our smaller size, we have comparable market share to the big five banks in agricultural and small- and medium-sized lending. We lend to small business because we are a small business.

In the Western provinces, credit unions have between 30 and 50 per cent of the market. For example, in Manitoba, one out of every two consumers banks with a credit union.

The important work we do in our communities is the very reason credit unions have been asking the government to modernize some of the outdated provisions within the Bank Act which are obsolete and a barrier to innovation and competition in financial services. We were pleased to see two of our pre-budget recommendations included in Budget 2019. These were changes to federal credit union member voting for AGMs and an elimination of the outdated requirement for federal credit unions to send paper copies of year-end statements to all members each year.

We thank the government for hearing our concerns and for working to address some of our recommendations in Budget 2019. However, we were disappointed that only one of these recommendations pertaining to electronic voting was included in Bill C-97. This means that federal credit unions will have to continue sending out inefficient, costly and environmentally unfriendly paper statements, preventing them from returning the savings that electronic notices would provide back to their communities until at least 2020. One of our federal credit unions estimated that this cost them nearly $1 million annually. That’s just one of our credit unions. This money would be much better spent on reinvestment in the credit union or on community programs that our members so generously support.

While the Bank Act only applies to federal credit unions, it is important to note that modernization of outdated provisions eliminates barriers to entry for credit unions considering going federal and sends an important message to provincial regulators, encouraging them to re-examine outdated provisions in their own legislation. Several provinces still have similarly outdated provisions. These recommendations will have an impact not only in the federal sphere but across Canada in terms of increasing competitiveness and innovation within the sector.

With the support of the All-Party Credit Union Caucus and, hopefully, this committee, credit unions remain hopeful that the Parliament elected in October will follow through with a budget measure on paper statements as well as our other recommendations to support innovation and competition within the financial services sector.

Ultimately, policies should encourage competition in financial services in Canada. Currently, our financial sector is not noted for its high levels of consumer choice, and credit unions represent the only real alternative to large banks in Canada. Further policy-driven concentration of financial services in this country is not in the best interests of the consumer or the economy.

Credit unions will continue to advocate for the implementation of the changes that were committed to in the budget this year, regardless of the outcome of the election. The sector appreciates the support of the All-Party Credit Union Caucus and asks this committee for its support in ensuring that these changes are implemented at the earliest legislative opportunity.

Thank you.

The Chair: Thank you for your presentations. We will now go to questions.

Senator Wetston: The first question I have is on the issues of proxy, proxy circulars and proxy solicitation. I think an amendment in this area is warranted. The issues we often have — and you may know this from securities regulation — are not so much a question of proxies and proxy circulars; it’s the proxy machinery that is the challenge. It has been a challenge and under review for several years now to try to clean up the associated problems with proxy machinery — the votes and counting the votes, et cetera — particularly in an environment — which you may be aware of — of “NOBOs and OBOs.” The non-objecting beneficial owners versus those beneficial owners who are prepared to declare their ownership.

I recognize it is a bit of a technical question, but I wonder whether you considered it at all with respect to the CBC amendments.

Mary O’Connor, Senior Advisor, Strategic Initiatives, Financial Institutions Division, Department of Finance Canada: Yes, we have been studying the provincial securities regimes closely, as well as the proxy regime under the Canada Business Corporations Act. We’re looking at modernizing to follow the best practices of those regimes. We brought in these regulation-making authorities so we would be in a position to make regulations that reflect best practices and catch up with best practices in other jurisdictions.

Senator Wetston: Thank you.

I wanted to follow up on the presentation by Ms. Brandon-Jepp on credit unions. Can you remind me whether, when the CBC amendments occurred last year in Bill C-25, electronic voting was permitted under the CBCA for public companies? I’m asking that question because I don’t remember, and I should know the answer.

Ms. Brandon-Jepp: I apologize, Senator Wetston. I also don’t recall, but I would be happy to follow up with that information.

Senator Wetston: In any event, your concern is that you are not being given that opportunity. Do you distinguish in any way between shareholders and credit union members, and whether there should be significant differences from the point of view of voting or consent? If there is, what would that difference be, from your perspective?

Ms. Brandon-Jepp: As cooperatives, we do not have shareholders; we have members. Our members are owners of the credit unions. From our perspective, I don’t believe that the proxy provision necessarily applies to our context as cooperatives.

Senator Wetston: But shareholders are owners as well.

Ms. Brandon-Jepp: Yes, that’s true; however, there is a slightly different process around that.

Senator Wetston: You understand the drift of my question, which was really trying to differentiate any policy approaches because of that different ownership model. You are suggesting they are different, but you are not suggesting why it necessarily needs to be treated differently because of that. That’s really my point. And maybe there isn’t any difference.

Ms. Brandon-Jepp: I don’t believe so.

Senator C. Deacon: Thank you all for being here.

In thinking about the fact that not all of the requests that the Canadian Credit Union Association made were accepted by Finance, it got me to thinking about some work we have been doing lately around open banking and preparing for digital relationships between banks and their customers. This is banks and their members or effective shareholders. The owners. I’d like to understand the decision-making you went through to choose to make one change and not another, and what you were taking into consideration in that process, if you could?

Ms. Tepczynska: I’m not an expert on opening banking, but I’ll be happy to have my colleagues —

Senator C. Deacon: Just in the context of decisions you just made, because it is informative to us.

Ms. Tepczynska: As I mentioned, Budget 2019 announced that legislative proposals would be introduced to keep federal financial institution statutes in line with the changes made to the Canadian Business Corporations Act. That act is the lead statute for corporate governance for business corporations. We consulted with stakeholders on four themes that were introduced in the Canada Business Corporations Act and passed by Parliament in May 2018. Those changes could be introduced at a later date, but the timing of the introduction of the legislation is subject to Minister of Finance approval, parliamentary priorities, parliamentary agenda and government priorities, of course.

Senator C. Deacon: You didn’t identify a problem from your standpoint in moving forward, it was just the timing in terms of budget process? I’m trying to understand how you are making decisions as it relates to moving to a more digital relationship in the financial services industry. I think that affects some work we have been deeply involved in, and it is worth our knowing how you make those decisions and how you will empower our banking structures from a digital standpoint going forward in banking organizations.

Ms. Tepczynska: As part of its due diligence, the department consults broadly with industry stakeholders to understand the implications of possible changes going on in the marketplace and how those changes could be introduced in legislation. The Canada Business Corporation Act and the Minister of Innovation, Science and Economic Development has the lead policy for changes to corporate governance, and we leverage that policy direction and leadership when we think about changes to corporate governance for federally regulated financial institutions.

I think the notice and access that we’ve been talking about, which leverages modern technologies — it is not open banking but it leverages modern technology — is something that we are studying very carefully. It’s a conversation that’s ongoing because, while corporations may be saving on paper and saving costs, there are some rights that their owners will be giving up. We want to have a more thorough conversation so that we have a balanced approach.

Another point to make is that the notice and access is a provincial regime and it applies to publicly traded institutions. For example, our large banks follow that regime and have been following it successfully for a couple of years now. When we are talking about different ownership regimes, for example, for federal credit unions, we would need to set out clear rules in regulation. To do that we would need to study that carefully and consult.


Senator Dagenais: My question is for Ms. Brandon-Jepp. Have you received any explanations on the rejection of your request to be exempted from the obligation to use paper statements? After all, this is 2019, and paper-based communications are not really in line with the environmental values preached by the current government.


Ms. Brandon-Jepp: Yes, that’s correct. As I mentioned in my remarks, we feel this is an outdated way of communicating with our members. Currently, we have to send these paper statements out. I might clarify that these paper statements are the year-end reports for the credit union itself, not necessarily the member accounts, but we have to send those out in paper. You as senators know best, but financial statements are often lengthy and complex documents, so there is a large cost, both environmental and fiscal, to sending out these notices. We as credit unions are very concerned with our environmental impact and are looking for ways that we can constantly improve. This is a great example of something that is relatively easy to modernize that also has an environmental impact.

Senator Duncan: My question is also for Ms. Brandon-Jepp. In your presentation I highlighted a note. You said, “ . . . our other recommendations to support innovation and competition within the financial services sector.”

Perhaps it would be best to submit this in writing, if you wouldn’t mind. Could you provide the committee with the other recommendations that you made that are not included?

Ms. Brandon-Jepp: Yes, absolutely.


Senator Galvez: Thank you for your testimony. My question ties in to the one asked by Senator Dagenais. Nowadays, reducing the quantity of paper used is an important issue. However, we cannot ignore the aspect related to computer security.

For example, at some point, Desjardins in Quebec was disrupted by wrongdoers who outright copied its website and managed to establish all kinds of contacts with its clients.

Can you tell us where you are at when it comes to computer security?


Ms. Brandon-Jepp: Thank you for the question.

I can tell you that credit unions take the privacy of their members extremely seriously, and we are committed to ensuring that our members’ privacy is protected. I can’t speak to the Desjardins example specifically. We do not represent Desjardins, they are not one of our members. However, I can tell you that our members take their members’ security very seriously.

This provision we have suggested in terms of providing electronic statements is not to do with our individual member statements for their individual accounts. It would contain no individual member’s information. As organizations we are required to provide our year-end financial statements and other documents pertaining to the management of the credit union in paper format to our members. Currently some of our credit unions also post financial statements and other year-end statements online, but this would allow us to not have to send those paper copies in addition, which has a large environmental and fiscal benefit.

Senator Galvez: Among your clients there are people of all ages. I understand young people are very capable with informatics, voting and doing transactions online, but is it still possible for older people to receive their paper and their forms in the old way?

Ms. Brandon-Jepp: Certainly, credit unions are committed to making sure their members stay informed. It is part of those cooperative, democratic values. That would be something that we would be in discussions with the Department of Finance and our regulators on if this provision was put into legislation going forward, but I think that makes sense.

The Chair: I have a quick question for you, Ms. Brandon-Jepp.

In your last paragraph where you are talking about the ongoing activity of the All-Party Credit Union Caucus and your interface with them, are you informing us of that or are you asking us to do something?

Ms. Brandon-Jepp: We are informing. We want to inform this committee that the All-Party Credit Union Caucus supported our recommendations for the modernization of provisions within the Bank Act. The message I want to get across is we did enjoy all-party support, and clearly the government is also supportive as they implemented two of our recommendations in Budget 2019.

We understand there are limitations. In particular, this is an unusual year with the fall election, so there is limited time. Usually there are multiple BIAs, but in this case, there will likely only be one. We understand that the government has had to prioritize, but, yes.

The Chair: I take from that that you’ve made your best effort, you got some changes, you’re satisfied with that, you’re going to go back at it after the election and you’re simply informing us of that.

Ms. Brandon-Jepp: Yes, and we would love this committee’s support and the Senate, as the constant presence in our Parliament, to ensure that whichever Parliament is elected in the fall that they follow through with that paper statement change that was in the budget.

Senator Stewart Olsen: Thank you for that. My question is for the co-ops. Following on Senator Galvez’s question, I understand that going totally paperless is a very good thing for the credit unions, but when people sign up with you would you consider — as I think you should — providing a paper copy if members don’t want their statements by email? Would you put a checkmark or a box for people such as seniors and people who aren’t computer savvy and don’t have ready access? I wonder if you would consider that.

Ms. Brandon-Jepp: We would certainly be open to that. The large majority of our members are older people, and we recognize the importance of the bricks and mortar. As I mentioned, we have 395 bricks and mortar locations where we’re the only financial services provider in that community. We are very much committed to those individuals who remain interested in that form of communication.

Senator Stewart Olsen: Thank you.

The Chair: I have the privilege of thanking you all for being here today. That was very instructive to us. We needed to understand, and we now have a better understanding.

This next panel will concern Subdivision B of Division 1 of Part 4, which deals with amendments to the Canadian Payments Act. Please welcome, from the Department of Finance Canada, Julie Trepanier, Director, Payments Policy; William Gibson, Analyst, Payments Policy; and from Payments Canada, Anne Butler, Chief Legal Officer and Head of Research and Policy.

We will begin with Finance Canada and their brief opening remarks, followed by Payments Canada and then questions.

Please proceed.

Julie Trepanier, Director, Payments Policy, Department of Finance Canada: Thank you, chair. The Canadian Payments Act prescribes Payments Canada’s mandate membership and governance framework. Part 4 , Division 1, Subdivision B, makes technical amendments to the Canadian Payments Act in order to allow elected directors to be elected for two additional three-year terms, extend the term of the chair and deputy chair of the board from two to three years and add an overall limit of six years.


It ensures the compensation of Stakeholder Advisory Committee members who are subject to administrative regulations. For example, some members of the Stakeholder Advisory Committee, such as consumer groups, are facing financial constraints that can hinder their participation. Those technical changes were announced in the 2019 budget and are a follow-up to a legislative review of the Canadian Payments Act conducted by the government in February 2019.


I will now turn to Anne Butler from Payments Canada.

Anne Butler, Chief Legal Officer and Head of Research and Policy, Payments Canada: Thank you for inviting me here today to provide input on the amendments to the Canadian Payments Act. My name is Anne Butler, Chief Legal Officer and Head of Research and Policy at Payments Canada.

I’d like to take a few moments to provide some background on Payments Canada and its role in the Canadian financial institution space. Payments Canada is the business name of the Canadian Payments Association as described in the Canadian Payments Act we are talking about today. While Payments Canada is a little-known entity to most Canadians, it plays an essential role in the economy and the day-to-day operations of financial institutions and businesses across the country. In 2018, Payments Canada cleared approximately 8 billion payments with a total value of $50 trillion, averaging $210 billion each day.

As a public purpose corporation, Canada Payments underpins the Canadian financial system and economy by owning and operating Canada’s payment clearing and settlement infrastructure, including associated systems, bylaws, rules and standards.

We are guided by our mandate and the public policy objectives of safety and soundness, efficiency of the Canadian clearing and settlement systems, and these objectives are enshrined in the Canadian Payments Act. We place the highest priority on acting in the best interests of Canadians by ensuring that financial transactions are carried out safely and securely each day.

Payments Canada has a board of directors that is comprised of five member directors representing key financial institution groups, seven independent directors including the chair, and Payments Canada’s chief executive officer. We also have two important advisory councils: the Stakeholder Advisory Council and the Member Advisory Council. These councils are an important aspect of the governance structure, providing advice and counsel to the board on payments, clearing and settlement matters.

Payments Canada is currently undergoing an ambitious modernization effort to replace its two legacy systems, payment clearing and settlement systems, with three new systems to handle high value, batch retail payments and real-time retail payments for Canada. These systems will be underpinned by modern policy and legal frameworks.

The amendments to the Canadian Payments Act outlined in Bill C-97 propose two important areas of change to our governance structure: namely, greater flexibility to the terms of our board members, the chair and vice-chair, and adjustments to the level of prescription on the Stakeholder Advisory Council. These are important and necessary changes that will further Payments Canada’s ability to fulfill its mandate and deliver on the modernization initiative.

First, with respect to board governance, Payments Canada is unique in several ways, including the complexity of the industry, its enabling legislation, its oversight framework, public policy objectives and the scope of our mandate. We are both a rule-making body and an operator of systemically important and prominent payment systems.

Since 2015, all of this has been carried out under the guidance of a majority independent board supported by the expertise from industry and advisory councils. The complexity of our environment makes the recruiting and on-boarding of directors — and especially independent ones — a critical factor for ensuring consistent and effective governance to enable Payments Canada to fulfill our mandate and successfully deliver on our modernization initiative.

Existing director term limits create a barrier to the flexible board succession planning needed to enable the proper mix of expertise and familiarity with multi-year strategic initiatives to support strong governance and strategic oversight. The proposal to permit directors to potentially serve an additional three-year term provides flexibility to the board to retain experienced directors, as may be appropriate, to support knowledge transition to successors.

For instance, this would enable a director to join the board, serve for a three-year period and then be ready to step into the position of chair with the potential to serve for one or two more terms. This cannot be achieved under the current legislation.

These amendments are consistent with best practices among similar organizations and will allow for flexible planning on board succession, ensuring there is sufficient knowledge on the board, providing greater options to manage potential knowledge gaps in situations where a director leaves early or to provide continuity of oversight for the duration of lengthy critical projects.

There is another change related to the chair terms which I would describe more as administrative in nature. The change proposes that the terms of the chair and deputy chair will provide efficiency in our governance process by extending the chair and deputy chair limits from the potential of two two-year terms, for instance, or two three-year terms. By extending it to two three-year terms, it aligns it with the director’s actual term on the board, and we will not have to participate in four renewals to have some chair serve for six years on the board. It’s very much an administrative change to the term limits of the board chair and vice-chair.

I’d like to turn now to the Stakeholder Advisory Council-related provisions. This council is an important vehicle to our board governance. We want to ensure that the Stakeholder Advisory Council retains a strong legal foundation, is effective and can evolve in step with the changing payments ecosystem.

The changes to the legislation will reduce the level of prescriptiveness of this council in three ways: There will no longer be a requirement for the board to appoint up to two directors on the council, there will no longer be a limit on the number of persons appointed to the council, and it will remove a prohibition that is in the legislation that prevents us from paying members of the council that fall within certain classes that could be prescribed by bylaws.

These changes are welcomed by Payments Canada, as they enable a more flexible approach to the representation of our broad ecosystem on the Stakeholder Advisory Council. In particular, the removal of the prohibition on remuneration of council members will give the board the ability to attract representation on the council from those industry groups with lesser financial means who otherwise may not be able to participate.

Specifically, having greater flexibility to develop and employ a transparent remuneration policy will help ensure that we can meet our composition requirements and attract consumer expertise on the council.

Having less prescription in the act will give Payments Canada greater flexibility to make the necessary changes to the SAC’s structure and role over time as our ecosystem evolves. At the same time, maintaining key SAC provisions in Payments Canada’s bylaws will assure ministerial oversight and a strong legal foundation.

Finally, I would like to say we’ve been working very closely with the Department of Finance as they review our legislation and expect that possible future changes may also be proposed. The retail oversight framework was announced in Budget 2019 and will be a key enabler to broader risk-based access to Canada’s retail payments ecosystem.

We look forward to working collaboratively with the Department of Finance on the implications of this new framework, on our membership and the changes to our legislation that will be required in the future to support this important initiative.

I’d like to thank you very much for inviting us here to provide evidence in respect of the changes to the Canadian Payments Act, and I welcome any questions you might have.

Senator Stewart Olsen: Thank you for your presentations. I must confess that I kind of glossed over this at first, and reread it a few times. I began to wonder what’s happening in actuality here.

Most modernization plans downsize the number of directors, et cetera. I’m pretty sure this one was set up this way so that you would have turnover and avoid ingrained people on these boards. What I’m seeing here is the building of a bureaucracy, I think. These people are getting longer terms and more and more say. I know you didn’t suggest this.

Further, the changes allow the Stakeholder Advisory Council to increase in size. I have to make the comment that this Liberal government is a wonderful creator of advisory boards. It’s a great way to reward people and have people come on. So my eyebrows rise when I see that we’re now going to pay them.

Who makes the decision as to who sits on the advisory board? What was the impetus for increasing the terms of directors? Where did that actually come from? Where does the money come to pay the advisory board members?

Ms. Butler: I will take those starting with board size. The size of the board actually shrunk in 2015 to a smaller board of 13. It was quite a bit larger prior to that date. That was the same time that the majority independent board was put in place. Previously, the board was primarily member financial institution representatives, with some appointments by the Crown.

The board structure has been in place now for about four years. There is no proposal to increase the size of the board at this time, and it is consistent with current practices in terms of trying to keep a smaller board.

We are also a member-based organization, and so five of those seats, importantly, represent subject-matter expertise and industry experience from members who are divided between financial institutions of different sizes and makeup within the group. So these three seats are associated with direct participants in our systems and two with indirect participants.

If I could move now to the legislative change to provide a potential additional term. The impetus behind that comes from Payments Canada, its board and management team. We actually asked for a cap of 10-year terms in our first proposal, although what has been recommended in this legislation is certainly satisfactory to us.

The impetus behind that represents the amount of effort and the importance of quality directors who understand a very complex business. Bringing on new, independent directors in 2015, the learning curve to understanding the broad business and engage in a program that is a multi-year modernization initiative not intended to be completed until a post-2022 time horizon is long. The board and the Governance Committee of the board is of the view that it is helpful to have the optionality if, for instance, there is expertise in the audit function or risk-management function at the board level, somebody with deep expertise who would be valuable to retain, to keep that individual director for an additional three years. That is something quite desirable for the board from a governance perspective.

The other option I gave you was around being able to on-board directors and have them serve sufficient time to be a very effective chair. That is driven by the Governance Committee of Payments Canada’s board of directors and the board itself that supports that. It is supported broadly by both our Member Advisory Council, which is a 20-person council representing our members, and our Stakeholder Advisory Council, which represents the users of payment systems, so individual consumers, businesses and payment service providers.

Senator Stewart Olsen: Who pays?

Ms. Butler: Who pays? Our budget is entirely funded by member institutions.

If there was a decision, for instance, to talk about the payment of the Stakeholder Advisory Council, the Stakeholder Advisory Council has been in the legislation for decades. They are an important policy tool to ensure that the voices of the users of payment systems are heard as we are considering rules, bylaws and changes that would impact users.

The payment of an individual representative on that council, again, is initiated from the management team and board of Payments Canada as a recommendation. One of biggest challenges we have in properly getting a representative group at the Stakeholder Advisory Council is consumer representation.

Senator Stewart Olsen: I can understand why, I just want to know who pays. So who pays?

Ms. Butler: Payments Canada would cut the cheque or pay electronically, but the funding is coming from member financial institutions in Canada.

Senator Stewart Olsen: Thank you.

Senator Wallin: To reiterate, it is not tax dollars directly?

Ms. Butler: It is not tax dollars.

Senator Wallin: Thirteen is a large board, but I guess that was the decision. To make sure I have this correctly, there is no limit on the number of members who can participate in the advisory councils?

Ms. Butler: Currently, under the legislation, there is a limit of 20. What is proposed is that the limit be removed and set by bylaw rather than in the legislation.

Senator Wallin: There would be a limit at some point?

Ms. Butler: The intention would be to have it in the bylaws, yes.

Senator Wallin: You also said as part of your modernization process you are rethinking the level of prescription allowed or that ability given to the advisory council. Can you tell me what that means?

Ms. Butler: For instance, in the legislation right now there is the requirement that there be two directors appointed to the council, so two of the advisory council seats are actually taken by members of the board of directors. There is a desire to make sure that, moving forward, a more flexible tool, like a bylaw, is used to govern what kind of representation should sit on the Stakeholder Advisory Council.

One of the reasons for this is the payments service provider, payments technology and payments products that are available to consumers is a rapidly changing environment. A bylaw is a more flexible tool to respond to developments and adjust membership of the council over time to make sure you have a broad representation of the payments ecosystem that is non-member, so non-financial institution.

Senator Wallin: That would be a board decision through a bylaw?

Ms. Butler: Bylaws of the organization go to the boards of directors and then are actually submitted the Department of Finance and ultimately receive ministerial approval. They would be under the scrutiny of the regulatory structures here.

Senator Wallin: Sorry, but the board would then just say, “We want to go to 30 members and we need 10 people from the sector and five from there.” Is there that level of justification?

Ms. Trepanier: This is just a scenario, but in any circumstances for bylaws we would engage with Payments Canada and Finance Canada and discuss the rationale for the proposal and then submit it for the minister’s approval.

Senator Wallin: But once the bylaw is in place it becomes quite subjective, right?

Ms. Trepanier: The bylaws are pre-published in the Canada Gazette for comments.

Senator Wallin: The bylaws wouldn’t say that you need to have five people from credit unions and six people from the community at large and somebody from the school board. It wouldn’t get to that level of description, so the discretion is actually with the board chair or the board? I’m just trying to sort that out.

William Gibson, Analyst, Payments Policy, Department of Finance Canada: Right now there is minimum set out for certain groups of stakeholders on the council to ensure adequate representation of those groups, but it’s a minimum to retain flexibility to adjust as needed.

Senator Wallin: Okay. I’ll just put a tiny flag beside that one, but go ahead.

Senator Wetston: I think I can appreciate why you’re making the governance changes. I suspect you’re doing it to try and keep up with the context of what’s changing at Payments Canada. I’m kind of interested in what’s changing at Payments Canada, and also maybe — and I realize this is a little off topic — how is the modernization program going?

Ms. Butler: It’s a great question, and an opportunity to talk about the modernization program.

What is changing at Payments Canada? As I said, we have a multi-year modernization initiative under way. The first and biggest of those is the replacement of the systemically important payments system in Canada, currently known as the LVTS, or Large Value Transfer System. I’m pleased to say we have recently signed with technology providers for the replacement of that platform on new technology, with the plan that that be implemented in 2021.

It’s a very big change. All financial institutions in the country, through the direct participants, are connected to that system. It’s the way money is moved between the financial institutions in Canada every day and between the financial institutions and the Bank of Canada. It’s a very important system where we have all our member financial institutions lined up to support and move together to make that change. It’s a big change.

The second big pillar of our modernization initiative is to support and implement what we call the Real-time Rail in Canada, so a faster payments rail for Canada that will enable payments that move in real time and settle with finality in real time. That is a project still under way. The actual plans for delivery on that are not yet determined, but it is a very important part. Some of the things I have spoken about today are critical to setting that up, including what will happen moving forward with the retail payments oversight framework that is also on the agenda of the government.

As we move forward with real-time payments in Canada and the planned regulation of other players in the payments space, we would anticipate that there will also be membership changes to Payments Canada in the future that will enable other forms of participants in the payments systems that are not just financial institutions, but payment service providers, for example. This is an important pillar of our modernization.

The third part of that is the batch payment system in Canada, which does the automated funds transfer systems and things like the debit system and all of the EDI or electronic deposit transactions. They are all cleared and settled through that system. Again, that one will be modernized as part of this program and has already undergone significant rule changes that have provided more safety and soundness with respect to that so that now transactions moving through that are collateralized with the Bank of Canada.

Those are the three of the big pillars and where they are in status, senator.

Senator Tkachuk: I want to congratulate you. I think we have one of the finest clearance systems in the world. All you have to do is go south of the border to find out how good we really are.

We are broadcast on TV, and there might be two or three people listening who have no idea what we’re talking about. When you say “stakeholders,” could you outline who the stakeholders are? Then I will have a number of questions.

Mr. Gibson: With respect to the Stakeholder Advisory Council types of stakeholders that are identified from representation, they include payment service providers and consumer groups.

Senator Tkachuk: Who would they be? Who are payment service providers?

Mr. Gibson: Payment service providers are the entities who initiate cleared payments; for example, payment card networks. Visa and MasterCard are examples of payment service providers.

Senator Tkachuk: At page 5 you talk about the changes on the council and the board. It is probably a really good idea to get it out of the legislation and put it into the bylaws. It would be easier to manipulate what you have to do. But you mention here, “ . . . attract representation on the Council from those industry groups with lesser financial means who otherwise may not be able to participate.” Who would that be?

Ms. Butler: I can give a real example of some of the challenges we’ve had with the Stakeholders Advisory Council over the past couple of years. Currently we have under the requirements, two consumer representatives are a mandatory part of the council. It’s a significant commitment to be part of the advisory council. It is very difficult to find consumer representatives who are able to dedicate the kind of time that it requires to be on the council because they do not have funding for that.

That is the primary driver for the ask we have submitted to the department. That forms the basis of what is in the proposed legislation is that flexibility. Certainly, consumers, for sure, are a challenge for us. It’s possible there may be others in the future, but that is the main issue we are facing now.

Senator Tkachuk: How do you find them? Are they consumer groups that you go to see or do you pick somebody off the street?

Ms. Butler: There are consumer groups.

Senator Tkachuk: Like who?

Ms. Butler: The Consumers Council of Canada would be an example.

Senator Tkachuk: Those kinds of people may not have the money or the time, or is it a mixture of both?

Ms. Butler: Probably a mixture of both, yes.

Senator Tkachuk: When you talk about the two-year and three-year appointments, on the two-year appointments, can’t the board just renew itself? Who suggests it? Do you only get two years and then you are gone and you need a new body, or can you renew the two years and can you renew the three years? What exists now?

Ms. Butler: We are talking about the chair and vice-chair appointments.

Senator Tkachuk: The directors, you said, are two-year appointments.

Ms. Butler: Directors are appointed for three years and can be renewed for a second term. What is being proposed in the legislation is the potential for a third term, should that be advisable.

For the chairs, it’s quite simply trying to line up their actual term. They could be appointed for a term as chair for the same term they are a director so that we don’t have to do it multiple times during their tenure.

Senator Tkachuk: Are the board people like the advisory council? Are they taken from the service provider, so you would have a representative from Visa, for example? Who would be on the board?

Ms. Butler: Seven members of our board are independent and chosen from the pool of candidates for directorship with experiences that would be valuable to the organization and that have met the strict independence criteria set out in the bylaws and the regulation under the Canadian Payments Act.

Senator Tkachuk: Who appoints them?

Ms. Butler: They are elected by the membership.

Senator Tkachuk: Okay. Thank you very much.

Senator C. Deacon: Thanks very much to our panel.

I want to get a further sense of how your business is changing. I think we all feel the changes going on around us. I was looking at the data in terms of the fact that cheques and paper are dropping in use every year by as much as electronic and other digital fund transfers are growing. It makes sense. That must change, I would expect. Does that reflect a change in your cost structure per transaction as these changes occur?

Ms. Butler: Yes, it would ultimately result in changes to cost structure over time. As we are planning the implementation of a new payment system, that would potentially have migration of payment streams from the current ACSS on to the Real-time Rail. There would be changes in cost structure as well, over time.

Senator C. Deacon: We will probably see an acceleration as we go forward in this change. You mentioned that your costs are borne as a fee for service by the member organizations, which I assume are primarily chartered banks?

Ms. Butler: Yes, there are banks and other financial institutions that can be members.

Senator C. Deacon: They would, in turn, pass that on to consumers?

Ms. Butler: Certainly the banks would recover their costs through the structures they use in pricing their products.

Senator C. Deacon: I’m interested in how your governance structure takes into consideration how you price that as you move forward. Those organizations, perhaps new entrants into the market, who come with a dramatically lower cost in terms of what their membership and volume might incur at Payments Canada.

How do we have confidence that the directors and advisory board members will appreciate and push for as transparent a pricing scheme as possible that really rewards those financial organizations that are highly efficient with different pricing from those who are laggards in the shifts they are making or encouraging through their client structure?

Ms. Butler: Pricing is something that is very important to make sure we are being held to being efficient, as the statute requires, and that we consider efficiency in what we do.

The cost of developing the new systems is actually being priced in a way to enable participants in the new system to fund the build that happens to support the new system, which should be encouraged. This is the kind of approach to pricing you were talking about. It’s part of getting in place more modern and efficient systems and enables a reduction in price over time, relative to the costs for those members.

Senator C. Deacon: Tell me specifically, because it sounds like you are really trying to work to encourage member organizations to become increasingly efficient, as you do. How can you give us confidence that the board membership will reflect the leadership of those organizations that are demonstrating the most client-centric approach to delivering efficient and effective banking services across the country and maintaining this great reputation that Senator Tkachuk mentioned, and the great results that we can be proud of in Canada?

As we move forward, I’m thinking about making sure there is the opportunity for disruptive new entrants to become a part of your organization or access your services in a way that benefits Canadians and, perhaps, globally, so that we have the kinds of board members being brought into the system who are not protecting the status quo but really continuing to push the organization and the banking industry to keep getting better. You are right at the core of it. You have a unique position in our banking system.

Ms. Butler: Yes, it’s a very exciting time to be at our organization. There is a governance and nominating committee of the board, which is one the requirements enshrined in 2015. If you take a look at the current makeup of our board of directors, as an example, you can see from the makeup of the independents, even, that there is experience from the financial technology sector within the independent directors on the board. You will also see, with respect to the member directors on the board, that one of our directors, for instance, is with a financial institution that is a non-bricks-and-mortar bank.

With five member director seats that will rotate with some frequency, you will always have some shift in who is in those seats, but you will see evidence already that we and the board are considering that as they are constituting their board and looking at the skill sets of directors and the knowledge base needed for that. I would expect that the governance committee and the board would continue to take that approach.

To your second question around the future, I signalled to some of the expected changes that will follow. I would expect that either myself or someone else will be here in the near future talking about future changes to our legislation that are tied closely to the retail payments oversight regime that the Department of Finance is planning.

That is also tied closely to the modernization initiative that we are calling Real-time Rail. The expectation is that system will be the enabler of access to our systems in the future when there are new entrants who will be allowed to become members. Right now, under our legislation, our membership is constrained to prudentially regulated financial institutions. We have every expectation that in the future, as part of that retail oversights framework, there will be an opening up of access to our systems and that our governance will likely need to be changed again to reflect that.

But it is also one the drivers for asking for more flexibility around the Stakeholder Advisory Council because, over time, who constitutes a member and a stakeholder may change. Some payment service providers may be lining up to become members in another iteration of this legislation, and our Stakeholder Advisory Council makeup would likely change to reflect more users and fewer service providers over time.

This is a very important opportunity for the ecosystem to be able to stand up new technology and new access to enable that in the future.

The Chair: I would remind senators that we are now over time with this panel, so we are going to be as focused as we can.


Senator Galvez: Thank you very much for your testimony and your answers. I will also come back a bit to issues raised by my colleagues. I am trying to align the issue of modernization you described with these three parts, which certainly indicate that the focus is on accelerating transactions and using modernization in IT. So I am trying to align that ongoing modernization with the need to make governance even more rigid by increasing the time and the number of directors.


It would be interesting for this committee to hear from some of the directors. I think it is interesting to ask the directors about the modernization that is going on.

By extending the term of these directors — and you have said that things change rapidly and that this modernization is mostly on the informatics in the software and online, how can you justify that? I’m curious to know what is the salary of one of these directors?

Ms. Butler: First, I’ll take the question around why there should be longer terms, given the pace of change. Our belief, and the belief of the board, looking at best practices in terms of flexibility, is not to say that each director should stay in the chair as a director for nine years, but that typically good governance practices provide some flexibility, for instance, to enable a director to stay for an additional period of time when we are implementing the systemically important payment system for Canada. The directors who are in the seats during that transition period, and the continuity of those directors, can be valuable in overseeing management and working with industries through what is a very significant change. It has to be a big bang cutover with all of the industry going together to move on to the new system. That’s an example of where having the flexibility to have continuity — for example, it might be a director who is especially strong in supervising risk management or strong in the audit area — and to keep, for instance, the chair for an additional term while training or bringing on the new chair to step into that role is important. That’s the flexibility being sought with the extension of time.

Senator Marshall: The board reports to the Minister of Finance, does it?

Ms. Butler: The board is a majority independent board. It has accountabilities to the Minister of Finance and we have to publish a plan every year that is approved by the Minister of Finance.

Senator Marshall: Are the members of board Governor-in-Council appointments?

Ms. Butler: No, they are not.

Senator Marshall: Who appoints them?

Ms. Butler: They are elected by the members. All the directors are elected by the members of organization. It’s a membership organization, it is not a Crown corporation.

Senator Marshall: The Stakeholder Advisory Council reports to the board.

Ms. Butler: Advises or reports to the board, yes.

Senator Marshall: But those members on the advisory committee are appointed by the board in consultation with the minister.

Ms. Butler: That is correct.

Senator Marshall: If the minister has no involvement in the appointment of the board, why would the minister have involvement with the Stakeholder Advisory Council? It seems peculiar.

Ms. Butler: I’m happy to express an opinion on that, but I’m conscious that that might be Ms. Trepanier’s bailiwick. My interpretation of that is that the Stakeholder Advisory Council has been an important instrument of public policy for many years for the Minister of Finance, and for an organization that was member controlled for a long time to ensure that the voice of stakeholders form part of the decision-making of the organization. It has continued, subsequent to the changes in the governance structure, for that same reason.

Senator Marshall: Are the members of the Stakeholders Advisory Council Governor-in-Council appointments?

Ms. Butler: No, they are not.

Senator Marshall: That is a very peculiar reporting structure.

Senator Wetston: What is the average daily value of the LVTFs in Canada these days?

Ms. Butler: I’m afraid you are going to catch me not remembering my numbers.

Senator Wetston: Close?

Ms. Butler: Well, I only have the combined ACSS and LVTS numbers. Daily, that’s $210 billion.

Senator Wetston: LVTS would be the larger part?

Ms. Butler: That’s correct.

Senator C. Deacon: Purely out of curiosity, what are the opportunities for this organization to eventually export its expertise into other jurisdictions and have it used as a clearance and financial system backbone in other locations or jurisdictions?

Ms. Butler: The technology, you mean?

Senator C. Deacon: Yes.

Ms. Butler: Besides the technology, we are also a policy, rule and rule and standards shop. That’s a key part of what we do besides run the technology. We already do that through collaboration with international organizations around the world. That’s something we are already active in.

There is always the potential for technology, but it is not a focus for us. With the high value payment system, we are actually using the leading technology provider in that space. We are using their technology because it’s the best-in-class technology for running a high value payment system.

Senator C. Deacon: Really this is a domestic business entirely.

Ms. Butler: It is. We are a utility for the financial system.

The Chair: Panel, thank you very much for being here. I think we learned more than we thought we were going to learn and I suspect you felt you were on the panel a little longer than you were going to be. We are glad we got through this. Clearer understanding for us all.

Honourable senators, this panel will deal with Subdivision A of Division 2 of Part 4, dealing with the Canada Business Corporations Act.

Please welcome, from Innovation, Science and Economic Development Canada, Mark Schaan, Director General, Marketplace Framework Policy Branch; Darryl Patterson, Director, Corporate, Insolvency and Competition Directorate, Marketplace Framework Policy Branch; and Ian Disend, Senior Policy Analyst, Marketplace Framework Policy Branch.

Mr. Schaan, would you please proceed?


Mark Schaan, Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada: Thank you, Mr. Chair. I will begin with a bit of context. In December 2017, federal, provincial and territorial Ministers of Finance concluded an agreement in principle according to which, as the first step, they would make amendments to their legislation on corporations in order to impose on them the obligation to keep accurate and up-to-date information on their beneficial owners. Budget 2018 made official the federal government’s role in the implementation of that plan, and amendments to the Canada Business Corporation Act, CBCA, were made through the Budget Implementation Act — Bill C-86 — on December 13, 2018, to impose on private corporations incorporated under the CBCA the requirement to keep a register of the individuals who control them, defined in the CBCA as “individuals with significant control,” or ISC, such as beneficial owners.


This change builds on a change that we made in Budget 2018 by simply amending the act further to specify who would be able to access this information as a first measure to conform with our obligations to allow access for competent authorities.

The changes essentially specify that, on request by a specified investigative body, the corporation will be required to keep a register and shall, as soon as feasible after a request is made, provide a copy of the register or information from it in the manner requested.

This amendment further specifies which investigative bodies in question we mean, which are police and tax authorities, and then we have set out a number of safeguards for this.

First of all, we’ve made sure that we’ve indicated that the investigative body can only make such a request if there are reasonable grounds to suspect that the information would be relevant to an investigation of one of the offences set out in the schedule. That is the schedule related to money laundering, terrorist financing and tax evasion, as per the nature of the statute.

Similarly, we’ve also indicated that investigative bodies must keep records when they use this requested power, and that investigative bodies must file an annual report to the director of Corporations Canada on aggregate use of the request power.

We believe these safeguards will allow for competent authorities to more easily access the registry of significant control of beneficial owners, while at the same time ensuring those legitimate investors that there is not undue use of this tool to be able to potentially understand or gain access to the information about ownership unnecessarily.

That’s the provision we have before you today. We are happy to take your questions.

Senator Stewart Olsen: Thank you for coming. Has this division been run by the Privacy Commissioner, and what did the Privacy Commissioner have to say?

Mr. Schaan: There have been discussions about the privacy nature of this information. The feedback has been that the ownership information about control is administrative information that’s deemed to be in the interests of the government, subject to the administration of corporations, and that that information is well and truly good to be made public.

Senator Stewart Olsen: Has it been run by the Privacy Commissioner?

Mr. Schaan: Yes.

Senator Stewart Olsen: And he’s okay with this?

Mr. Schaan: Yes. The Privacy Commissioner always has the capacity to re-examine laws, but our initial assessment was there were no problems with this particular statute.

Senator Stewart Olsen: Even when the CRA can access this information as well?

Mr. Schaan: The CRA obviously has information that is already available to them on the filing of tax information from corporations. This is simply an additional power to be able to understand the beneficial owner of the actual share.

Senator Stewart Olsen: Thank you.

The Chair: Very interesting line of questioning.

Senator Wallin: We should come back to that for a moment, because we know the CRA has access to tax information and all of that. That’s different from whether they have access to information that was gathered on reasonable grounds.

Mr. Schaan: No, what’s important to note here is that there is already an obligation under the Canada Business Corporations Act for corporations to keep a registry of their shareholders. That information was always available to other shareholders, to the director of Corporations Canada and to law enforcement under warrant.

What we required under the Budget 2018 amendments to the Canada Business Corporations Act was for corporations to make reasonable attempts to seek out the beneficial owner of that share and to make that information available. Where there is reasonable suspicion of linkage to a particular law enforcement penalty or investigation, law enforcement will be able to gain access to that registry of significant control, which simply indicates that those individuals are listed as the ultimate owner of a share.

Senator Wallin: What would trigger them to do that?

Mr. Schaan: Likely suspicion of an offence related to money laundering, terrorist financing or tax evasion.

Senator Wallin: Or an indication from the data that they had access to?

Mr. Schaan: No, they can’t access the information until such point as they have reasonable suspicion.

Senator Wallin: A compilation of numbers, that would just say, “We had 200 investigations this year,” and you’re just using raw numbers to determine if this is overuse or underuse of the system?

Mr. Schaan: Investigative bodies must keep records when they use the request power, including the name of the corporation, the reasonable grounds, what was requested, the date and manner of the service, what was received and anything prescribed that we can prescribe in regulation. What investigative bodies must file is an annual report to the director of Corporations Canada on aggregate use of the power, which is the number of requests broken down by province and territory and then for RCMP or CRA.

Senator Wallin: But not by substance?

Mr. Schaan: Not by substance.

Senator Wallin: Thank you.

Senator Wetston: I understand the line of your thinking on what’s done here, since we worked on Bill C-25 when we imposed these original provisions, but let’s distinguish between this and publicly traded companies.

This is really meant for the private companies. It applies to public companies, but for different reasons it might, only because of the fact that over 10 per cent you have to disclose, and we know that. This is really meant for the private companies and the continuation of what was done in Bill C-25. Is that correct?

Mr. Schaan: The changes were actually not in Bill C-25. They were in the Budget Implementation Act, 2018, No. 2, Bill C-86.

Senator Wetston: That was the budget.

Mr. Schaan: That’s correct. This is subject only to privately held corporations because, as you indicated, publicly traded corporations are subject to other rules. This is mimicked though, it’s worth noting, in the FINTRAC obligations of all these companies. This is a completion of what we believe to be belts and suspenders. Corporations are already required to provide this information about the beneficial owners of their organizations to the financial institution with which they do business if that institution is regulated by FINTRAC.

We are simply creating a mechanism by which those corporations can both have examples of how to keep that information, because right now that doesn’t necessarily exist under FINTRAC. Moreover, for those who don’t bank in Canada, which you can imagine in statute aimed at ending money laundering, terrorist financing and tax evasion, there would be good reason to believe that there may be organizations that are actually incorporated that don’t bank in Canada that we can potentially allow competent authorities to be able to access this information.

Senator Wetston: One way to address this issue — I can see the value of it, obviously, particularly for law enforcement — is the way they did it in the U.K. Why not just have a public registry, Mr. Schaan?

Mr. Schaan: As we noted when we came before this committee with Part 1 — we consider this to be 1.5 — we are doing this in lockstep with the provinces and territories. In Canada, where you incorporate is a choice. It’s not actually determined by what sector or any other zone. So long as we have inconsistent regulations between us and other incorporating bodies in a zone where we’re trying to set a floor of minimum standards, we need do it in lockstep and together. What ministers of finance between provinces, territories, and the federal government were able to achieve was a two-part phase.

First, let’s have them hold the information. Second, let’s give regulated access to competent authorities. They very clearly indicated that if they’re subject only to a warrant, that’s essentially a billboard to maleficent actors who potentially know there is something coming because there is a warrant. This allows them competent authorities where they have grounds of suspicion and a likely investigation to access it.

The second phase is to work with the provinces and territories and say, “ Okay where do we go next? Should we have some sort of central registry of all of this information related to significant control? Who should hold it? Should it be related to corporate registries or should it be separate? And who should have access to it?”

Senator Wetston: My only follow-up comment would be if that were to occur, it would be a much more expeditious way to follow the money than this would allow.

Mr. Schaan: It’s true, and in the consultations that we had, we mostly focused on Part 1 and Part 1.5, but there are significant concerns from people about a publicly accessible registry. There are high-net-worth individuals who make very prudent investments and aren’t interested in sharing their investment strategies with the rest of Canada, who may decide to follow up and push companies in ways that they wouldn’t. Moreover, there are some others out there who believe that there would be a significant challenge to Canada, as a relatively small, open trading economy, to having that information.

But that said, that’s all for us to work out with the provinces and territories as we contemplate phase 2.

The Chair: Senator Wetston, that is an interesting segue to your ongoing concern about beneficial ownership.

Senator Wetston: It’s not just my concern; it’s Mr. Schaan’s as well.

The Chair: I think it is many people’s concern. Panel, thank you very much.

The next panel will concern Division 5 of Part 4, which amends the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, the Canada Business Corporations Act and the Pension Benefits Standards Act, 1985.

Please welcome, from the Department of Finance, Kathy Wyre, Acting Director, Pensions Policy; Oliver Kanter, Economist, Pensions Policy. From Innovation, Science and Economic Development Canada we have Mark Schaan, Director General, Marketplace Framework Policy Branch; Darryl Patterson, Director, Corporate, Insolvency and Competition Directorate, Marketplace Framework Policy Branch; and Paul Morrison, Manager, Policy Development (Insolvency), Marketplace Framework Policy Branch.

Finance Canada, we may start with your comments.

Kathy Wyre, Acting Director, Pensions Policy, Department of Finance Canada: Thank you, Mr. Chair. I believe Mark Schaan will start for us.

The Chair: Thank you very much. I see a pattern here.


Mr. Schaan: Thank you, Mr. Chair. To respond to concerns related to the security of workplace pension plans in the context of certain business bankruptcies, the government committed, in Budget 2018, to adopting a whole-of-government, evidence-based approach to improve Canadians’ retirement security. Consultations conducted in late 2018 with workers, pensioners, businesses and the public led to more than 4,400 online comments, in addition to official written observations of groups representing stakeholders on that important issue. Following that work, the government proposed legislative amendments to federal legislation related to insolvency, corporate governance and pensions. Those amendments will strengthen retirement security, while continuing to support Canadian marketplace framework laws as solid platforms for economic growth, innovation and job creation for Canadians.


This pan-governmental initiative seeks to show federal leadership and provide appropriate incentives within the bankruptcy and insolvency system, as well as the corporate governance and pension regulation systems in a number of ways.

First, Division 5 of Part 4 amendments the Bankruptcy and Insolvency Act to clarify that the duty of good faith applies to all parties in proceedings, giving courts another tool to ensure that parties act honestly, reasonably and candidly. Second, it provides courts with further powers to address executive payments made before an insolvency, where appropriate, deterring executives from taking actions contrary to the employees and pensioners. Third, it exempts registered disability savings plans from seizure by creditors in bankruptcy proceedings, providing assurance that the funds in these accounts are safe.

Division 5 of Part 4 also amends the Companies’ Creditors Arrangement Act to, first, limit the scope of initial court orders and interim financing, lessening the chances of extraordinary relief, such as the suspension of pension contributions being granted at the outset and giving courts more time to hear all parties’ views before making more consequential orders. Second, requiring creditors to disclose their real economic interests in proceedings, if required by courts, helping to preserve fairness in insolvency negotiations by rectifying informational imbalances amongst the parties. Third, in line with the Bankruptcy and Insolvency Act change proposed, clarifying that the duty of good faith applies to all parties.

Division 5 of Part 4 also amends the Canada Business Corporations Act, notably to require publicly traded corporations to report on policies that pertain to workers and pensioners’ interests, and the recovery of certain incentive-based compensation, providing more market oversight and encouraging conversation about factors impacting corporate strategy and decision-making processes. Second, clarifying that corporate directors may consider employee and pensioner interests, among others, in their decision-making, encouraging directors to take a more comprehensive approach to assessing the long-term interests of the company. And finally, requiring publicly traded corporations to hold non-binding shareholder advisory votes on executive compensation, facilitating conversations about more balanced executive compensation schemes in certain cases.

Division 5 of Part 4 also amends the Pension Benefits Standards Act, 1985 for which I will turn to my colleagues from Finance.

Ms. Wyre: Thank you. As Mr. Schaan said, Division 5 of Part 4 amendments the Pension Benefits Standards Act, 1985 in two ways. First, it clarifies that a plan member’s entitlement to their pension benefits cannot be made conditional on the continued operation of the plan. In other words, it clarifies that members are entitled to the same pension benefits on plan termination as when the plan is ongoing.

Second, it also amends the PBSA to permit defined benefit pension plan administrators that purchase annuities from a regulated life insurance company to transfer their obligation under the plan to provide retirees and other beneficiaries with a pension to the regulated life insurance company, subject to certain conditions. This is intended to help improve defined benefit plan sustainability by allowing them to de-risk and also increase the benefit security of retirees for whom they were purchased, as those retirees’ pensions are now provided by a life insurance company and the retirees are no longer subject to the risk of employer insolvency.

The Chair: Are you done, panel?

Mr. Schaan: Yes.


Senator Verner: Thank you very much for joining us, ladies and gentlemen. I am a senator from Quebec, so I have obviously read that the Syndicat des Métallos du Québec didn’t like that the government did not consider the possibility of declaring registered pension plans as preferred creditors during bankruptcy procedures. I think you are well aware of their claims. I would add that our former colleague Senator Art Eggleton, a senator from Ontario, introduced Bill S-253 in the Senate and in the House of Commons. A Bloc member also introduced a similar bill.

I understand that you are here to explain to us the implications of the bill, but can you tell us whether the government really considered that possibility very seriously, and whether other stakeholders brought it up during consultations? Ultimately, for what major reasons did the government not choose that solution, when we know that the latest bankruptcy, which got a lot of media coverage, was that of the Sears company?

Mr. Schaan: Thank you for the question. The government committed to assessing the effectiveness of those new measures and remains prepared to assess what could be done in the future to improve retirement security. During those consultations, the government clearly heard some people’s wish to see a fundamental change in the way creditors are paid in insolvency cases. Serious concerns were also expressed about such a change. After careful consideration, it was determined that the option was not in line with a whole-of-government, evidence-based solution. When you try to address challenges related to pension plans in case of insolvency, you are already in a situation where there is not enough money for everyone and where other emergency policies are engaged.

The primary objective of the system is to promote the survival of sustainable businesses and provide good jobs. The government has some of the most rigorous requirements in terms of pension plan solvency and regulations in Canada, and the plans are 100 per cent funded or must have a plan in place to reach that level. In that case, it is really important to indicate whether, in case of insolvency, it may be easier to change priorities and give all pensioners all the available money. At the same time, it is really important to recognize the goals and agreements of that insolvency system and to ensure that those businesses can be restructured and renewed.


In many cases, we have been able to successfully move through the CCAA process to get to a restructured entity. In part, we’ve been able to do that because we know that all parties were similarly motivated to be able to ensure that there was a going concern at the end of it. That means you need to ensure there’s an opportunity for creditors to be able to see upside.

Part of that means that if there was a super priority for pensions, in many cases we know that, first, there would not be sufficient money to be able to actually pay out the obligations of pensioners. Many of those unfunded pension liabilities are actually too great to the assets on hand. Second, we know that, absent motivation to be able to pursue the opportunity to be able to see some return, we know restructuring would not be possible.

I know that’s not always what some groups want to hear. We have watched the case of Stelco with very strong interest. We know that Stelco right now has an active plant, an active enterprise and an active pension, in part because it was able to draw on the CCAA and get to a buyer who was willing to get to that position. Those jobs and pensions are the best possible outcome we can hope for when a company faces financial difficulty.

Senator Wetston: I just want to ask a question, Mr. Schaan, about say-on-pay. It’s a non-binding say-on-pay vote, I take it?

Mr. Schaan: Correct.

Senator Wetston: It is similar to what some other jurisdictions have put in place, as I understand it. You may agree that many publicly listed corporations, particularly on the TSX, are using say-on-pay, non-binding votes now?

Mr. Schaan: Correct.

Senator Wetston: Do you have an approximation of the number?

Darryl Patterson, Director, Corporate, Insolvency and Competition Directorate, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada: Yes. Approximately 60 per cent of the S&P/TSX firms and 87 per cent of TSX 60, I believe.

Senator Wetston: So pretty high numbers.

Senator Stewart Olsen: Could I ask you to explain what “say-on-pay” is?

Senator Wetston: Thank goodness I’m not the witness here. It’s a very good question.

Mr. Schaan: Essentially, say-on-pay, which we call non-binding advisory votes on executive compensation schemes, require that corporations annually provide a general approach to executive compensation before their shareholders and vote on that generalized approach. That would normally include their approach to salary, benefits, bonuses, share options and other things in a generalized manner. Shareholders would be provided the opportunity to be able to, in a non-binding way, provide advice to the corporation as to whether they agree with that approach.

Senator Stewart Olsen: Thank you. I’m sorry, Senator Wetston, for interrupting you.

Senator Wetston: Don’t apologize. I jumped ahead and should have discussed it in terms of executive compensation. It’s probably worth mentioning that this is a Securities Act requirement, as well, and the corporate governance rules require executive compensation disclosure of those public companies. So there’s kind of a close relationship in corporate law and securities law in this situation.

I just wanted to follow up: Do you have any sense of the number of say-on-pay, non-binding votes that actually resulted in changes to executive compensation? I can think of two or three off the top of my head.

Mr. Schaan: It would be anecdotal, and I wouldn’t want to give names of companies because I might have them wrong in my head. I would say that there has definitely been a signal sent through, particularly institutional shareholders who have potentially voted against a general compensation approach, and then, in subsequent years, have voted for. Normally that’s because there’s been some sort of change.

Senator Wetston: My only other question is about clawbacks. Are we doing anything about clawbacks?

Mr. Schaan: The requirement in the proposed amendments indicates that a corporation, as part of this disclosure related to policies for workers and pensioners, that one of the other things they would be required to disclose to their shareholders is if an executive compensation clawback mechanism exists or not and, if so, what it is. That will essentially provide transparency.

Senator Wetston: Maybe you might explain what that is.

Mr. Schaan: Absolutely. An executive compensation clawback mechanism essentially indicates that where there is a portion of executive compensation that is tied to particular performance results, the directors have set in place a mechanism by which they can actually recall portions of that executive compensation should those performance results not be reached.

Institutional shareholders are very strong fans of executive compensation clawback mechanisms because it holds boards to account. In our particular case, with a retirement security lens on, we were really interested in greater transparency for other interested parties to be able to see the potential discrepancy between gains in executive compensation while there is a growing unfunded pension liability.

Senator Wetston: That’s a very positive step.

Senator Marshall: I’m trying to reconcile what Ms. Wyre said. I think I misunderstood you. When you think about Sears, for example, I know some pensioners who work with Sears had their pensions reduced by 30 per cent. I got the impression when you spoke that this would no longer be possible; that they would be entitled to their full pension, regardless. But then Mr. Schaan said that it depends. It might not be fully funded.

Ms. Wyre: Thank you very much for the question. What we’re doing is clarifying your entitlement to your benefit. As I said, it’s a clarifying amendment. The intent of the legislation has always been there, but was just been suggested to us that it was unclear. But you were always entitled to your pension benefit, regardless of whether the plan is ongoing or terminated.

Senator Marshall: Or whether it’s fully funded?

Ms. Wyre: That’s what I was about to say. How much money is available to pay those benefits in the event of a planned termination is a separate thing. This is just to say that you were always entitled to your benefits. It has been suggested that perhaps plans could offer to have benefits for which you didn’t have the same entitlement if the plan terminated.

The example we used in our consultation paper was a plan that would provide indexation on an ongoing basis, but in the event of planned termination the indexation would be conditional on the event of assets remaining in the plan. Our position is that, no, your entitlement is always the same to those benefits, and we were clarifying that in the legislation.

Senator Marshall: You are distinguishing between your entitlement and what you end up getting. Isn’t that so?

Ms. Wyre: What you eventually end up getting depends on what is available in the assets and through the bankruptcy proceedings, but your entitlement should not be different because the plan is terminated.

Senator Marshall: My interpretation is that these changed are aimed at making sure that a company, seeing the writing on the wall that they will not be a going concern, and they start looking after senior management and disregarding people who are lower down the line, like the people ready to go on pension. That’s my understanding.

Mr. Schaan: Certainly the changes reflected in the Bankruptcy and Insolvency Act changes and the CCAA changes, particularly the change related to the look-back period for executive compensation.

So when a company enters into financial distress, and particularly when they are in liquidation, the monitor appointed and is overseen by the courts has the capacity to go back and review transactions in the lead-up to the insolvency to ensure that a corporation was not unduly avoiding what was already an insolvent company to be able to avoid the regulated process of insolvency where people get paid in a particular order. We have extended this to executive compensation and significant raises and compensation. The act already covered shareholder buy-backs and dividends, and we have extended that to try and align incentives so that you can’t be making significant executive compensation boosts in advance of what you know to be an insolvency.

It is worth noting that unfunded pension liabilities are an unsecured creditor, so the entitlement notwithstanding any money that is not left. Any money there is held sacrosanct. You can never touch it in the entire time of the company’s ongoing role as an entity. The minute a dollar arrives into a pension account it is there until the company goes bust, other than to pay pensioners. The problem is when the company does not have enough to be able to cover in the event they go under. Our rules at the federal level are extremely stringent in this regard. Without speaking for Ms. Wyre, the finance rules are that companies are required to hold 100 per cent of the requirements on a windup basis, meaning they need to prepare for the possibility of insolvency.

In a number of provinces that’s not the case. In the province of Quebec, for instance, pensions are only held to a going concern requirement, so they only need enough money to meet their current obligations. In the province of Ontario, that is only 80 per cent.

Senator Marshall: If I were a Sears pensioner, do you have any idea whether that person would be satisfied with those amendments, or is it a movement in the right direction and still has a way to go?

Mr. Schaan: We think this is an important show of federal leadership with the levers we have. I won’t raise particular examples, but for some of the companies mentioned those are pensions regulated outside of federal regulation. They are regulated by different provinces. We think we have set the incentive structures in place with the levers we have, be that federally regulated corporations, the insolvency system or our own pension regulation system.


Senator Dagenais: My question is for Mr. Schaan. I would like you to give us more information on the impact of changes to better protect people whose pension is affected and threatened. Will those be real changes, or is this an expression of a will to change? That makes a big difference.

Mr. Schaan: Yes, thank you for the question. I think that changes must be made by motivating businesses to further consider the roles, the impact and the consequences of those decisions on pensioners and workers.


When we look at certain changes, like the necessity to consult shareholders on the needs of their workers and pensioners, when we think about the extension of the look-back period to things like executive compensation, when we look at the changes related to good faith in the restructuring process, I think those are real changes for people who are worried about how an insolvency will shake out. We have lifted a greater amount of transparency and give them a greater say in standing.

Ultimately, the hardest part of regulating the insolvency system is that, by definition, there is not enough money to go around. So what we have to do in assisting the minister in his stewardship of this system is to ensure that in such a terrible situation to ask: Are the rules as transparent as possible? Is the process as clear as possible? And are there opportunities to ensure that those who are most affected, or potentially had the least capacity to affect the outcome, have the capacity to be able to have their concerns understood and heard?

We do that in a number of ways, both through the existing system, through the existing super priorities that we already have — which are few but are there for that exact protection — and the work that we are doing both in this bill and previously about what you do while the entity is not insolvent to try to set out the rules so that when they become insolvent you are in a less bad situation than otherwise.


I think those changes are important for enabling the Government of Canada to use the available tools. I recognize that there are other players in this system who are necessary to making other changes. However, for the Government of Canada, that set of changes is a real and important step that will help improve the situation of pensioners and workers.

Senator Dagenais: This is a very complex situation, Mr. Schaan. You know that I chaired a pension committee for a fairly long time. There are many players: The employer, shareholders, managers, planners and, finally, employees, who are always last in line. I think it is important to have pension committees to ensure the enforcement of the right legislation. There are also provincial laws. Thank you for your explanations. In closing, I wish average people who have to explain this the best of luck. Thank you very much.


Senator Duncan: Thank you very much. I have a specific question about the drafting of the legislation and words used. If you would prefer, you could provide the answer in writing if that is preferable in the interests of time.

It concerns the judgment against directors and compensation. For those who printed out and read the legislation, it is pages 94 and 95. My query is about this clause compensation for directors “ . . . was made outside the ordinary course of business. . . .” “Ordinary course of business” can mean one thing in Vancouver, another thing in Quebec and another in New Brunswick. I’m concerned that the use of that phrase twice in this particular section is — well, it will finally be determined by the courts, I’m sure. Is there a background to the choice of that phrase and are there other options that might be considered at amendment?

Mr. Schaan: The choice was intentional by drafters. Essentially, what we wanted to do and what the law does is ensure that on the part of compensation, given the very diverse mechanisms by which compensation can potentially flow that the courts and the monitor had the capacity to be able to work around any innovative or novel schemes that may potentially arise that are not yet known. We wanted to say that if you’re going to make an executive compensation decision that would have rendered the company insolvent or that you should have known was at a time at which the company was actually insolvent, that you should be held liable for said decision because it was against your fiduciary obligations.

That liability and the choice of words here, “outside the normal course of business,” was essentially, if I’m correct, a mechanism to ensure that those other words that are far more precise and get at particular things, like “undervalue” or “at a time when the corporation was insolvent” or “rendered the corporation insolvent,” that there was flexibility for the monitors and courts to look at those transactions and ensure they were not inappropriate.

Paul Morrison, Manager, Policy Development (Insolvency), Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada: Mr. Schaan is correct. As the sections imposed directors’ liability, there was not a desire to penalize directors for payments that were made according to normal contracts of compensation like salaries, earned compensation or that type of thing. It was designed to attract compensation that was of an extraordinary nature made in the run-up to insolvency.

Senator Duncan: My concern is if it is an ordinary practice for a senior executive is to be awarded a week’s holiday in the Bahamas for him and his family, that’s the ordinary course of business if they establish that over time. The argument from the executive toward insolvency may be, “Look, I’ve had it for 10 years. It’s ordinary course of business for me to receive that.”

Mr. Schaan: It’s worth remembering the safeguards around this provision. The liability would accrue, a potential tort liability, insofar as the courts and monitors were to deem them inappropriate. The monitor and courts have shown extreme prudence in existing transactions, to the umbrage of some other stakeholders on the issues. They believe there have been transactions that should have been overturned because there is quite a bit of due deference given to fair business judgment.

What we have essentially done with these modifications is given the courts and the monitor that capacity, recognizing, of course, that each individual transaction will need to be reviewed against that standard.

Senator Duncan: Thank you.

The Chair: Thank you very much for your participation. It was helpful.

Honourable senators, our final panel will concern Division 26 of Part 4 with respect to the enactment of the Federal Prompt Payment for Construction Work Act.

I’m pleased to welcome Christopher Meszaros, Senior Counsel from the Department of Justice Canada.

Christopher Meszaros, Senior Counsel, Department of Justice Canada: Division 26 is the Federal Prompt Payment for Construction Work Act , and it has a bit of history that I would like to touch on briefly. It has been an issue within the construction industry for many years. At the fiftieth annual joint meeting of the Canadian Construction Association and the federal government that occurred in April of 2016, the issue of timeliness of payments for federal construction contracts was put forward again.

The CCA indicated that, out of the $285 billion of all construction contracts nationally, there was $46 billion in delayed payment. This means 16 per cent of payments were being delayed for quite a period of time — up to two months in some instances.

Payments to contractors were not flowing effectively down through the contracting chain, and many sectors in the industry were suffering because of it. The federal government was asked to take a leadership role and engage in dialogue to identify, assess and implement possible measures to address timeliness of payment.

PSPC commissioned independent experts who performed a similar exercise for the Ontario government known as the Reynolds and Vogel committee. They led an engagement process seeking input from the national construction industry to identify elements required to develop a robust, prompt payment regime. What was key about that was they went out for a national engagement process and invited stakeholders from across Canada to participate, conducted 55 engagement sessions and met with over 500 people. They submitted a detailed recommendations report to PSPC in June of 2018.

In the budget announcement of 2019, the Government of Canada committed to introducing legislation to implement prompt payment to contractors and subcontractors on federal projects on federal lands as well as the adjudication of payment issues. The new legislation was informed by the recommendations report, and it will help ensure payments flow down the construction chain promptly and contribute to the government’s objective of achieving best value on its construction projects.

Typically, legislation dealing with contractual relations would fall within provincial jurisdiction in relation to property and civil rights. Federal legislation, in this case, will apply exclusively to federal projects on federal lands.

Federal construction really only compromises about 1 per cent of the work in Canada, but this law is envisioned to be a model for other jurisdictions. Construction industry support is expected.

The industry employs 1.5 million Canadians and represents 7.5 per cent of Canada’s workforce, but the Canadian Construction Association, National Trade Contractors Coalition of Canada, and the General Contractors Alliance of Canada have all supported the bill to date.

Ontario Bill 142, the provincial bill, includes very similar prompt payment terms and adjudication measures and was unanimously supported and received Royal Assent in December 2017. Quebec also has a pilot prompt payment project in place, and other jurisdictions are developing legislation. Additional industry engagement will occur in the future, during the development of further regulations in support of this bill.

There are no new funds requested for this initiative. That is good news. But if any funding is required, Public Services and Procurement Canada will be able to use its existing reference levels.

One of the key components of the bill is that the contractors submit to Her Majesty or a service provider, a proper invoice monthly, or as specified by the contract. Payment is to be made in 28 days of receipt of that proper invoice unless the notice of nonpayment is provided within 21 days. Payment by contractor to subcontractor is to be made within 35 days of delivery of that proper invoice, again unless notice of nonpayment is delivered within 28 days.

Holdbacks are permitted. For any delay in payment, interest will become payable. The key to the legislation is that parties may bring any dispute covered by this act to an adjudicator.

This act is not intended to apply in a province that has similar legislation in place. It allows for an opt-out. Regulations will be further promulgated to set out the powers of the adjudication authority and those of the individual adjudicators. The act won’t come into force right away. It has a one-year period when it won’t apply to existing contracts, but thereafter it will go on to apply to existing contracts.

The Chair: Thank you very much. I think it was this committee, at some point in time, that looked at this issue. That’s very interesting. I’m glad to hear this is moving forward.

You indicated Ontario’s Bill 142. Are the provisions of the federal act identical to those?

Mr. Meszaros: No, they are not. There are instances in the federal regime that are different from the provincial, but the overall intent and scheme and much of the intent behind the act is similar, but the clauses are somewhat different, reflecting certain changed circumstances.

Right now we are going through a process with Ontario to see where the differences lie. Again, it is mostly in approach, in some respects, because the intent is virtually identical. But we found certain instances where what they had proposed, when we worked through the scenarios, wouldn’t work as well for us so we had to change some of our language.

The Chair: What are the consequences if someone doesn’t follow the terms of the act? I’m a contractor. I don’t pay my subs. What is the consequence other than arbitration?

Mr. Meszaros: It’s adjudication. What is nice about adjudication is it’s a quick and somewhat dirty remedy system right now.

You will be able to get a decision from an adjudicator in less than 50 days. What happens is you have to select an adjudicator. That’s done in conjunction with the other party. If you can’t do it in conjunction, you would go to an adjudication authority to nominate an authority for you.

At that point, the adjudicator is sent all the information required and has a certain period to render his decision, which can be extended if he needs more time. The decision should be made within 30 days, but I’m not sure on the exact time.

The Chair: Are there some enforceability provisions?

Mr. Meszaros: If the order made has not complied with, it can be registered in a court of law and treated as a court order and enforced in that way.

The Chair: Thank you for that. I’m sure that we heard a suggestion — I won’t go any further than that — that the Government of Canada was a very slow payer. I presume this legislation applies to the Government of Canada as a contractor.

Mr. Meszaros: It does. As Her Majesty, basically. It’s a 28-day requirement for us to pay. Previous to that, we have normally been paying within 30 days.

Senator Stewart Olsen: Thank you for your presentation. I must admit I’m not sure about this legislation because it’s presented by the government, and the government is the one that pays the bills. I think we have to be a bit careful on this.

I certainly support it, but the differences in this legislation as compared to the provincial legislation, is the provincial legislation essentially the same? Does it just apply to contracts for the provincial government or is it more far-reaching?

Mr. Meszaros: There are not many differences. Some of them deal with timing issues, clarifications on when the proper invoice would be submitted, things like that. The timing with respect to the Bill 142 in Ontario and our bill is the same: It’s a 28-day period, and then a seven-day follow-on.

Senator Stewart Olsen: Does it deal just with provincial contracts?

Mr. Meszaros: The provincial legislation deals with all contracting within the province in that regard, and our legislation deals with our contracting, which would not necessarily be covered by provincial laws.

Pursuant to this bill, we would have this obligation on us across the country. Whether it’s in P.E.I. or anywhere else in the country, we need to comply with this legislation, as will contractors and subcontractors working on our projects within those provinces, even if they don’t have provincial legislation that applies at the time.

Senator Stewart Olsen: Is it your hope that all the provinces will follow the leader and enact this type of legislation?

Mr. Meszaros: That would be our hope, yes.

Senator Wallin: We had long and extensive hearings on this. There are notes that say that one of the reasons that you are not passing the Senate bill, as opposed to tabling new legislation, is that there was a lack of consultation carried out during the bill’s development. So what have you done subsequently?

Mr. Meszaros: We had a great deal of consultation. We hired the firm that did the consultation for Ontario, and they went out nationally and met with 500 people, had 55 engagement sessions all across the country and prepared a voluminous report on what the industry was expecting from this legislation.

Senator Wallin: I think we heard from at least 500 people. I may be exaggerating slightly.

I know that you’ve now got time lines on this, but there are things that we heard at the time specifically. I see different time lines for different situations, but 49 days, after seven days, et cetera. What we heard in testimony is that for small subcontractors that’s not good enough. I don’t know what you heard in your consultation, but if you’re getting to two or three working months, that’s a long time if those 49 days are considered working days.

Mr. Meszaros: There was not much else we could do, because we were trying to keep the timelines as tight as we could, and seven days from contractor to subcontractor or subcontractor to subcontractor, we couldn’t see much in the way of acceleration there.

Higher up, from owner — in our case Her Majesty — to contractor, we were looking at the fact that the work has to be looked at, certified and accepted. It didn’t seem likely or possible on large projects that we normally do to accelerate that even further. Even if we could, it might have been an extra seven days.

What happens is it’s down the contracting chain that time builds up, but if you are a third-tier subcontractor, you are only looking at maybe a little bit over a month or a month and half out, which is better than in the past.

Senator Wallin: It’s an improvement, for sure.

Mr. Meszaros: That’s what we are aiming for.

Senator Wallin: This, again, is limited now to federal construction on federal property, such as the Parliament Hill buildings?

Mr. Meszaros: That’s correct.

Senator Wallin: If you have passed on money to provinces or municipalities for other related projects such as the roads that lead up to Parliament Hill, that would be deemed a municipal project, but that doesn’t apply?

Mr. Meszaros: No. We didn’t want to overreach.


Senator Dagenais: Thank you, Mr. Meszaros. I think any mechanism for payors in default is a good idea, but is there a public list of defaulters? Such a list is much more effective than an arbitration process that will take months.


Mr. Meszaros: Unfortunately, senator, there is not a list of bad payers, although we do publish when we pay. There is a website for when the Crown has paid its contractors. That in itself at least shows that the money should be flowing, and the parties further down can see where the holdup is and will know that that’s maybe a contractor they don’t want to bid to next time or a subcontractor they don’t want to deal with.

Again, with the adjudication process, it’s not perfect; it takes time. We are hoping it may start to weed out some of those parties or at least identify them so that when bidding is going on, hopefully this may be somewhat self-regulating.

The Chair: Mr. Meszaros, thank you very much. That was an interesting follow-up to the work we did a number of years ago. I found it very interesting. Thank you for your very informed presentation.

Senators, we will convene again tomorrow morning at 10:15 to discuss our report on open banking.

(The committee adjourned.)

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