THE STANDING SENATE COMMITTEE ON BANKING, TRADE AND COMMERCE
OTTAWA, Wednesday, May 26, 2021
The Standing Senate Committee on Banking, Trade and Commerce met by videoconference this day at 6:30 p.m. [ET] to examine the subject matter of those elements contained in Divisions 1, 2, 3, 4, 5, 7, 8 and 9 of Part 4 of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures.
Senator Howard Wetston (Chair) in the chair.
The Chair: Honourable senators, good evening to all.
I would like to begin by welcoming members of the committee, witnesses, as well as those watching this meeting on the web. My name is Howard Wetston, and I am the Chair of the Standing Senate Committee on Banking, Trade and Commerce.
Today we are continuing our pre-study examination of the subject matter of some divisions contained in Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021, and other measures in advance of it coming before the Senate. More specifically, today this committee will be looking at those provisions or elements contained in Divisions 1, 2, 3, 4, 5, 7, 8 and 9 of Part 4 of the bill. We have our work cut out for us this evening.
Now, before we begin, I would like to remind senators and witnesses to keep microphones muted at all times, unless recognized by name by the chair. Please, as we have done in the past, let us be recognized by using the raise hand feature if you need to speak, raise an issue or ask questions.
I would now like members of the committee to introduce themselves. If we could start with the deputy chairs and then, as our practice has been, we will go east to west, beginning with Senator Marshall, who lives in the beautiful province of Newfoundland. Let’s begin with the deputy chairs and then we can move east to west across the country.
Senator Wallin: Senator Pamela Wallin. I’m a senator from Saskatchewan.
Senator Smith: Senator Larry Smith, senator from Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Ringuette: Pierrette Ringuette from New Brunswick.
Senator Bellemare: Senator Diane Bellemare from Quebec.
Senator Loffreda: Senator Tony Loffreda from Quebec.
Senator Moncion: Senator Lucie Moncion from Ontario.
Senator Klyne: Marty Klyne from Saskatchewan. I am situated on Treaty 4 territory, the territory of the Métis.
Senator Dagenais: Senator Jean-Guy Dagenais from Quebec.
The Chair: If you’re uncomfortable with this way of introducing yourselves, we’ll spend a half-hour talking about doing it another way at some point. Thank you, senators.
The witnesses in the first panel will be focusing on Division 7 of Bill C-30. We have with us members from the Department of Finance Canada, FINTRAC and Transparency International Canada.
I’m not going to introduce the witnesses, but before we start, I would like to ask senators and witnesses to keep interventions brief and ensure every member can at least get in a question and answer, and if time permits, we’ll go to a second round.
Thank you all for joining us this evening. We’ll begin with opening remarks from Mr. Brown, then Superintendent Bradshaw, and then Mr. Cohen. I understand Mr. Wallace from FINTRAC will support the Department of Finance in answering questions and will be available to answer any other questions. Please proceed, Mr. Brown.
Justin Brown, Acting Director General, Financial Crimes Governance and Operations, Department of Finance Canada: Hello. My name is Justin Brown. I am the Senior Director of Financial Crimes Policy at the Department of Finance, and I am here to speak to Part 4, Division 7.
The government is committed to a comprehensive approach to combating money laundering and terrorist financing, which promotes the integrity of the financial system and the safety and security of Canadians. As part of this approach, the government regularly works to strengthen and modernize the anti-money laundering and anti-terrorist financing regime, for example, to respond to technological changes and evolving threats.
Part 4, Division 7 proposes amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that would do the following: expand the requirements of the act to cover businesses engaged in the transportation of currency or certain monetary instruments, such as armoured car services; strengthen criminal penalties under the act and the registration requirements for money service businesses; enhance the operational effectiveness of the anti-money laundering and anti-terrorist financing regulator, the Financial Transactions and Report Analysis Centre of Canada, or FINTRAC, by enabling a cost recovery model for its compliance activities; clarify its authority to follow up with reporting entities to obtain information; and expand the information it can disclose to law enforcement agencies and other disclosure recipients.
Finally, the proposed amendments would include technical amendments, such as clarifying the definitions of politically exposed domestic persons and heads of international organizations. Thank you.
The Chair: Thank you for being so brief. It’s much appreciated. I believe we’re moving on to Superintendent Bradshaw. Thank you so much.
Kelly Bradshaw, Acting Director General, Cybercrime and Financial Crime, Royal Canadian Mounted Police: Thank you very much. My name is Superintendent Kelly Bradshaw. I am the Acting Director General of Cybercrime and Financial Crime for federal policing in the RCMP. It is a pleasure to appear before this committee as part of the review of the Budget Implementation Act.
The RCMP is mandated under the Criminal Code and the Security Offences Act to investigate potential offences that constitute threats to Canada’s economic integrity and national security, such as financial crime, cybercrime, espionage and foreign influence activities. These types of investigations are long-standing federal policing and RCMP priorities.
In support of its efforts to keep Canadians safe and to prevent, detect and disrupt crimes that threaten Canada’s economy and security, the RCMP works with partners across Canada in both the public and private sectors. In addition, the RCMP works with our international law enforcement partners to address these issues. This necessary collaboration speaks to the shared responsibility of combating these types of crimes, not only in Canada but around the world.
Hostile state and non-state actors, including transnational and serious organized crime groups, pose a significant threat to the safety of Canadians and the economic integrity of Canada. Organized crime groups and hostile actors rely on money laundering and terrorist financing to perpetuate their illegal activities.
I would like to say the RCMP has a strong working relationship with FINTRAC, and disclosures from FINTRAC provide valuable intelligence that support criminal operations. The proposed amendments could strengthen FINTRAC disclosures to more effectively support RCMP financial crime investigations.
Due to the border lists and complex nature of money laundering and terrorist financing, collaboration with the private sector, as well as domestic and international law enforcement, will continue to be an essential component of combating transnational organized crime, international money laundering networks and terrorist financiers.
The RCMP will continue to work with domestic and international partners to enforce the laws within our jurisdiction to combat the complex issues related to money laundering and terrorist financing. Thank you.
James Cohen, Executive Director, Transparency International Canada: Mr. Chair and members of the committee, thank you for inviting me to speak to you today. I am James Cohen, and I am the Executive Director of Transparency International Canada. TI Canada is a registered charity and is the Canadian chapter of Transparency International, the world’s leading anti-corruption movement.
The 2021 federal budget brought welcome news for Canadian anti-money laundering advocates. While not covered explicitly in Bill C-30, it is worth taking this opportunity to cite Federal Finance Minister Chrystia Freeland’s proposal in the budget for $2.1 million for Innovation, Science and Economic Development Canada to establish a corporate beneficial-ownership registry that’s publicly accessible by the year 2025.
In the wake of the Panama Papers and Paradise Papers leaks, a lawyer coined the term “snow washing” to describe the practice of laundering dirty money in Canada through shell companies so it comes out as clean as the driven snow. Enabler companies like the one at the heart of the Panama Papers, Mossack Fonseca, market Canada to their clients as a safe haven for illicit cash because no one thinks of Canada for money laundering, and Canada had weak anticorruption laundering laws and enforcement.
With the announcement of the public registry in Budget 2021, Canada took a big step toward shaking off its reputation as an easy place for criminals to stash illicit cash. We have jumped ahead of the United States, which passed the Corporate Transparency Act in January of this year, which only establishes a private beneficial-ownership registry. Canada will join its international partners with public registries, including the U.K., France, and other EU countries.
TI Canada and our civil society and expert partners are stressing the importance of Canada using this opportunity to create the world’s most effective beneficial-ownership registry, which can deter dirty money from entering our economy and have a positive impact on business and public safety.
First, we need to ensure that the registry is truly publicly accessible. This means no pay walls. The registry must also be easily searchable and also open to non-Canadian citizens.
Second, a beneficial owner under Canadian law must have 25% direct or indirect ownership of a corporation. This is in line with international peers, but it is also arbitrary. Some jurisdictions set beneficial ownership as low as 10%. Canada should follow suit and lower its threshold, as well as require any nominees to declare who they are representing in corporate control.
Third, the registry needs data verification systems. This is critical to ensuring the legitimacy and effectiveness of the registry. Much work is underway in the field of digital IDs by organizations that can help with this, such as the Digital Identification and Authentication Council of Canada. To deter and even punish those who would willingly falsify information, the registry needs a wide scope of penalties, including jail time for serious offenders. This could go a long way to preventing criminals from abusing Canadian companies.
Fourth, an anonymous tip line is needed so the public can let authorities know about incorrect information or suspicious owners. It could resemble the Canada Revenue Agency’s public tip line for reporting tax evaders. A well-staffed register can follow up with the proper investigations. While leads from civil society and investigative journalists will be important, the registrar’s staff should be authorized to use their discretion to review data, produce trend reports, issue compliance reminders and assign penalties.
As the federal government creates this registry, it will need to harmonize with the provinces and territories. Some provinces have already built momentum to match Ottawa’s.
The Chair: Mr. Cohen, we need to shorten this because we have a lot of questions and witnesses. I recognize you’re getting into matters which will be considered in the future. Let’s take this opportunity to try to stay within the bounds of what we’re attempting to do today.
Mr. Cohen: On the content of Bill C-30, I would like to highlight proposed amendments in Division 7, clauses 161(1) (c), (2) and (4). In these points there are proposed amendments to international and domestic politically exposed persons in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. TI Canada recommends that the Ministry of Finance publish a risk assessment that outlines why they feel that bodies like international sports organizations and mayors should now be explicitly identified in the legislation. The Ministry of Finance has not published such a report since the 2015 Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada. Publishing such a report would aid the public and stakeholders in understanding where these recommendations come from.
I am happy to answer any questions.
Senator Wallin: Thank you all for your comments. I want a general lay of the land or context, if you could, please.
According to the C.D.Howe Institute, we have over $100 billion a year laundered here in Canada, or “snow washing” as we’ve heard from one of our guests. At present, Canada does not catch 99% of the laundering activity. Was there something specifically that triggered this motion now? This has been, as you’ve all said, going on forever. The numbers have been growing annually. Why this? Why now? Did something happy either globally or domestically to provoke this?
Mr. Brown, if you would like to start and then we’ll hear from Superintendent Kelly.
Mr. Brown: The Government of Canada continues to finance the regime and analyze different money laundering and terrorist financing risks, and regularly takes action to address those risks, whether it’s through changes to regulations, which we did over the past couple of years — we have a large number of regulations coming into force on June 1 — or legislative changes like the ones we’re discussing today. It could also be funding for different initiatives or agencies involved in anti-money laundering.
This bill proposes a series of relatively targeted changes to address gaps that have been recently identified, but there are ongoing enhancements to the regime that take place on a pretty regular basis.
Senator Wallin: Superintendent Kelly, if you could comment on whether there was some particular activity that provoked this. Is there something new or different, given currencies and all of that, that has brought this forward?
Ms. Bradshaw: Thank you for your question. Money laundering is complex, and it is a significant problem facing many countries, including Canada.
Organized crime groups rely on money laundering to conceal their profits and their illicit activities, and to sustain and grow their criminal operations. Criminal groups are increasingly relying on professional money launderers who offer their services for hire. They are working to legitimatize the criminal proceeds.
Organized crime groups are using crypto-currency more and more, as we are seeing in our investigations. It is a sophisticated way to move value. The RCMP needs to make sure we have the technology, the specialized skill sets and the training that goes along with that. We’re working toward that, and we’re able to investigate those types of crimes and the manner in which they’re moving their values.
The volume, size and speed of money laundering transactions, combined with these technological advancements, crypto-currencies; we’re seeing it even in the high-end money-laundering operations now, so it presents enforcement challenges as we attempt to follow the money. As such, our investigators and analysts need to make sure that we stay abreast and that we have that expertise so we can effectively discourage these illegal activities in Canada.
Senator Wallin: Thank you.
Senator Smith: Mr. Wallace, for FINTRAC, and the relationship internationally with other groups that are trying to enforce the rules, could you give us some background in terms of some of the relationships that you have internationally and if you’re working on joint venture types of projects, trying to track down parties together? Is that a common practice or do you have your own direction and you go in a singular fashion?
I would be interested in your comment on that, please.
Bruce Wallace, Manager, Strategic Policy and Reviews, Financial Transactions and Report Analysis Centre of Canada: Thank you for the question. The short answer is yes. We work very closely with international counterparts, particularly the Five Eyes nations and major trading partners. I think it makes sense to understand that money often follows trade. If you’re taking a look at financial transactions, particularly with regard to trade-based money laundering, it is often our large trading partners that we do most of our work with.
Having said that, we have over 100 memoranda of understanding with other financial intelligence units worldwide. And we exchange information regularly with the other Financial Intelligence Units, or FIUs. As my colleague from the RCMP indicated, money laundering is complex and international in nature. We rely on other financial institutions to provide us with information in their data holdings to help advance our own work.
Senator Smith: Do you have performance indicators in terms of tracking each year to see how well you did versus the past year? Do you talk to other parties internationally to see how it is progressing? Is there any sort of feedback you could give us on that, in terms of how you measure your performance?
Mr. Wallace: There are two criteria. In terms of year-to-year activity, we track the number of queries we make to other institutions, as well as the numbers of inquiries we receive and those to which we respond. We do have the numbers and metrics in terms of our operations. Also, whenever we do disclose information internationally, we do provide what amounts to a feedback form asking for feedback in terms of whether this information was helpful. Was it useful? We don’t get a 100% response rate, but we do track feedback when we do make these disclosures. More often than not, the information we receive is that the information aided the financial intelligence unit in some way or another.
Senator Smith: Thank you.
Senator Bellemare: My question will be more global. I’m an economist by training, and I would like to understand the financial implications of this bill. I think Senator Wallin gave some numbers, but I would like to validate them with you. Do you have an idea of what the target is or the amount of fraud and money laundering going on? How much money is being targeted? How much does that bring in?
In trying to prevent people from committing fraud and punishing those who commit it, is the cost of this search for money recovered? Is the budget covered by what you recover? Can you give me an overview of the costs and benefits of this exercise?
Mr. Brown: Unfortunately, I don’t think I have a good answer to your question. The costs of money laundering are difficult to measure. I think Senator Wallin gave a figure, but we don’t necessarily know the amount of money laundering in Canada. It’s a global issue. Other countries have similar challenges.
At the same time, it’s difficult to say exactly how much money laundering or terrorist financing these particular measures will recover; it’s very difficult to do a cost-benefit analysis. I can say that the proposed amendments will strengthen the regime. We believe that this will strengthen efforts to curb money laundering and terrorist financing, but I don’t have any figures on the exact costs, unfortunately.
Senator Bellemare: Can we also say that we want to reduce human costs through all these measures? For example, if we address human trafficking, there are human benefits that are worth the cost, but that are not so measurable; however, it is important to try to address this problem.
Mr. Brown: Yes, absolutely. We know that Canadians are victims of crime and efforts to strengthen the anti-money laundering regime will certainly help Canadians and businesses that are also victims of crime. However, when it comes to providing you with data on the specific impact on individuals, I’m not in a position to do so.
We are continuing our analysis. There is international research, there are reports that present amounts, but often the range of amounts or cost of money laundering is very broad. It’s not an exact science.
Senator Bellemare: Thank you.
Senator Loffreda: Thank you to our witnesses for being here.
My question revolves around the prevention and detection of proceeds of crime, money laundering and terrorist financing around virtual currencies, which are gaining more and more traction, as we know. There are different opinions out there about how much traction they will be gaining in the future. We all know that the blockchain technology makes it difficult to track and trace, and it provides anonymity for its users.
Maybe you can elaborate how you and FINTRAC will investigate any suspected money laundering activity. How can we in Canada not only be followers but leaders in that domain? Are we sharing best practices, or is this act sufficient in doing what it is supposed to do with respect to virtual currencies and prevention and detection?
Mr. Brown: Thank you. I will turn it to Gabriel Ngo who is a senior analyst on my team at Finance. He has worked quite closely on the question of virtual assets. He can speak more on the framework side because there have been improvements to the statutory framework. And then, of course, RCMP or FINTRAC can speak more on the intelligence or investigation side.
Gabriel Ngo, Senior Advisor, Department of Finance Canada: Thank you, senator, and thank you, Justin, for that introduction.
As it relates to Canada, we actually finalized regulations on virtual currencies in 2019. They came into force in the transitionary period in 2020. The full suite of regulations will be coming into force on June 1, 2021.
These requirements would regulate businesses dealing in virtual currencies: those that transfer value and those that do exchange services. Anyone who converts fiat currencies to virtual currency or virtual currency to virtual currency would be captured in the scope of these regulations.
This is aligned with international standards that are established by the Financial Action Task Force that were also finalized in 2019. Canada is a leader in this in terms of having regulations set up and having a regime in place to allow businesses to be regulated, and also to make information available to law enforcement and FINTRAC specifically.
With these new regulations, besides the regular AML/ATF requirements, such as a compliance program, training and recordkeeping, there is also transaction reporting. These businesses dealing in virtual currencies will be required to report to FINTRAC when they receive $10,000 or more in virtual currencies. That should help facilitate FINTRAC’s work in analysis and then subsequently disclosing intelligence of financial information to law enforcement.
I would point out that the requirement to report to FINTRAC actually would apply to all reporting entity sectors. All businesses that are regulated by FINTRAC, about 24,000 businesses, if they were to receive $10,000 or more in virtual currency, would also be required to report. That includes businesses like real estate, dealers in precious metals and stones, and basically all other areas, such as securities dealers.
I have one other point to make. You mentioned blockchain technology and the fact that it provides a layer of anonymity. Blockchain has actually allowed law enforcement and intelligence agencies to leverage that technology for monitoring, but also tracing.
That would be my response before I turn it over either to RCMP or FINTRAC if they wanted to add anything from an operational perspective.
Mr. Wallace: This is a minor point of clarification, senator. You mentioned concerns about what’s being done in terms of investigations. FINTRAC is a financial intelligence agency. We actually don’t have an investigative mandate. We analyze the information we receive from reporting entities. When we meet our threshold, we disclose to law enforcement and the RCMP.
I will say that even before the changes to the regulations and legislation in 2019 about virtual currency, we had been seeing references to virtual currency transactions in our suspicious transaction reports. As we get more virtual currency transactions and information in our data holdings, I believe we will be seeing more of that information flowing into the hands of law enforcement. One of the concerns I certainly have is the increasing use of virtual currency and new technology to launder money.
As Mr. Ngo said, we’re well placed to get the information from reporting entities and to provide it to law enforcement, particularly with regard to some of the changes proposed in Bill C-30. I’ll leave it at that for now.
Ms. Bradshaw: We definitely are seeing an increase in the use of crypto-currency in organized crime investigations in Canada. The way I see it, technology certainly can create challenges during investigations, but it also provides opportunities for people — whether it’s uniformed police officers or specialized civilians working with us — to use technology to advance investigations.
It’s important to note that we realize this is a shared responsibility. The RCMP is committed to continuing to work with all levels of government, private industry, other law enforcement agencies, and private and public partners. These partnerships are essential given the borderless nature and data-dependent aspects of financial crimes, especially with the prevalent use of cybertechnology.
We need that information to help us be intelligence led and to understand the challenges we face, as well as the crimes we need to investigate further. It shows us what we need to do to adapt, to be agile and to overcome. Thank you.
Senator Klyne: Welcome to our guests on the panel here this evening.
Any one of you three, Mr. Brown, Ms. Bradshaw or Mr. Cohen, could answer this question. I’m sure Mr. Cohen will want to jump in.
Division 7 within Part 4 proposes amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that will broaden the definition of the head of an international organization to include the head of an affiliated institution of that international organization, and it proposes to add the head of an international sports organization. In addition, it proposes to broaden the definition of a politically exposed domestic person to be more inclusive of the other two senior levels of government. Can you provide the committee with the rationale behind proposing the broadened definitions and why now?
Mr. Brown: Sure. In terms of the head of an international organization, this was prompted by recent corruption and bribery scandals, such as the International Olympic Committee and FIFA. The international efforts to combat corruption justified the need to pay particular attention to the heads of international organizations who have been entrusted with prominent functions and —
Senator Klyne: That was there already. You proposed to add the affiliated institutions, sports organizations and the other two levels of senior government as well. Why now?
Mr. Brown: In terms of the head of international organizations, again, it was linked to issues going on in the world with respect to corruption and bribery scandals.
Senator Klyne: I understand. They were there already. Now, you want to add the head of an affiliated institution of that organization and international sports organizations, and you’re redefining the definition of a politically exposed domestic person to include the two levels of government.
Why are we doing this now? I understand why we have the head of an international organization.
Mr. Brown: Speaking to the politically exposed domestic person, it’s recognized in Canada and under international standards that politically exposed persons are in positions that are vulnerable to attempts to commit money laundering and related offences, such as corruption or bribery. That’s why the underlying act, the PCMLTFA, requires reporting identities to identify when their clients are politically exposed persons and to conduct enhanced due diligence on these high-risk persons.
Amending the definition of politically exposed domestic person, in this case, specifically includes equivalent positions to a mayor. This is intended to clarify the definition and to achieve the overall policy objective of including public officials who may have control or influence over large amounts of public funds due to the nature of their position.
Senator Klyne: Thank you.
Does anyone want to add to that? I have another question.
Mr. Cohen: I can’t answer for the Department of Finance why the points were added now. They sound rational.
I would just repeat my point that it would be good practice to have pre-emptively put out a report or a risk assessment as to what is currently happening in Canada. For example, why did the position of mayor need to be fleshed out? Are there a number of cases that are being cited where the spirit of the law is being tested against the letter of the law? That would help in understanding decision making and where risk points are for all lawmakers and stakeholders and the public.
Senator Klyne: To extend it further, this might be a question for the RCMP and perhaps FINTRAC.
All of Canada’s casinos would be registered with FINTRAC. Should single-event sports betting come to be, and devolve to the provinces and territories, would a sports betting lounge not affiliated with a Canadian casino be required to register with FINTRAC? Would it also be required to record virtual currency transactions identifiers?
Mr. Wallace: Just as a point of clarification, the only reporting entities required to actually register with FINTRAC are money services businesses. While we are aware of all the casinos in operation due to the fact that they are the creatures of the provinces, there is no registry as such.
With regard to betting, there have been various considerations about extending this in previous parliamentary reviews. That would be a question for Finance to respond to in terms of whether or not there is a desire to have increased reporting obligations in sectors beyond the casino. On that, I would defer to either Mr. Brown or Mr. Ngo.
Senator Klyne: If a casino were to take in $10,000 or more, they don’t have to report that to FINTRAC?
Mr. Wallace: A casino certainly has reporting obligations with regard to large cash transactions, suspicious transactions. Maybe I misheard the reference, but I thought you referred to a registration. We don’t register casinos. We only register money services businesses. However, casinos certainly have reporting obligations. They have report-keeping obligations and they have obligations to ascertain the identity of their clients. That currently exists.
Senator Klyne: Walks like a duck; quacks like a duck. Thank you.
Senator Ringuette: My first question would be: How many infractions in the last two years have you captured? How many people were charged?
Mr. Brown: I do not have those numbers in terms of prosecutions or investigations. I don’t know if any of the other officials on the line have those numbers at hand. I apologize.
Senator Ringuette: Does anyone know?
Ms. Bradshaw: I would respectfully ask to clarify the question a bit more. Charges in relation to what?
Senator Ringuette: To infractions under FINTRAC.
Ms. Bradshaw: Oh, under FINTRAC. Sorry.
Mr. Wallace: In terms of that, I don’t have the information at hand. I can certainly commit to getting that to you.
We did recently relaunch our compliance and examination process just before COVID. There had been a court challenge a few years ago that caused us to essentially have to reframe or adjust our compliance program. So we had a slight hiatus while we did that. We have issued more recently a number of notices of violation and, subject to previous changes to the PCMLTFA, when we do that, we in fact name the organization. That is posted on our website. But if you will allow me, I will get back to you with those numbers as a follow-up.
Senator Ringuette: I would truly appreciate it, because a few years ago, this committee was quite surprised at the low outcome of all this tracking. We need to know this because, as I see, in this section it’s also providing more money to the FINTRAC operation.
A very quick question also for you: When you put the $10,000 standard to report, with technology today and crypto-currency, a person can transfer $9,000 100 times in one day. So your $10,000 needs to be reviewed because of crypto-currency and technology. With the ease of transactions, you can do multiple transactions that fly under your radar. Anyway, I would like to have your comments on that because that $10,000 disclosure was put in place 15 years ago.
Mr. Wallace: Thank you. It’s a good observation. I’d respond with maybe two points. The first point I would make is if a reporting entity is dealing with a customer or client who would conduct those types of transactions, our expectation is we would get a suspicious transaction report, because clearly they are structuring their transactions in a way to avoid reporting obligations. So that should come to us through an STR, or suspicious transaction report.
The other point —
Senator Ringuette: How many of those suspicious transaction reports have you received in the last two years?
Mr. Wallace: We typically receive in the neighbourhood of 200,000 to 400,000 STRs a year. I don’t have the specific breakdown as to how many are related to structuring per se.
The other point I would make is that, at the risk of getting a little weedy, if somebody is conducting multiple transactions in a 24-hour period that is more than $10,000, the reporting entity is obligated to inform us. That’s a rolling 24 hours. So somebody who is doing multiple transactions of $9,000 or $9,999, if they do more than one of those in a day or a transaction for $6,000 and $4,000, we would expect the reporting entity to send a large cash transaction report to us because within a 24-hour period those transactions totalled more than $10,000.
Senator Ringuette: Are those entities meeting your expectations?
Mr. Wallace: I was going to say, generally, yes. There’s always room for improvement. It is something that we look for quite regularly when we go in and assess reporting entities. I’d be lying if I said it’s done perfectly all the time. When we become aware of it, we point it out to the reporting entities. Where there is serious ongoing non-compliance, we do have the option to impose a fine.
The Chair: I have not been suggesting second rounds because I can see that some of the senators have a question they want to follow up, but we are going to run out of time and we have more questions from senators.
Senator C. Deacon: Thank you to the witnesses. As a politically exposed domestic person, I have gained some insight into the administrative burden associated with FINTRAC in our financial institutions. I’ve also been reading a lot about our success rates with all of the partners that you work with globally to implement ongoing enhancements. I really value the work that you do, but it worries me that we’re going at this in a way that — if you look at the global success rates of anywhere from 0.2% to 1.1%. It seems that the criminals are 99% successful is the way I’d look at it. If they were university students, they would be summa cum laude students. They are beating the system.
I see the changes that are being made. I worry they are terribly incremental. You talked about the ongoing enhancements, but I just think we’re starting from a base that’s so far back. The Economist had an article in April showing that the amount of money globally is $5.8 trillion per year — 6.7% of global GDP. There’s so much money being made. Have you looked at ways of absolutely turning this system on its head?
I look at Verafin in —
The Chair: Senator Deacon, we need to get to the question, I’m sorry.
Senator C. Deacon: — Senator Marshall’s area, in her province. That business was very successful in developing software to deal with this differently. Are you looking at other approaches?
The Chair: Thank you. Sorry to interrupt you.
Senator C. Deacon: I’d love each of you to answer if you could.
Mr. Brown: I’ll provide a rather high-level response. It’s a known problem. It’s an international problem in terms of the number of criminals that anti-money laundering regimes catch. I would say there is a great deterrent effect of the regime when you look at the alternative of not having these rules and reporting requirements in place. We also have to balance the requirements that are in place with the burden on both reporting entities and individual Canadians who often have to respond to questions when looking to access financial services, for example.
So we actually participate in analyzing not just domestic risks but also international discussions on international standards, for example, at the Financial Action Task Force. We look to implement — all of the international standards were reviewed by the FATF every several years. It’s an ongoing process to respond to evolving threats and emerging technology.
Senator C. Deacon: It’s still incremental, not fundamental, in terms of looking at it differently.
Do others have a suggestion or thought? I’d really appreciate it. Thank you very much, Mr. Brown.
Mr. Cohen: If I may, senator. To go back to my opening statement, I’d never call any tool a silver bullet to solving corruption or anti-money laundering, but the publicly accessible registry, while not specifically in Bill C-30, is proposed in the budget and is a game changer if done right. I think it’s very incumbent on the government to look at what peers have done, like the U.K., like what Europe is going through in rolling out AMLD V. It has acted as a deterrent in Scotland for the registration of Scottish limited partnerships, which were heavily involved in money laundering from Eastern Europe.
It can be a way to deter a lot of criminals from coming to Canada and for civil society, law enforcement, the Canadian government and other businesses to follow up with those who still want to game the system. Hopefully, if we harmonize correctly with other jurisdictions, we can rely on other financial intelligence units to help us, and we can help them in part.
I think this is a huge change along with, as Mr. Brown alluded to, the regulations that are starting next month, with even more FINTRAC-regulated organizations having to conduct beneficial-ownership due diligence. These are big, significant changes, I’d say.
Senator C. Deacon: Thank you, Mr. Cohen.
The Chair: Thank you, senator. I’m sorry to have interrupted your question.
Senator Marshall: Thank you for being here this evening. I’m very happy that you’re here, but I must say it’s been disappointing that it has taken so long. The government has made commitments as far back as 2017 to do something about money laundering, and it seems that British Columbia is the leader in the field and we’re just trying to catch up.
I’ll get right to my question. My understanding is that the beneficial-ownership registry is very central now to making inroads with regard to money laundering. The government has provided $2.1 million in the budget over a two-year period, but the date when it’s supposed to be completed is 2025.
My question is this: Is $2.1 million going to complete the registry? If not, how much is it going to cost in total?
My other question is this: Why is it taking so long? We’ve been talking about doing something with money laundering as far back as 2017. The Finance Committee in the House of Commons issued a report maybe a decade ago.
Why is it taking so long? Why do we have to wait until 2025?
Mr. Brown: Thank you. I’ll provide a high-level comment, in particular given that the bill did not contain any specific proposed legislative amendments with respect to beneficial ownership.
Senator Marshall: But money —
Mr. Brown: Yes. The budget did announce that the government is proposing to provide $2.1 million over two years to Innovation, Science and Economic Development Canada. This would be to support the implementation of a publicly accessible beneficial-ownership registry by 2025.
Those funds would go largely to the initial phase of looking into technical options. That does not preclude the possibility that more money will need to be proposed in order to have full implementation of the registry.
With respect to timing, it’s important to note that in Canada, unlike some other jurisdictions internationally, the responsibility for corporate law is a shared jurisdiction with the provinces and territories. We have been working closely with the provinces and territories, and we will continue to do so, so that any measures to strengthen beneficial ownership in Canada respect jurisdictional responsibilities for corporations. The 2025 date is based on our observations with other international jurisdictions, such as the United Kingdom, which has implemented a publicly accessible beneficial-ownership regime.
Senator Marshall: Are you saying that registry will be available for public viewing by 2025 or am I being unreasonably optimistic?
Mr. Brown: That is the commitment announced in the budget.
Senator Marshall: Okay. We won’t see it by 2025, so I’m disappointed. Thank you.
The Chair: Mr. Brown, you would obviously understand that the U.K. has had their beneficial public registry in place for about four years now.
Mr. Brown: I would have to check the dates. Apologies.
The Chair: I would suggest you check it and realize that we’ll be seven or eight years behind the U.K. Provincial and federal relationships can only go so far as a rationale for not having it in place sooner. That’s just a gratuitous comment on my part.
Senator Dagenais: My question is for Ms. Bradshaw. Ms. Bradshaw, there is a lot of talk about changes to improve the effectiveness of the RCMP in combatting money laundering and terrorist financing. If we want to talk specifically about terrorism, could you give us some examples of the additional powers you have been given? Can you tell us if you now have the same breadth of powers as police forces in allied countries?
Ms. Bradshaw: Thank you for your question. It’s important to note that I’m responsible for financial crime and cybercrime. I would be more than happy to go back to the RCMP, to my colleague in national security, get that answer for you in writing and submit it to the committee. I can speak specifically to the challenges with money laundering, proceeds of crime and cybercrime. Apologies.
Senator Dagenais: However, if we want to talk about money laundering—you say this is your speciality—since 2018, so in 2019, 2020 or 2021, has there been an increase in your staff or resources to fight crime, including money laundering, which, as far as I’m concerned, keeps increasing?
Ms. Bradshaw: Yes. The funding that was recently given to the RCMP from the federal government — $98.99 million — some of that is going toward modernizing the RCMP’s IM/IT systems, which is important so we can enter, analyze and categorize data. As you can appreciate, money laundering investigations are complex. They take a lot of time. It’s not unusual now to see terabytes of data. We need to sift through that and make sense of it, make it ready for evidence for court, and then go through the court process. Investing in those IM/IT systems is crucial.
We’ve also created IMLITs, Integrated Money Laundering Investigative Teams, in the four major divisions in the country, which will be welcoming other partners from CBSA, CRA, FAMG — Forensic Accounting Management Group and other law enforcement agencies.
We are working toward being specific and following the money. For any prioritized, large-scale investigation into organized crime and international security, there must be a component at the beginning where we have a plan as to how we’re going to follow the money, and how financial crime assets will be applied to that investigation.
The Chair: Thank you. I think those are all the questions we have for this panel. Let me ask one question for clarification.
You’re touching on a lot of subjects that I’ve thought about a great deal over the years in my own work. You might all agree with me that organized crime, money laundering and terrorist financing are committed by very rational actors. We’d like to think they are not very rational, but they’re very rational. They are also actors who I think have all the tools we have in law enforcement. They have access to many of the same tools and they don’t have to abide by the Canadian Charter of Rights and Freedoms. They don’t have to worry about any of those issues in order to commit the crimes they commit.
A number of senators have more or less addressed this issue. Do you believe that, to date, the reputation of Canada has suffered as a result of our inability with respect to active enforcement with respect to these areas of criminal activity?
I was going to ask Superintendent Bradshaw this question about IMET. It seems to me that IMET has now evolved into IM/IT, or they used other acronyms. I’m not sure about that, but I suspect that’s the case. Are you responsible for these divisions now? Were you responsible for the Integrated Market Enforcement Team? I’m quite familiar with IMET, but I’m not familiar with these. Any quick comments from any of the panellists?
Ms. Bradshaw: I can answer the last part of your question, Mr. Chair.
We have IMETs, Integrated Market Enforcement Teams. We still have those in the major divisions and we’re seeing some good success. We also now have IMLITs — Integrated Money Laundering Investigative Teams — in addition to IMETs. These IMLITs are in the major divisions. We also have financial expertise in the FSOC program — Federal Serious and Organized Crime.
The Chair: Keep the acronyms coming.
Ms. Bradshaw: We have financial crime resources in specific teams and we also have them generally. Let’s face it; with organized crime, they’re committing the crimes because there’s money involved. The end result is money. I’m sure there are other instances someone can think of, but generally it’s for money.
Money is a part of every investigation. We’re recognizing that and we’re looking for specialized skill sets to enhance our investigative capacity. We’re being creative and trying to think outside of the box in terms of how we approach those investigations and whom we bring onto the team. Also, partnering with private and public partners is key because it’s a shared responsibility. It has to be a team approach if we’re going to be successful.
The Chair: Thank you. Anything from any other panellists?
Mr. Brown, do you want to talk about Canada’s reputation with respect to white collar crime or are you happy with the content of your comments to date?
Mr. Brown: I can only respond again to that at a high level. As public servants, obviously we read the criticism. We are evaluated by a parliamentary committee and by FATF, Financial Action Task Force, every few years. There is an ongoing inquiry in British Columbia in which we have been participating, which we fully support.
In addition to that, there are many reports on various issues by various experts and stakeholders, such as Transparency International. We take all of that on board and look for ways to improve the regime. That’s why we’re here today. That’s the funding that was announced in the budget. These are the legislative measures that are proposed. All our comparator countries, when you look at how we’re reviewed [Technical difficulties], we all struggle in our individual areas. That’s not an excuse. We are all trying to do our best to keep up with those criminal actors and address the emerging risks as they arise.
Again, all I can say is the proposed amendments we are discussing today are a small part of the work that we are continuing to conduct with that goal in mind.
The Chair: Mr. Brown, we appreciate the work that you’re all doing. We recognize its importance. I’m not suggesting that you’re not doing the best you can under the circumstances. I’m hopeful that we can continue this work, and Mr. Cohen, keep pushing on that beneficial-ownership registry. It’s really important. I think public servants are well aware of that. I want to thank you all.
That concludes our witnesses for this panel. Much appreciated. Thank you for coming and sharing all this information with us this evening. Continued success and good luck to you.
We can move on to panel 2 directly. If I could get a nod from our clerk, I think we can. I see Ms. O’Brien there. We’ve seen her before. She is making a career, I think. This too will end at some point.
Before we start the second panel, I’ll say that we have a lot more individuals in these particular divisions. Let’s try and be brief and carry on with one question each. If we need to have a second round, let’s do that. We’ll obviously see how it goes.
Rather than asking for introductions of everyone, which is going to take us a long time, perhaps we may be able to just indicate, by way of the general departments, who is present. I believe we have the notice that would indicate the complete names in the notice of the meeting for today. I hope we can do that.
I’m not sure who the anchor person is going to be with respect to this. I know it will probably be someone from Finance. We do have Canada Deposit Insurance Corporation, Canadian Bankers Association, the Bank of Canada, Office of the Superintendent of Financial Institutions and the Canadian Securities Transition Office. Who is going to be the point person? No point person? I’ll become the point person then. My God, that’s risky.
Let us begin, if we could, by trying to follow a path that begins with a few opening comments. Let’s begin with Mr. Girard. Could you introduce yourself and make a few opening comments? I think you’re speaking to Divisions 1 and 5, and Mr. Moreau for Division 2. Ms. O’Brien is speaking to Division 3, Mr. Dussault for Division 4, and Ms. Wrye for Division 9. If I’ve mispronounced any names, please correct me later.
Let’s begin with Mr. Girard and hopefully, senators, you can follow the direction of how we’re going to proceed.
Jean-François Girard, Senior Director, Department of Finance Canada: Thank you, Mr. Chair. I’m Jean-François Girard, the Executive Director of the Financial Stability section of the Department of Finance.
The proposed amendment in Division 1 would support the stability of Canada’s financial system supervisions that would apply in the unlikely event that federally regulated deposit-taking institutions or financial market infrastructure were to fail. They would also apply to the supervision of payment systems.
These amendments are fairly technical and diverse, and represent targeted improvements to the existing legislation.
Starting on clause 126, the Canada Deposit Insurance Corporation Act, or CDIC Act, includes powers that impose stays — also known as suspension of proceedings — to suspend rights of certain predators to facilitate their resolution of the institution and preserve value. The proposed amendment would modify the scope of these provisions in circumstances. In particular, they would exclude sovereign entities in central banks from the state provisions of the act.
We also have provisions that would modify the power of the Canada Deposit Insurance Corporation to take control of failed smaller- or medium-member institutions to facilitate a sale by extending the time limit to complete that sale to 12 months from the current limit of 60 days.
We also have amendments to the CDIC Act and the Payment Clearing and Settlement Act to modify the compensation provisions of these acts that ensure that predators are not put in a worse position by the action of a resolution authority then under liquidation. In particular, we’re proposing to amend the appeals mechanism that is available to predators when they request a review of a decision made by the CDIC or the Bank of Canada.
Finally, we’re proposing to amend provisions of the CDIC Act to provide for an expansion of their authorities to make some payments of insured trust deposits when there are omissions or errors in the records of the failed CDIC member institution. This concludes my remarks.
The Chair: Thank you so much. We will move on to Mr. Moreau for Division 2.
Nicolas Moreau, Director General, Funds Management Division, Financial Sector Policy Branch, Department of Finance Canada: Good evening. I am Nicolas Moreau, director general of the Funds Management Division of the Financial Sector Policy Branch in the Department of Finance Canada.
I’m going to cover part 4, division 2, clauses 140 to 150. Division 2 deals with the modernization of the unclaimed assets framework and proposes legislative amendments to make the unclaimed assets program more effective and to allow Canadians to recover lost or forgotten money.
Unclaimed assets are deposits held in accounts by federal financial institutions that have been inactive for more than 10 years. At the end of a period of 10 years, the assets are transferred to the Bank of Canada, which acts as the custodian for all unclaimed assets initially held by trust companies or banks.
The proposed legislative amendments are designed to improve and expand the unclaimed assets framework. First, the Bank of Canada Act is amended to give the Bank of Canada explicit authority to publish information on unclaimed balances online. The Pension Benefits Standards Act, 1985 is also amended to provide a legislative framework for federally regulated pension plans that permit, under certain conditions, the transfer of unclaimed pension balances to a designated entity from which payment of the balances may be requested.
Finally, the Bank of Canada Act and the Trust and Loan Companies Act are amended to expand the definition of unclaimed assets to include foreign currency deposits, to require financial institutions to notify balance holders electronically, in addition to notifying them by mail, and to require financial institutions to disclose more information to the Bank of Canada, such as the social insurance number and dates of birth, to facilitate the validation of claims.
That concludes the overview of the proposed changes to the unclaimed assets program. Thank you.
Erin O’Brien, Director General, Department of Finance Canada: Thank you so much, Mr. Chair. It’s a real pleasure to be with you again this evening.
With respect to Part 4, Division 3, the Government of Canada introduced amendments to the Bank Act in 2018 to further advance consumers’ rights and interests when dealing with their banks.
The new financial consumer protection framework, which is not yet in force, is intended to protect retail consumers, including individuals and small- and medium-sized businesses. Retail consumers typically lack the resources and sophistication to negotiate with banks on an equal footing.
As such, we’re proposing a technical amendment in the Bank Act to clarify that the general statutory right to cancel a contract with a bank only applies to retail consumers, which are individuals and small- and medium-sized businesses, and excludes large businesses. Thank you.
Manuel Dussault, Senior Director, Financial Institutions Division, Department of Finance Canada: Thank you. I am Manuel Dussault, Senior Director at Finance Canada in the Framework Policy Section.
Division 4 amends the Bank Act, the Insurance Companies Act and the Trust and Loan Companies Act to extend the current sunset provisions by two years, to June 30, 2025. Canada’s federal financial institution statutes currently include sunset provisions that prohibit federally regulated financial institutions from carrying on business after June 21, 2023. These sunset provisions are an important feature of Canada’s financial sector framework.
By mandating the renewal of the legislation every five years, the sunset provisions provide an opportunity for the government and Parliament to regularly consider the framework to ensure the statutes remain up to date, are technically sound and respond to changes in emerging trends in the financial sector. Extending the current sunset dates by two years, to 2025, will enable full consideration of the impact of the pandemic on the financial sector as part of the next legislative review. Thank you.
Kathleen Wrye, Acting Director, Department of Finance Canada: Thank you. My name is Kathleen Wrye. I’m the Acting Director of the Pensions Policy Team at the Department of Finance, and I’m here to speak to Division 9 of Bill C-30, which proposes legislative amendments as part of the establishment of a revised framework for negotiated contribution pension plans that strengthens planned governance, transparency and sustainability of benefits.
Negotiated contribution pension plans are a type of defined benefit plan, where contributions are fixed by an agreement and employers are only required to contribute the amount set out in that agreement. The proposed amendments to the Pension Benefits Standards Act in support of the revised framework would establish new safeguards to uphold benefit security for these plans, through requirements for negotiated contribution plans, to establish and maintain governance and funding policies and grant new regulation-making powers to the Governor-in-Council with respect to these requirements, and with respect to amendments to negotiated contribution plans. Thank you.
The Chair: Thank you so much. We’re going to go to brief opening remarks from Ms. Walker, who is from the CDIC. Thank you.
Christa Walker, Chief Legal Officer, Corporate Secretary and General Counsel, Canada Deposit Insurance Corporation: Thank you and good evening. I’m pleased to be here to provide some details on the proposed amendments to the Canada Deposit Insurance Corporation Act.
By way of introduction, my name is Christa Walker, Chief Legal Officer at the Canada Deposit Insurance Corporation, or CDIC. Just by way of background, CDIC currently protects close to $1 trillion in deposits. This includes virtually all personal deposits of Canadians at more than 80 federal financial institutions. We are also the resolution authority for members, which means we are responsible for handling their failure in the rare event this should occur.
Regarding the amendments, I can be brief. CDIC supports the proposed measures. While they are technical in nature, they improve CDIC’s ability to protect depositors, promote financial stability and resolve troubled institutions of all sizes in Canada. I could provide more context, but perhaps I will wait to see if there are any questions.
The Chair: That’s great. Thank you, Ms. Walker. I appreciate it. Now to the Canadian Bankers Association, Mr. Hannah.
Darren Hannah, Vice-President, Canadian Bankers Association: On behalf of the Canadian Bankers Association, I’d like to thank the committee for inviting me here today to provide the CBA’s views on Divisions 1, 3 and 4 of Part 4 of the Budget Implementation Act amending the Canada Deposit Insurance Corporation Act, the Payment Clearing and Settlement Act and the Bank Act. My name is Darren Hannah, and I’m the Vice-President of Finance, Risk and Prudential Policy with the CBA.
The CBA is the voice of more than 60 domestic and foreign banks that help drive Canada’s economic growth and prosperity. We advocate for policies that ensure the strength and stability of the banking sector that allows Canadians to realize their financial aspirations. The CBA supports the measures proposed in Divisions 1, 3 and 4.
The amendments to the Canada Deposit Insurance Corporation Act are intended to facilitate the implementation of the federal government’s bank recapitalization framework — commonly known as bail-in — by providing CDIC with the authority to invoke a temporary stay of action on counterparties of eligible financial contracts should the conversion of available debt to equity inadvertently trigger default provisions in those contracts. This will allow time for the recapitalization process to do what it is intended to do, which is to recapitalize a bank and restore it to a sound financial footing by converting long-term debt holders to equity investors without impacting depositors or taxpayers.
The amendments to the Payment Clearing and Settlement Act clarify that the exchange of payment instructions is part of the clearing and settlement process. This is reflective of how modern payment systems work, where the movement of funds is often preceded by the exchange of payment instructions.
The amendments to the Bank Act clarify the government’s original intent — that the statutory right of consumers to cancel a contract is intended only for retail customers, which are individual and small- and medium-sized businesses, and excludes large businesses. Large businesses are sophisticated commercial clients that have multi-faceted banking relationships, where the terms of banking services are often involved in negotiations of contractual terms, including termination rights.
In addition, Bill C-30 proposes to extend from 2023 to 2025 the regular review of the statutory framework for federally regulated financial institutions, which includes the Bank Act, the Insurance Companies Act and the Trust and Loan Companies Act. The government’s stated purpose for this extension is to enable a full consideration of the impacts of the COVID-19 pandemic on the financial sector as part of its next legislative review, and we understand the rationale for the extension.
Regular reviews like this one are essential in ensuring that Canada continues to have a moderate and appropriate framework for financial institutions, and we look forward to engaging with officials and parliamentarians in that process. I appreciate your time, senators, and would be pleased to take your questions.
The Chair: Thank you, Mr. Hannah. Moving on to the Bank of Canada, we have Carol Brigham.
Carol Brigham, Managing Director, Banking and Payments Department, Bank of Canada: Thank you, Mr. Chair and all committee members, for the invitation to appear before you.
I am pleased to have the opportunity to represent the Bank of Canada regarding the provisions within Bill C-30 that will make changes to how we manage unclaimed balances.
By way of background, when a Canadian dollar account, deposit or negotiable instrument at a federally regulated financial institution has been inactive for 10 years and the owner cannot be contacted, it’s considered an unclaimed balance. Once a year, on December 31, unclaimed balances are transferred to the Bank of Canada. We receive, on average, about 125,000 of these per year.
At the end of 2020, approximately 2.3 million unclaimed balances worth $973 million were on the bank’s books. Last year, the bank paid out $10.6 million to balance holders. As Mr. Moreau indicated, these proposed amendments would make three important changes to the way we administer unclaimed balances, which will ultimately make it easier for Canadians to reconnect with funds they may have lost or forgotten about.
If this legislation comes into force, we look forward to working with Finance Canada and continuing consultations with key stakeholders to help develop regulations and guidance to support this new framework. Thank you.
The Chair: Thank you very much. Next is Judy Cameron from OSFI.
Judy Cameron, Senior Director, Regulatory Affairs and Strategic Policy, Office of the Superintendent of Financial Institutions Canada: Thank you for inviting me to appear this evening. I’m Judy Cameron, the Senior Director of Regulatory Affairs and Strategic Policy at the Office of the Superintendent of Financial Institutions Canada, or OSFI.
As you all know, OSFI is the prudential regulator of federal financial institutions, including Canada’s largest banks and insurance companies. We promote financial stability by regulating and supervising the solvency, liquidity, and safety and soundness of federally regulated financial entities. We exercise our regulatory function by setting rules and guidelines, and our supervisory function through assessing adherence to these rules and making sure that institutions close the gaps we identify.
OSFI also works with domestic agencies, international standard setters and other expert groups to build a resilient system in Canada that recognizes the reality of operating in a global financial system. Our role has always been to focus on how to prepare for and respond to severe scenarios, whether they affect a single financial institution or the entire financial system.
While the economic environment has been affected by COVID-19, our mandate remains an important part of contributing to confidence in Canada’s financial system. OSFI continues to monitor the economic situation, and if conditions warrant, is prepared to take appropriate actions.
The Budget Implementation Act contains a number of adjustments that recognize a changing financial sector. These are all positive steps toward the continual strengthening of the federal legislative regime. Canadians can have confidence in our financial system because it is resilient and well prepared to manage the unexpected.
I would be happy to take your questions.
The Chair: Thank you. We are concluding with the Canadian Securities Transition Office. Mr. Hyndman, please.
Douglas M. Hyndman, Chair and Chief Executive Officer, Canadian Securities Transition Office: Thank you very much, Mr. Chair, for the invitation to appear.
I’m Doug Hyndman, Chair and Chief Executive Officer of the Canadian Securities Transition Office. We’re a small federal office that’s responsible for preparing for the implementation of the proposed capital markets stability act, which is legislation that has been in the works for some time. The provision of the bill that you’re looking at today is a fairly simple one. It allows the government to provide a further $12 million to maintain the CSTO’s operations for a further two years, until June of 2023, so we can continue our work.
We provided a short brief to the committee. It explains essentially what the capital market stability act is about and what our office is working on. I’ll leave it at that and answer any questions the committee has and commend our brief to you as you consider this. Thank you.
The Chair: Thank you, Mr. Hyndman. We have the brief, and it’s helpful to understand the roles and responsibilities that you have with respect to the capital markets stability act.
Senator Wallin: Thank you very much to all of you.
I will start from the point that the whole reason we have this legislation is to clarify what’s going on in a changing industry, as you have noted, hopefully to strengthen the regime. I have a question, and I don’t know who out of the grand list we have it should go to. Perhaps the Bank of Canada or Finance as well.
My question is about Payments Canada and where this fits into the scheme of things and where it came from. We’ve been following this now for some months.
The importance of strengthening the financial regimes is to have some accountability. As far as I can tell, Payments Canada doesn’t report to Parliament. It seems to be pretty much a co-op run by the banks. It’s not very transparent. Could someone answer that question on Payments Canada for me?
Ms. O’Brien: Thank you for the question, senator. I’m not sure if I fully understand the objective behind your question, so let me know if I don’t hit the mark.
Payments Canada is a public-purpose organization that is set up in legislation. I was speaking with a committee last week in terms of the retail payments oversight framework that exists in Division 8, and there are implications for Payments Canada in that division.
There aren’t any implications for Payments Canada in the divisions put forward this evening. Is there a particular issue or a linkage that you would like us to explore further?
Senator Wallin: I’m trying to get at this question because we saw it in the last section and this one too. We’re trying to do some fixes in the legislation that exists, to make it more effective, but also to make it more transparent, especially in this particular sector. I’m trying to understand where it fits into the scheme of things here because it doesn’t report to anyone as far as I can see.
Ms. O’Brien: The amendments that we’re considering this evening are making some technical amendments to the Payment Clearing and Settlement Act. They don’t specifically address Payments Canada.
Senator Wallin: That was my point, that it probably should.
Ms. O’Brien: Payments Canada, as I have mentioned, is a public-purpose organization, and they own and operate Canada’s core clearing and settlement infrastructure, notably the large-value transfer system that the banks use on a daily basis to clear and settle all of the transactions over the course of a day. They also run the ACSS system and will be developing a new retail payment system as well, called the Real-Time Rail.
It plays an extremely important function in terms of the ownership and operation of these systems, but the amendments that we are making to the Payment Clearing and Settlement Act are technical amendments, as my colleague Jean-François mentioned, to help in terms of resolution of banks. The other amendment to the Payment Clearing and Settlement Act is to clarify the definition of “clearing” and “settlement” in the act, to ensure that we can cover payment exchange services within the scope of the act.
Senator Wallin: So we can put it on the list of things that need to be addressed, because this is a question that a lot of us have about how this organization functions. Thank you.
Ms. O’Brien: Thank you.
Senator Smith: Finance and the Canadian Bankers Association; you talked about the scale of the unclaimed assets in the banks and gave us some numbers. Why is there such an amount of money in the banks that’s inactive? Could somebody help me out? What happens? Is it people dying? Is money transferred and people don’t realize what’s going on? It’s a significant amount of money.
Publishing balance amounts, increasing the number of claims on the assets; will that help out if you start taking more proactive measures to publish balances that are inactive? Will that help solve the problem of unclaimed money and the number of accounts that are inactive?
Mr. Moreau: Thank you for your question. If I could start, and my colleague from the Bank of Canada can add to it.
Why do we see such a large number of accounts unclaimed and such a large amount of money being transferred to the Bank of Canada? Clearly it’s because people are simply forgetting about some of their bank accounts that they have with their financial institutions. My colleague from the Bank of Canada will be able to tell you the average value of those accounts, but usually they are small. Those are small accounts that people have forgotten about.
The problem is the lack of information that the financial institution will transfer to the Bank of Canada after a period of 10 years. Just by informing the Bank of Canada of the last transaction that happened, the last place where the transaction happened and the name of the owner is not sufficient. That’s why we want to add more information that will be transferred to the Bank of Canada, in order to increase the likelihood that someone who forgot about an account could be reached.
By having the social insurance number and the date of birth, it will also facilitate the job of the Bank of Canada to find out who those owners are and make sure they will be able to get their money.
Ms. Brigham: I completely agree. I think these are people broadly who have forgotten about their accounts.
Over 90% of these accounts are less than $1,000, which represents about 75% of the dollar amount of the outstanding. This is broadly people who have been lost or forgotten. For those that don’t know, there is a list on the Bank of Canada website. You can go on and check whether or not you have unclaimed balances.
Senator Smith: What about the administrative costs? It’s a small amount; you said $1,000 average. Was it $900 million? There’s a substantial amount of money. What type of administrative burden does that put on the banks or the Bank of Canada to track all of this? This seems to be something that could potentially be a pain.
Ms. Brigham: Once a year, the federally regulated financial institutions send us the detailed information of the individuals and, currently, a limited amount of information along with that. We have a system with a small team of people who track that. Then individuals submit information to reclaim those balances. We process them. As Mr. Moreau said, if we had additional information, such as a social insurance number or date of birth, it would make it much more efficient for us to be able to match those claims with the individuals.
Senator Smith: Isn’t it a prerequisite that you give some form of information, i.e., not only your name and address but what your birthday is? As a client of a bank, I find it sort of odd that the bank wouldn’t have this type of information available so that they could manage or at least be more aware of who the person is with this inactive account and why it is inactive. It sounds odd that they wouldn’t have this information.
Ms. Brigham: Thank you for that question. That’s exactly right. The financial institutions do have that information, but the legislation currently indicates that a more limited amount of information needs to be sent to the Bank of Canada along with the funds.
We have their address, the last time they used it and the bank account number. Sometimes people have moved on, 10 years later, and they don’t necessarily have confirmation that we can validate that it was an accurate address. If that information — social insurance number, date of birth — was sent from the financial institution to the Bank of Canada, then we could keep it on our system, and we would be able to validate that much more quickly.
Senator Smith: Thank you, Ms. Brigham.
Senator Klyne: I have a question for Mr. Hyndman. Budget 2021 proposes to provide the Canadian Securities Transition Office with $12 million, as you referenced in your opening remarks, and that’s over two years. As I understand it, the funds are to be used to support federal efforts to establish a cooperative capital markets regulatory system, which is a cooperative regulatory framework that aims to replace the regional securities regulatory regimes with a single harmonized regime across participating jurisdictions.
Bill C-30 also aligns in Part 4, Division 5, clause 158, that the minister is permitted to make direct payments in an aggregate amount not exceeding $119.5 million to the CSTO office. Please share with the committee a high level overview as to how that unified national securities regulator would strengthen and bolster the integrity of Canada’s markets. Also, are there other international examples among the Commonwealth countries that have implemented a similar approach?
While I can think of many advantages to having a national security regulator, Confederation permits provinces and territories the ability to make their own. How much control will individual provinces or territories retain over their securities regulations if they decide not to join or no longer wish to be a member of the federally governed system? If deemed advisable, will they able to revert to a single regional system after having joined the proposed national system?
Mr. Hyndman: Senator, thank you very much for your question. I will say that most of what the CSTO is working on is not the cooperative system but the federal element of the cooperative system, which is the capital markets stability act.
To answer your questions about the cooperative system, it is, I would say, primarily an initiative of the participating provinces, which the federal government has been supporting and contributing funding to, but it is very much a provincially driven effort; provinces developing common legislation. It’s a voluntary system. Some have joined and some have not. The agreement allows provinces to withdraw if they so choose.
That’s what the cooperative system is about, and as you probably know, it is behind schedule and has been slowed down by a number of factors, including COVID in the last year. Also, the development of the legislation by the provinces has taken much longer than they had originally anticipated.
The Chair: Mr. Hyndman, you’re being rather gentle in your comment. I’ll leave that for another discussion.
Mr. Hyndman: I’ll leave that to you.
Senator Klyne: However, I do want to know what the $119 million is earmarked for.
Mr. Hyndman: The $119 million is a cumulative amount dating back to 2009. So the bill is changing the number of 107, which has been provided to us up to a couple of years ago, and a further $12 million to keep us going for two more years.
I will say that the work we will be doing over the next two years is almost entirely focused on developing capabilities to administer the capital markets stability act, which is the federal element of the cooperative system. Obviously, decisions are yet to be made about how that would be implemented and when.
Senator Klyne: Will this somehow strengthen and bolster the integrity of Canada’s markets?
Mr. Hyndman: For sure: the stability, the integrity. We’ve been through, of course, the global financial crisis in 2008, and last year in March there was a lot of turmoil in the markets. We just need a lot more data to understand what’s going on in critical parts of the markets, and the capacity to intervene in a regulatory way at a high level.
Senator Klyne: Does OSFI provide some oversight there too?
Mr. Hyndman: OSFI’s responsibility is the financial institutions. I will let OSFI speak for themselves, but they are institutions. This is the market. One of the things that has happened over the years is more financing activity has moved into markets and out of institutions, partly in response to regulations that have tightened capital requirements for institutions. We just need better capability at a national level to monitor and mitigate any risks that arise in that sector.
The Chair: Thank you.
Senator Loffreda: Welcome to all our panellists. My question is on Division 9, Pension Benefits Standards Act. Given our demographics and aging population, the solvency of our pension plans must be properly monitored, as we all know. Are negotiated contribution plans exempt from solvency funding requirements? What are the measures to ensure the defined benefits under these plans are adequately funded?
Ms. Wrye: Thank you for your question. At this time, negotiated contribution pension plans are subject to solvency funding requirements. What typically happens in these instances, though, since contributions are fixed for these types of plans is if a plan finds itself in a solvency deficit, they typically have to move to reduce benefits in order to resolve the situation.
As part of the proposed framework for these plans that the government put forward in a consultation paper last year, the removal of solvency funding requirements is part of that, in order to help these plans provide more sustainable benefits without having to move to benefit reductions while plans are ongoing.
Those elements of the framework will be done through regulations. Our act has an enabling provision to do funding requirements, but some of the safeguards that are being proposed in the absence of solvency funding are in the legislation, and that is the requirement for these plans to have governance and funding policies that would set out: how the plans will be administered; an increased transparency for members and retirees about the risks the plan is taking; how benefits might be adjusted; and clear paths to resolve any issues.
The upcoming and proposed regulatory amendments with respect to funding requirements also look to provide some enhanced funding on the other side, on the going-concern basis. That’s the funding that assumes the plan is ongoing, looking to do funding buffers in order to enhance the funding requirements in that way, as well and ensure sustainability of benefits for these plans.
Senator Bellemare: My question will be horizontal. Basically, we are studying several elements that should be studied in depth, and we don’t necessarily all have sufficient knowledge to fully appreciate the merits of what is being proposed.
There’s a catch to my question, but I’m going to ask it anyway. It’s for the Finance Canada officials in particular.
Our role when we look at legislation is to ensure that it is constitutional, of course, but also that there are no groups or provinces that are adversely affected by certain provisions. I heard what each of you said. Some of you talked more about securities. We know there are provinces that are touchy about this.
My question is this. To the Department of Finance officials, but to all the witnesses as well, are you aware of any strong criticisms of any of the provisions of the bill that we’re currently studying?
Mr. Moreau: I have nothing negative to report on my side. I can only speak to unclaimed assets. There was consultation before changes were made. All consumer groups were consulted. As mentioned, we are only making positive changes. We want to make sure that people are able to access the funds that are rightfully theirs. After all, it is their money that was forgotten. From our side, it’s all positive. There were no negative comments.
Senator Bellemare: With respect to the proposed changes to division 9 regarding pensions, are there any criticisms or concerns from the unions, for instance, or from businesses in particular?
Ms. Wrye: Thank you, senator, for the question. We did consult on the proposed changes to this revised framework for negotiated contribution plans. We consulted with all of the plans involved. There are about 14 in Canada. We also consulted with labour, with pensioners and with industry experts. In general I can say there was broad support in our consultations for the changes that we’re proposing.
The most feedback that we got was with respect to funding requirements. We did not get any negative feedback regarding the removal of solvency funding, but we did get quite a few comments about what we should do to enhance, on the other side, the going-concern funding. Since that part of the framework will be done through regulatory amendment, we will be consulting further on our proposed changes and so we’ll have a chance to hear more feedback on that.
Senator Bellemare: Mr. Hyndman, with respect to division 5, is there any animosity on the part of the provinces about what the federal Department of Finance is undertaking, or has the future co-operative system been accepted?
Mr. Hyndman: On the cooperative system, there are obviously different views among different provinces, senator, as I’m sure you know. With respect to what the CSTO is working on right now — the capital markets stability act — we haven’t heard much from provinces lately. There was a court decision a few years ago that somewhat clarified jurisdiction in this area and we’ve been continuing to work. We would look forward to working closely with the provinces to make sure that it’s implemented in a way that’s cooperative — cooperative in a different sense of the word — and consultative and coordinated with provincial regulators. Certainly we haven’t had any negative feedback to date.
Senator Bellemare: Thank you.
Senator C. Deacon: My first question is to Mr. Hannah and Ms. O’Brien.
I wonder again about Division 3. You and I both know there are challenges in bringing new legislation to the table and getting it enacted. It can be a long process. This seems to be a simple element that relates to basic customer service in many ways. Why are we three years in, and probably a couple of years before this in drafting, to get something as simple as this enacted and coming into force?
Ms. O’Brien: Thank you very much. Yes, it is complex and I think, sadly, things often take more time than we would like. As I mentioned, we had made initial amendments to the Bank Act back in 2018 and we have developed a financial consumer protection framework. It is yet to come into force, although we’re hopeful that it will do so shortly.
We’re proposing this amendment now simply because, as we went back and looked at the provisions, in this particular area the drafting wasn’t as clear as we thought it should be. The Budget Implementation Act provides us with an opportunity to clarify this particular element.
Senator C. Deacon: Tidy up something that was not as well drafted as perhaps it could have been?
Ms. O’Brien: That’s exactly it, and before it comes into force, instead of trying to address it at some point down the road.
Senator C. Deacon: Thank you.
Mr. Hyndman, I laud your efforts to try and get cooperation in our capital markets in Canada. I know that’s probably been going on for 100 years, so you’re not the first one to struggle with the issue.
What are the conditions for success or milestones or points that you would see in the next two years that would really make you say this has been a worthwhile effort so far, and that maybe we’re starting to build some momentum on this really important topic?
Mr. Hyndman: Thank you, senator, for the question. Based on what we’re currently focused on, which is the systemic risk element — capital markets stability act — obviously we’d like to see that move forward, but that’s a matter for the government to decide how and when to do that. However, we are continuing to work as an office to identify what data is potentially available and where the big data gaps are that we face in understanding the mechanics of Canada’s capital markets.
I would like to see us move forward and fill those gaps and continue to develop methodologies for identifying risks, for assessing how much of a threat they present to the Canadian capital markets and the economy, and devising consultative and coordinated responses by all manner of regulators to address those risks before they blow up in our faces.
Senator C. Deacon: Have you considered working with private sector entities to help you in the analysis? There are clearly some tremendous opportunities in data analysis available through third parties. Regulation is quite often not including private sector entities or gov tech or reg tech-type approaches. Has that been a consideration at all? Because it seems like a prime opportunity for that sort of an approach.
Mr. Hyndman: Absolutely. In fact, at our current stage, we don’t have any statutory powers to get data anywhere else, so we have been using commercially provided data and working with the providers. We’ve had good cooperation from them to develop new data streams that we have found useful. They find them useful themselves for commercial reasons, but it assists us in analyzing benchmarks or investment funds, those kinds of things. There’s a lot available commercially, a lot of analytic capability that certainly we wouldn’t be able to do in-house. That’s an important part of the project going forward too.
Senator C. Deacon: Thank you for your creativity and perseverance, too. Thank you, chair.
Senator Ringuette: Thank you, Mr. Hyndman, for being here. Actually, this budget has $12 million per year, so $24 million, that will bring it up to 119 over a span of 14 years to exercise a transition from the current provincial security market to a cooperative system; an opting in.
I’m certainly not a guru on the stock markets. However, it’s difficult for me that you have three provinces, as of yet, which do not want to participate in this cooperative. They have their systems already. They have their systems of systemic risk analysis and so forth, to a certain level of their market exposure.
I’m really puzzled. Why 14 years to build up a transition system? Because that’s your mandate, and to advise Finance Canada. That’s a lot of time. Yes, there’s a lot of money, but I’m looking at the time spent here. Why? What am I not understanding about what is necessary to finally achieve this transition?
Mr. Hyndman: Thank you for that question, senator. Let me clarify, first of all, it’s $12 million over two years. So it’s $6 million a year to keep our office going for another two years.
Senator Ringuette: My understanding — and please correct me if I am wrong — is that you were at $96,100,000, and this brings you to $119,500,000. That is $24 million over two years.
Mr. Hyndman: The 96 was raised to 107 a few years ago; I’ve forgotten the exact date. It’s currently 107.5 which the government has paid out. I can address what that has been spent on. Do you not want me to get into that, Mr. Chair?
The Chair: It’s fine. It’s important to clarify it, but I think we understand where you’re going. Go ahead, please.
Mr. Hyndman: This has been going since the middle of 2009. The project has been through a series of phases. Initially, it was a federally driven proposal which the Supreme Court found to be beyond federal jurisdiction. Then the cooperative system began in 2013. That is very much driven by the provinces, although the federal government has provided funding for the administration of the work.
As of now, we are spending our money on developing the capability to do systemic risk, data collection and so forth, which are the areas that the court identified as being clear federal jurisdiction under the general trade power. If the cooperative system were to go ahead, that would be the federal component of the cooperative system, but it’s something that we’re working on as an independent priority at the federal level. You’re right; the provinces do look at systemic risk issues, but they can only look at it within their provincial markets. We are looking at systemic risk from a national perspective, which is more than just sort of adding up the individual perspectives of the provinces.
Regarding the time it takes, I couldn’t agree with you more. It has obviously taken a lot more time than we would have liked. The previous question also dealt with why these things take so long. It’s one of the challenges of public administration, I guess. Certainly, we are well advanced. We hope we can get this moving forward as soon as possible.
The Chair: In full disclosure, senator, I worked very closely with Mr. Hyndman and enjoyed every bit of that when I was working in the securities sector. He may not have the same views about my working with him, but nevertheless, in 2016 we saw the first draft of this bill. It’s now 2021, and Mr. Hyndman is still working on it. Go ahead.
Senator Ringuette: I certainly would like to see the latest draft of the proposed bill. That being said, a quick question: Did you indicate that the provinces were also participating in the financing of your group?
Mr. Hyndman: No.
Senator Ringuette: No, they are not? This is solely federal funds?
Mr. Hyndman: That’s correct.
Senator Ringuette: So what are the provinces doing?
Mr. Hyndman: They are developing the legislation for the cooperative system. That’s being done by staff of the provincial governments. They were working with the Capital Markets Authority Implementation Organization, which recently suspended its operations because it got too far ahead of the legislation. The provinces are working on provincial aspects of the cooperative system. Our office is primarily working on the federal aspects.
Senator Ringuette: This has been going on for 12 years?
Mr. Hyndman: This part, the cooperative system part, has been going on for eight years, let’s say.
Senator Klyne: I have a question for the Bank of Canada. This is in reference to Part 4, Division 8, creating the Retail Payment Activities Act , which will be overseen by the Bank of Canada — a new role and responsibilities and authority in monitoring compliance of operational financial requirements, in addition to maintaining the registry of the payment service providers who operate fintech and digital wallet services.
Currently, many mainstream organizations, such as Google, Apple and Venmo, use digital wallets and crypto-currency exchange technologies to partner with major Canadian banks, providing Canadians access to some form of digital wallet. How will the proposed changes provide government the tools to create a stringent and accountable regulatory environment while maintaining enough freedom for those developing the technology to continue to innovate? Since these are new responsibilities for the Bank of Canada, what are the estimated timelines and resources to get up and running if Bill C-30 becomes law?
Ms. Brigham: Thank you for that question.
The Chair: You have two minutes, Ms. Brigham.
Ms. Brigham: My understanding is that one of my colleagues, Mr. Morrow, will be presenting at the committee. That’s a different division from the area I am in. I will defer to his testimony at another time. Thank you.
Mr. Moreau: I’m sorry, maybe you want someone from — Erin can save my life again so I’m going to turn to her.
Ms. O’Brien: The retail payment activities act — you are right — has indicated that the Bank of Canada will be the regulator. The intention is to develop regulations, and we will be doing so in cooperation with the Bank of Canada and, clearly, provincial and territorial stakeholders as well as industry, over probably the next couple of years to stand up the oversight framework.
We are working closely with the Bank of Canada and will ensure a principle of proportionality as we develop the regulations and oversight framework to ensure that important principles such as innovation and competition can continue to flourish in the retail payment space. So we’re very cognizant of the importance of that going forward.
I hope that that answers your question. I was trying to be respectful of time.
The Chair: I’m not going to ask you to do this, Ms. O’Brien, but if you feel there is information you can provide to the Senate in writing, you can provide it to the clerk if you feel it would be helpful. I’m not suggesting you need to do that, but Senator Klyne might appreciate that.
Senator Klyne: I would, and if Mr. Hannah has something to offer on that, I would accept that as well. Thank you.
The Chair: It does not need to be a treatise, although Senator Klyne might wish that. But thank you so much.
I want to thank all of the panellists for coming this evening and sharing this information with us. We are at the end of our meeting time. We must finish on time. I want to thank you all very much, and I want to thank my colleagues in the Senate for the questions they asked and the information we were able to gain from our evening sitting. Thank you very much once again and I’ll wish you all good night. We are adjourned until our next meeting.