THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, May 22, 2024
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:15 p.m. [ET] to study the subject matter of those elements contained in Divisions 11, 13, 16, 17, 18, 19, 20, 33, 41 and 42 of Part 4, and in Subdivision A of Division 34 of Part 4 of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024.
Senator Tony Loffreda (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: Hello, everyone, and welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy.
[English]
My name is Tony Loffreda, and I am the deputy chair of this committee.
Before we begin, I would like to ask all senators and other in-person participants to consult the cards on the table for guidelines to prevent audio feedback incidents. Please take note of the following preventive measures in place to protect the health and safety of all participants, including the interpreters.
If possible, ensure that you are seated in a manner that increases the distance between microphones. Only use a black, approved earpiece. The former grey earpieces must no longer be used. Keep your earpiece away from all microphones at all times. When you are not using your earpiece, please place it face down on the sticker placed on the table for this purpose. We do have a sticker here, face down. Thank you all for your cooperation.
Now, I wish to invite committee members participating in today’s meeting to introduce themselves.
[Translation]
Senator Gignac: Clément Gignac from Quebec.
Senator Bellemare: Diane Bellemare from Quebec.
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
[English]
Senator Yussuff: Hassan Yussuff, Ontario.
Senator Varone: Toni Varone, Ontario.
Senator Massicotte: Paul Massicotte, Quebec.
Senator Ross: Krista Ross, New Brunswick.
Senator Martin: Yonah Martin, British Columbia.
The Deputy Chair: Welcome to all our witnesses. Today, we’ll begin our examination of the subject matter of those elements contained in Divisions 11, 13, 16, 17, 18, 19, 20, 33, 41 and 42 of Part 4, and in Subdivision A of Division 34 of Part 4 of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024.
Before introducing the first witnesses who will be appearing before us, I’d like to give a brief overview of meeting today.
In order to get a brief overview of each division which was referred to the committee, we will ask the officials to come forward to the witness table, give a brief two-minute explanation of the division, and we will move to questions from senators on that specific division.
We will spend approximately 10 minutes on each division — a brief interview of 2 minutes and 10 minutes on each division. At the end of the meeting, should time permit — and we did calculate we should have 10 minutes at the end of the meeting — I will open the floor to questions for all divisions presented today. At that point, senators can ask their questions, and the officials responsible for the affected division will come up to the table to answer.
We welcome to our meeting officials from the Department of Finance Canada, the Department of Justice Canada, the Bank of Canada, and the Financial Transactions and Report Analysis Centre of Canada, who are in the room with us. We also welcome a representative from the Office of the Superintendent of Financial Institutions joining us virtually.
I would like to ask that the witnesses introduce themselves and their departments before speaking for the first time. We will now begin with Division 11, Part 4. This division amends the Financial Administration Act to require certain banks and other financial institutions to disclose prescribed information for federal payments accepted for deposit.
[Translation]
The floor is yours, Mr. Marion.
Nicolas Marion, Senior Director, Payments Policy, Department of Finance Canada: My name is Nicolas Marion and I’m Senior Director, Payments Policy at the Department of Finance Canada.
[English]
I will be speaking to Part 4, Division 11, page 509 of the bill.
This measure, which comprises amendments to the Financial Administration Act, would provide regulation making authority for the government to prescribe requirements for labelling government direct deposit payments by banks and other financial institutions in customers’ account statements and online banking records.
[Translation]
Consistent and accurate labelling of government direct deposit payments in account statements and online banking records would enable Canadians to better identify and understand the various types of benefits and payments they receive.
Thank you.
The Deputy Chair: Thank you, Mr. Marion.
We will now go to questions. Are there any questions for Mr. Marion on Division 11?
Senator Miville-Dechêne: If I understand correctly, the purpose of this is to help Canadians better understand who in the government is sending them the cheque. Is that correct?
Mr. Marion: It’s more about the nature of the benefit or payment they are receiving. So, the government sends out various payments, including tax refunds and so on.
Senator Miville-Dechêne: Right now, there’s no code and everything comes out of the same pocket. How will this differ from the current situation? Explain to me what the status quo would be, and just tell me what will be best from a consumer’s or Canadian’s point of view.
Mr. Marion: Right now, there is no regulatory authority requiring financial institutions to use certain labelling terms for these payments within bank statements.
That said, certain terms are provided to financial institutions for these payments, but it’s really up to the financial institutions to decide whether they want to use them or not.
Senator Miville-Dechêne: Will it be a term or a series of numbers, 3, 4, 5, for example, that won’t mean anything?
Mr. Marion: No, they are terms as such.
Senator Miville-Dechêne: Terms that mean something. Give me an example.
Mr. Marion: For a tax refund from the Government of Canada, for example, or a carbon rebate — something along those lines for those payments.
Senator Miville-Dechêne: Thank you.
The Deputy Chair: Thank you.
[English]
Senator Martin: Media reports indicate that the Minister of Environment and Climate Change has been unsuccessful battling with banks for almost two years now over how carbon rebates are labelled when they are deposited directly into a bank account, kind of along the lines of what Senator Miville-Dechêne was asking. The banks have been requested to make these changes voluntarily, but have refused?
Mr. Marion: I will take a step back and say that right now there’s no obligation for a financial institution and the labels that they use in their customer statements. The approach by financial institutions is quite heterogenous. Some use long labels that are very much in line with the standards, some use abbreviated labels, and some do not use any informative labels for different types of government payments. With this provision, it will provide regulation-making authority enabling the government to set those labels in the regulations.
Senator Martin: Have they indicated a reason for not labelling? Are there issues on their end about providing the labelling? I know the legislation will require it, but at this point have they identified issues with doing that?
Mr. Marion: Some financial institutions have indicated that updating their system would be a fairly significant challenge for them and the testing involved around that. Some financial institutions also have character limits in terms of what they can inscribe in online customer banking statements.
Having said that, the vast majority of financial institutions see the value of providing informative labels for their customers.
Senator Martin: It seems maybe a political will on the government’s part to be recognized for providing this money. Why does the government want to do this?
Mr. Marion: I think it’s to the benefit of all Canadians when they receive a benefit payment or other payment, such as a return on income tax, to know what that number in their customer statement represents. Since consumers receive a number of payments from the government, I think clarifying what that payment is associated with is helpful for transparency and for all Canadians.
Senator Martin: It seems to be the government’s objective as well; they want the credit.
Senator Yussuff: Thank you for being here. I do believe that if they’re getting a deposit from the government, Canadians have a right to know what that deposit is. They’re not Santa Claus. At the end of the day, you’re giving somebody money. I think it’s fair.
My mother is now 100, and she often gets deposits into her bank account from the Government of Canada. Most often she asks me, “Do you know what that is about?” I don’t get the deposit, so I have to figure out why she got that deposit in her bank account so I can explain to her what it is. I find it’s very unfortunate that you had to go through the scores to get the banks to respond to something, but I think it’s only fair, because not all Canadians have the same ability to go on the internet to find out.
Will the information that the government provides to Canadians that have an account be clear enough so they can understand that information when they get it? It wouldn’t be a code, would it? It would say, “This payment is for that purpose,” in that form?
Mr. Marion: To be clear, the provision before the committee today is the regulation-making authority. The requirement would have to be set out in the regulations. In terms of the objective here, it’s to make the label user-friendly and easy to understand for Canadians.
Senator Yussuff: Thank you.
[Translation]
Senator Bellemare: I have a general question before I look at this particular point. In 2016, the federal government tried to enact provisions for financial institutions to protect consumers, and I know Quebec had major problems with that.
Do all the provisions you’re going to present to us include points detailing the provisions planned in 2016, which are being presented in a different form today?
Mr. Marion: Thank you for your question. I don’t believe the legislative amendments in Division 11 were part of the 2016 provisions on consumer protection.
Senator Bellemare: So, yes — Division 16, for example.
Are credit unions and corporate movements subject to this Division 11 provision?
Mr. Marion: It’s a general provision, but at the same time it allows certain institutions to be targeted and others to be left out, that is to say any institution that receives payments made to Canadians will potentially be subject to a regulation.
That said, the regulation could exempt credit unions, among others.
Senator Bellemare: Thank you.
Senator Massicotte: Yes, I know time is very limited. Therefore, I’m going to yield my time to Senator Gignac, because he has an excellent question.
Senator Gignac: Good afternoon, Mr. Marion. I’d like to follow on from my colleague’s questions, but we don’t know whether you’re going to impose certain measures on Desjardins or not, because the regulations will decide that. Your answer was neither clear nor convincing when you were asked whether you would have the authority to impose a carbon tax rebate, for example, on a financial institution that falls under Quebec’s jurisdiction.
Mr. Marion: The Financial Administration Act already has provisions covering financial institutions that receive payments from the government and then remit them to their customers. At this time, there are provisions that apply to all financial institutions receiving government payments.
That said, this legislative amendment would set out obligations for all financial institutions that receive payments for their customers from the government.
Senator Gignac: You mentioned that some banks may face certain IT limitations. When will these provisions come into force? Will financial institutions be given a 12-month grace period?
Mr. Marion: Again, we’re talking about regulation-making authority. However, the regulations have yet to be developed. That will come.
Senator Gignac: Thank you.
The Deputy Chair: Thank you, Mr. Marion.
[English]
We will now move to Division 13 of Part 4, which:
. . . amends the Pension Benefits Standards Act, 1985 to require that the Superintendent of Financial Institutions publish certain information relating to pension plan investments. It also amends the Pooled Registered Pension Plans Act to require that plan administrators provide specified information by written notice to certain persons when they become members of a pooled registered pension plan.
Welcome, Ms. Erin Hunt, the floor is yours. A brief summary, so we open it up for questions. We are very pressed for time and we’d like to cover all the divisions, and I’d rather prefer the questions.
Erin Hunt, Director General, Financial Crimes and Security Division, Department of Finance Canada: Wonderful. Thank you very much. My name is Erin Hunt. I’m the Director General of Financial Crimes and Security at the Department of Finance. It will be my pleasure to give you a very brief summary of these provisions.
Part 4 of Division 13 proposes to amend the Pension Benefits Standards Act, 1985 to enable and require that the Superintendent of Financial Institutions publish information related to the investments of certain federally regulated pension plans. This proposal was first announced in the 2023 Fall Economic Statement, and is intended to improve the transparency of investments of large federally regulated pension plans.
It also proposes to amend the Pooled Registered Pension Plans Act to ensure that all members of a pooled registered pension plan receive information regarding the plan when they join it. Currently, under that act, members of a pooled registered pension plan enrolled in the plan by their employer are entitled to receive information about the plan. Individuals who join the plan in any other way, for example, are self-employed, are not currently covered by this provision. The proposed amendment would address this gap and ensure that all members receive information necessary when they become a member of the plan. Thank you.
The Deputy Chair: Thank you.
Senator Yussuff: Very quickly, could you tell me how many workers are registered currently under pooled pension plans?
Christian Cioffi, Analyst, Pensions Policy, Department of Finance Canada: I can respond to that. My name is Christian Cioffi. I’m an analyst with the pensions policy team at the Department of Finance. We can get back to you, senator, on the specific numbers. What I can say is that there are only a handful of pooled registered pension plans that are federally regulated. There is a similar product that has been introduced in Quebec, but federally speaking, there are only a handful. I’m not 100% sure exactly what the numbers are, but we can get back to you if needed.
Senator Yussuff: The last time I checked, when I was in a different job, there was none, so I’m trying to understand if there are any today.
Mr. Cioffi: There are a few today, but uptake has still been somewhat limited.
The Deputy Chair: Would pension plans be required to disclose performance measures with respect to investment types and jurisdictions?
Ms. Hunt: Thank you for the question. The government, in the 2023 Fall Economic Statement — sorry, they’re getting a little bit blended together here — announced that they would require certain types of information, in particular related to the jurisdiction in which pension plans are invested, and the asset class by jurisdiction, to provide more clarity and transparency to Canadians about where their pension assets are being invested and in what types of investments.
[Translation]
Senator Bellemare: Does that mean that pension plans could be assessed for impact on net-zero targets in the future? Does that have any bearing on that issue?
Ms. Hunt: That’s an excellent question and I will answer it a little differently. We want to promote greater transparency and better efforts to inform with respect to our pension plan investments. We’re also looking at a number of other measures in terms of how pension plans make decisions. For example, we’re looking at how they integrate environmental, social and governance considerations into their decisions.
I feel these measures complement other measures to advance transparency and decision-making in our federal pension plans.
Senator Gignac: First, I’d like to commend you for adding this division, because over 100% of our GDP goes into pension fund assets. I myself had asked the government why it’s so hard to find out how much our pension funds invest in China or Korea. That data is often aggregated and we’re unable to find out.
This applies to the Public Service Pension Plan, because it’s a federal pension fund. The Canada Pension Plan Investment Board would be subject to it, but it wouldn’t apply to OMERS or other plans. Have you spoken to the provinces about following suit so that we can get an overall picture of our pension fund investments and compare them?
Ms. Hunt: That’s an excellent question. Thank you for asking it. You are right that this proposal targets federal pension plans, not provincial ones. The latter are very important for investors in Canada. The government has asked the provinces to commit to the transparency measures presented in the budget. We’re committed to talking with the pension plans to see if we can achieve a similar level of transparency within Canada, in comparison.
We will include the details in regulations after these amendments to the law are completed. We will then be able to move forward with negotiations and discussions with our provincial and territorial colleagues.
Senator Gignac: I know the regulations will follow. However, are we going to go far enough, and not just by asset class per country? Some pension plans use leverage. We’ve seen that cause problems in certain countries due to sudden interest rate hikes. Can we expect to see that sort of thing in the regulations, or are you currently considering how far you intend to go?
Ms. Hunt: We are considering that. That’s why we’re following this process through regulations, not legislation. That way, we’ll be able to hold discussions with those involved to obtain more details and information on how the plans operate and how they deal with their investments and certain information that could be beneficial to those collecting pensions in Canada, to ensure greater transparency.
Senator Miville-Dechêne: Briefly, I want to make sure I’ve got this right. My question follows on from Senator Gignac’s. Do people know what countries pension plans invest in? Are workers informed of the percentage and the countries where investments are made?
I worked on Bill S-211 to fight modern slavery, and it became law. Is the treatment of workers in countries where plans invest part of the data passed on to investors and pensioners?
Ms. Hunt: Thank you for the question. I will answer the first part of your question and our colleagues from the Office of the Superintendent of Financial Institutions, or OSFI, can answer the second part.
Amending the law will allow the OSFI to provide information to the public. Currently, the information the OSFI receives is used to ensure that pension plans are operating well, and that they are thorough in how they invest under the OSFI’s mandate. These amendments are intended to enable the OSFI to bring forward some of this information. Details will follow in the regulations with respect to jurisdictional terms — how they will be defined, asset types and the rest.
With regard to the issues surrounding slavery, I’d like to consult our colleagues at the OSFI, since they are closer to that subject in terms of knowing the type of information collected from pensions plans.
Senator Miville-Dechêne: Thank you.
The Deputy Chair: That’s an excellent question. Thank you.
[English]
We go on to Division 16 of Part 4 which:
. . . enacts the Consumer-Driven Banking Act which establishes a consumer-driven framework for individuals and small businesses to safely and securely share their data with the participating entities of their choice.
It also makes related amendments to the Financial Consumer Agency of Canada Act to establish the positions of Senior Deputy Commissioner for Consumer-Driven Banking who is responsible for consumer-driven banking matters and to provide for, among other things, the supervision of participating entities.
Ms. Judith Hamel, you have the floor.
[Translation]
You have about two minutes left before we go to questions.
Judith Hamel, Director General, Financial Services Division, Department of Finance Canada: Honourable senators, my name is Judith Hamel. I am Director General of the Financial Services Division at the Department of Finance. I will be speaking to Division 16, which covers the consumer-driven banking framework, on pages 519 to 537. Joining me is my colleague Graham Page, Senior Economist, Financial Services Innovation.
Consumer-driven banking, also known as open banking, aims to offer consumers — individuals more so than small businesses — a safe and secure way to direct the sharing of their banking data with an accredited third party of their choice, usually a financial technology company.
Consumers can already access financial technology services, but they have to do it in an unsecured manner, using methods often referred to as “screen scraping” that carry security, privacy and liability risks. To begin addressing these risks, Division 16 has two elements. The first is the introduction of the Consumer-Driven Banking Act. Among other things, this act provides that the scope of data covered by the framework includes read access to deposit accounts, loans and investment products for consumers and small businesses. The act also lays out the principles the Minister of Finance must consider for designation of the technical standards body to which all participating entities in the framework must adhere. The principles are fairness, transparency and good governance.
The second part of this division contains amendments to the Financial Consumer Agency of Canada Act. The amendments expand the agency’s mandate to include the consumer-driven banking framework. They establish a new senior deputy commissioner role and confer the powers and duties needed to ensure oversight.
Further legislation will be introduced in the fall to complete the framework. This is really just a first step. More legislation will follow, including a law covering how entities will access the framework, as well as a set of common rules on privacy, security, liability and consumer protection that accredited entities will have to comply with.
Senator Gignac: I want to reassure my colleagues: After this question, I won’t be speaking nearly as often.
I find that this is the most delicate part of the whole bill. There’s a very important element of sensitivity in Quebec. Credit unions are free to join the federal jurisdiction or not. However, if they do join, they will operate under federal regulation. Tell us about your consultations with the Autorité des marchés financiers and the Office de la protection du consommateur. I’m curious to hear about the consultations held on this matter.
Ms. Hamel: There have been a lot of consultations. The department has been working on this for six years. Working groups have been set up over the past two years. A government-appointed open banking system manager carried out a series of consultations. There were working groups on the key issues of confidentiality and liability. Provincial regulatory agencies and consumer groups participated in these working groups. The entities you named also participated.
Senator Gignac: We know that the Desjardins caisses populaires are under provincial jurisdiction, as are financial intermediaries and the regulation of securities. A partnership between the federal government and the provinces is not the way to make joint decisions. The federal government will make the decision for those who choose to join the framework. But everyone will join, because they have almost no choice in the matter.
Is there anything you can share with us from your discussions with the Quebec government? I’ve heard a lot about discomfort.
Ms. Hamel: We consulted all provincial governments and the various finance departments.
As you explained, this is a voluntary framework. Banks under federal jurisdiction are the only entities that will be required to participate, but not all banks. Only those with a certain volume of business will be affected. Other entities, such as financial technology companies, credit unions and caisses populaires, can choose to participate or not. These entities will take steps to become accredited. If they become accredited, they will then be subject to the rules set out in the framework.
Senator Gignac: You’re creating a special position of senior deputy commissioner, otherwise it would be too complicated. The Desjardins caisses populaires will suddenly find themselves with two sets of regulations, one of which they’ll have to follow if they adhere to the framework. I don’t believe that the Autorité des marchés financiers will cease to regulate the Desjardins caisses, even if they’re subject to the framework. The same goes for the Office de la protection du consommateur du Québec. You’ll recall that this issue caused quite a stir in Ottawa, and the federal government had to back down at the time.
Ms. Hamel: Entities under provincial jurisdiction would still be subject to provincial legislation. They would have to comply with consumer banking rules, but this would be limited to consumer banking services. They wouldn’t be subject to the other provisions.
Senator Bellemare: At the start of your explanation, you said that this legislation here establishes a framework and that additional legislation would follow.
Will there be additional legislation or regulations? Will parliamentarians have the right to review what’s coming in terms of the framework?
Ms. Hamel: It won’t necessarily be new statutes but rather legislative instruments that will complement the consumer-oriented banking services legislation.
Senator Bellemare: Will these legislative instruments need to be approved by Parliament?
Ms. Hamel: Yes. No doubt, there will be regulations, but during a subsequent phase.
The Deputy Chair: Thank you.
Senator Miville-Dechêne: I’ll come back to my colleague Senator Gignac’s questions by quoting MP Jean-Denis Garon, who said that if Desjardins wants to join this framework…. It literally means that Desjardins has the choice of ignoring Quebec’s Consumer Protection Act, or CPA, and Bill 25 on privacy protection, if it wants to join this framework. Is he right?
Ms. Hamel: I unfortunately have not heard that statement.
Senator Miville-Dechêne: What he said is that, basically, you’re proposing a framework for Quebec’s institutions that would require them not to implement the CPA and Bill 25, and that it is a choice between one or the other.
Ms. Hamel: That is not the intention and that is not what is proposed in the bill we are studying today. Consumer protection aspects are not included in the bill. However, the idea would be to actually have, for instance…. It’s only for overseeing consumer-based banking services and data sharing.
So, the short answer is no. Businesses will still have to obey provincial regulations. It’s in everyone’s best interest to do so. My colleagues and I are currently consulting the provinces and provincial regulatory agencies, but also different departments, to make sure that everything lines up.
Senator Miville-Dechêne: Does the government of Quebec agree with your initiative?
Ms. Hamel: We consulted provinces as part of the working groups and are currently consulting all the provinces.
Senator Miville-Dechêne: Does the government of Quebec agree with your way of implementing this framework?
Ms. Hamel: To my knowledge, it is a federal bill.
Senator Miville-Dechêne: Of course. I’m simply asking if, during consultations, you obtained the government of Quebec’s approval.
Ms. Hamel: We did not obtain the government of Quebec’s approval, but we’ve heard nothing about any disagreement either.
Senator Miville-Dechêne: Very well, thank you.
The Deputy Chair: This is the last question before moving on to Section 12.
[English]
I think the consumer will benefit from open banking. I think all governments will be in agreement if their citizens benefit from the concept of open banking.
What remains to be completed to implement the framework? Do you see any potential roadblocks and any timing on this? Hopefully, all our provincial governments will agree and will adhere to open banking because the consumer will benefit.
Ms. Hamel: That’s right, the policy is consumer driven. It’s to ensure that consumers across the country can benefit from the opportunities that consumer-driven banking offers them.
I don’t foresee major roadblocks at this stage. We are presenting the first step, as we said. There will be further legislation in the coming months. The department is engaging right now with our provincial-territorial counterparts, with the industry and with consumer groups. The hope is to put it forward as fast as possible before the end of the year.
The Deputy Chair: In order for the consumers to benefit across the country?
Ms. Hamel: Yes.
The Deputy Chair: Thank you. I will go to Senator Massicotte before we move on to Division 17.
[Translation]
Senator Massicotte: We talked about the benefits of the open banking system, but what are the risks for consumers, since there is more discretion, more openness and maybe more opportunities to manage or manipulate the system in favour of fraudsters? Is that a significant risk?
Ms. Hamel: As I said at the outset, there is a significant risk in not setting up a framework around sharing financial data. Currently, many Canadians use financial technology company services requiring them to share their banking data. There’s no framework to make sure it’s done securely. People often use methods like screen captures, which involve sharing authentication data and bank account access in order to access financial technology services. The idea of having a framework is to limit risk and to do so securely.
Senator Massicotte: Is that why your approval of the open banking system has been very slow or done with a great deal of reluctance?
Ms. Hamel: I won’t comment on the decision-making process. However, this is certainly a complex file with federal and provincial ramifications. It affects many sectors in the financial services industry. That is specifically what led to a rather exhaustive consultation process spread out over several years.
Senator Massicotte: Thank you.
[English]
The Deputy Chair: I think the risks are that of privacy and cyber security. Those are major risks going forward, as you know. I think you shared those concerns. Thank you.
We’ll move on to Division 17 of Part 4, which amends the Bank Act to clarify, among other things, the definitions of “deposit-type instrument” and “principal-protected note.” Ms. Anne Loosen, the floor is yours.
Anne Loosen, Senior Advisor, Consumer Affairs, Department of Finance Canada: Good afternoon.
Part 4, Division 17, on pages 537 and 538 of the bill, make technical amendments to the definitions of “deposit-type instrument” and “principal-protected note” within the Bank Act to reflect Canadian benchmark rate reform, thereby ensuring that appropriate consumer protection provisions continue to apply when these products are issued by banks.
Consistent with global best practices, Canadian benchmark rate reform will see the Canadian Dollar Offered Rate, CDOR, a banker’s acceptance rate, replaced with a risk-free transaction-based index, the Canadian Overnight Repo Rate Average, or CORRA, as of June 2024. Currently, the definition of “deposit-type instrument” in the Bank Act refers to a banker’s acceptance rate. This amendment replaces that term with the more general term “interest rate benchmark,” thereby entering CORRA-based products are captured by the definition.
The Deputy Chair: Thank you. We will now move on to questions. Are there any questions from our senators? Maybe I could start with one.
Which financial services are most affected by the transition away from the Canadian Dollar Offered Rate?
Ms. Loosen: Do you mean financial services to Canadians?
The Deputy Chair: Yes.
Ms. Loosen: I would say this, actually. Deposit-type instruments would be most affected.
The Deputy Chair: Any other questions on Division 17? What’s your main objective with this division?
Ms. Loosen: The main objective of this division is to essentially ensure that the consumer protection provisions applicable to deposit-type instruments, which are essentially GICs, continue to apply as intended. It’s a technical amendment, really.
The Deputy Chair: It’s simply a technical amendment?
Ms. Loosen: It’s very, very technical, yes.
The Deputy Chair: And why was it required?
Ms. Loosen: If we hadn’t made this change, then the definition of “deposit-type instruments” in the Bank Act would continue to refer to a banker’s acceptance rate. As of June 2024, bankers’ acceptance rate will essentially cease to exist. That’s why this technical amendment is needed.
The Deputy Chair: Excellent. Any other questions? If not, we can move on at this point.
Thank you, Ms. Loosen.
We move on to Division 18 of Part 4, which:
. . . amends the Office of the Superintendent of Financial Institutions Act to increase to $100,000 the maximum amount that expenditures made out of the Consolidated Revenue Fund to defray the expenses arising out of the operations of the office that may exceed the office’s total assessments and revenues.
The floor is yours, Mr. Hammond.
Michael Hammond, Chief Financial Officer, Office of the Superintendent of Financial Institutions: Mr. Chair and committee members, I apologize that I’m joining you virtually. It’s my pleasure to be here to support the committee’s pre-study of Bill C-69 tabled last month and to address Division 18 in particular.
The Office of the Superintendent of Financial Institutions, or OSFI, is an independent agency that was created in 1987. We are Canada’s prudential regulator and supervisor of banks, most of its insurance companies, as well as a large number of private pension plans. Our role is to ensure these institutions and pension plans are in sound financial condition, and to have policies and procedures in place to protect themselves against threats to their integrity and security, including foreign interference. By doing so, we contribute to public confidence in the Canadian financial system.
The work OSFI does is primarily funded by the institutions we regulate, with less than 1% of our funding coming from parliamentary appropriation. This 1% is funding for the Office of the Chief Actuary, which is an independent unit within OSFI.
Regulated institutions are invoiced for annual assessments in July and August, once OSFI’s final financial results for the previous fiscal year becomes available. Division 18 of Bill C-69 does not increase OSFI’s operating budget. It seeks only to increase OSFI’s ability to draw funds from the Consolidated Revenue Fund, or CRF, from $40 million to $100 million. This draw from the Consolidated Revenue Fund is a temporary measure that allows OSFI to cover its costs early in the fiscal year before funding has been received from the financial institutions we regulate. Once our funding has been received, the CRF is replenished.
This measure only applies to OSFI operations and does not affect the Office of the Chief Actuary.
OSFI’s current limit of $40 million has been the same since we were created in 1987 and has not increased. This limit is becoming insufficient for OSFI to cover the early-year costs associated with carrying out its mandate.
Mr. Chair, committee members, increasing OSFI’s ability to draw funds from the Consolidated Revenue Fund to $100 million will allow OSFI to continue exercising its mandate effectively during the early part of the year. As this measure does not increase OSFI’s operating budget, it would have no direct impact on Canadians or the institutions we regulate.
Rest assured that OSFI will continue to work closely with the Department of Finance and our other partners to ensure the soundness and stability of Canada’s financial system.
With that, I will be pleased to answer questions.
Senator Martin: I think Mr. Hammond had some explanation regarding this. I was just thinking that $40 million to $100 million is quite a large increase. Would you explain what this additional amount would allow you to do? Why was the increase not necessary prior to this year? I realize you haven’t had an increase since 1987, but I’m trying to understand this dramatic increase.
Mr. Hammond: Thank you for the question. Our limit has not increased since 1987, as I said. Our budget has been increasing due to our risk environment. We have been taking steps to manage our expenses in the early part of the year. However, this is becoming increasingly difficult. We’ve adjusted our billing times for the financial institutions, but with our current budget this year, it will force us to adjust things quite significantly in order to maintain cash flow early in the year.
We proposed a limit of $100 million because we don’t want to have to do these amendments on a regular basis. We only draw the amount of funding that we are required to use in order to cover our operating expenses, and it is replenished as soon as we receive our invoicing from the financial institutions that we regulate.
Senator Martin: I was curious about the increase. Why not $60 million or $80 million? I was wondering if there was a reason for the $100 million. You did explain it a little bit. Would you also further explain the increased risks that you are facing?
Mr. Hammond: I’m here specifically to talk about Division 18. I’m not an expert in the risk environment here at OSFI. We have experts who are engaged in that particular business. I’d be very happy to consult with them and get back to the committee on those specific risks.
The Deputy Chair: If we could have that in writing for tomorrow, that would be nice. Thank you very much. I’m just kidding about tomorrow, Mr. Hammond. We should have some fun; it’s late in the afternoon.
[Translation]
Senator Miville-Dechêne: We were talking a little earlier about pooled registered pension plans. I asked if, in the mandatory disclosures, we name countries where there is an investment. However, we also ask questions about modern slavery, forced labour and child labour, given the passage of Bill S-211 and its coming into force this year.
[English]
The Deputy Chair: Mr. Hammond, I do understand you’re on Division 18, but if you don’t have that answer, maybe you can get it to us in writing. It is a very important question that we had on a previous division.
Mr. Hammond: Thank you, Mr. Chair. I’m not an expert to be able to speak on this particular issue. I would be happy to work with colleagues at the Department of Finance and here at OSFI to provide an answer in writing.
The Deputy Chair: We do appreciate the answers we will obtain.
[Translation]
Senator Bellemare: My question has already been answered.
Senator Massicotte: My question is more or less the same. How did we settle on the figure of $100 million? Often when the numbers are lower, they say it’s because they’re not trusted. It would be strange not to be trusted at $100 million. We will always get the same answer and we will be told that is an acceptable figure. It’s difficult to find something positive in all this.
[English]
The Deputy Chair: Mr. Hammond, would you elaborate on that, with respect to how the thresholds are determined? What thinking goes into it?
Mr. Hammond: Thank you for the question. I’m happy to address that. We did not want to have to come back to amend the act on a regular basis to increase this amount, so the amount of $100 million was proposed as a fairly significant increase. As I said, we will only draw the amount that is required to cover our operating expenses early in the year. We don’t anticipate needing to tap into the entire $100-million draw at this point. We’ve been operating with a draw of up to $40 million at this point in time, but that is proving to be more difficult for us to cover all of our expenses early on in the fiscal year.
The Deputy Chair: Maybe I will have the last question for you, Mr. Hammond. You said there’s no increase in your budget, obviously. But given the amount of the threshold, it’s a large increase. Are additional responsibilities coming your way, or additional powers that will be attributed to you?
Mr. Hammond: There are no additional powers accompanying this. It’s simply an increase in the draw that we’re able to take from the Consolidated Revenue Fund. The same reporting conditions that apply to the use of that draw exist today.
The Deputy Chair: With no additional responsibilities. That’s not one of the reasons. That’s where I’m going. Maybe there was a reason for that.
Thank you, Mr. Hammond, for being with us this afternoon. We’ll gladly await your written responses to our questions.
We move on now to Division 19 of Part 4 which:
. . . amends the Bank of Canada Act to clarify that the Bank of Canada may enter into repurchase, reverse repurchase, and buy-sellback agreements.
Mr. Keith Walsh, the floor is yours, followed by Mr. Philippe Muller. Thank you, gentlemen, for being with us. Two minutes for the brief and then we’ll move on to questions from the senators. Thank you.
Keith Walsh, Senior Economist, Funds Management Division, Department of Finance Canada: Good afternoon, everyone. I’ll provide a brief overview of Division 19 and why these changes were proposed to the Bank of Canada Act.
This proposed update is quite technical and was made to enable the Bank of Canada to participate in a new financial market infrastructure called the Canadian Collateral Management Service, CCMS. This new service will modernize Canadian financial market systems, notably in secured funding markets, and is expected to help improve their efficiency and resiliency.
By joining the platform, the Bank of Canada would be provided with one more tool to fulfill its mandate and especially its monetary policy and financial systems functions. With that I’ll pass it to the Bank of Canada.
Philippe Muller, Senior Director, Domestic Market Operations and Balance Sheet Policy, Financial Markets Department, Bank of Canada: Good afternoon, Deputy Chair and distinguished members of this committee. Joining me this afternoon is my colleague Andrew Kidd, Senior Legal Counsel, Financial Sector, Executive and Legal services in the Bank of Canada.
[Translation]
Thank you for the invitation to discuss Bill C-69. The Bank supports the two new provisions that the bill would add to the Bank of Canada Act.
These changes would enable the Bank of Canada to participate in the new infrastructure being developed to modernize securities financing markets in Canada, also known as repo or repurchase markets. These markets are an essential segment of Canada’s financial system. Repo markets are used by large financial institutions in Canada, specifically to manage their liquidity. They are also a mechanism through which the Bank of Canada implements monetary policy and supports the financial system during periods of market stress.
[English]
The proposed amendments will allow the Bank of Canada to join the Canadian Collateral Management Service. This new service outsources the time-intensive and cumbersome post-trade activities from repurchased transactions. The Canadian Collateral Management Service is expected to play an important role in modernizing Canada’s financial infrastructure and help propel it to the level of our global peers. Using it could use substantial efficiency benefits for the Bank of Canada and its counterparties. It could also enhance the resiliency of the Canadian financial system.
To conclude, the proposed additions of sections 18.01 and 18.02 to the Bank of Canada Act will help the Bank of Canada better fulfill its core functions.
The Deputy Chair: Thank you, gentlemen.
[Translation]
Senator Bellemare: Could you clarify the way changes to the Bank of Canada Act will affect monetary policy?
You say it is essential, but what is the link with monetary policy, interest rates, buying and selling shares, and so on?
Mr. Muller: Monetary policy is operationalized through several mechanisms. One of the mechanisms is the Bank of Canada’s capacity to strengthen the overnight interest rate target determined by the governor. We do so through financial transactions; purchase and resale agreements.
We can use these daily operations to reinforce the overnight interest rate.
As for the modality proposed in the bill, it would allow us to use these techniques. It seeks to clarify that the Bank of Canada can still carry out the same operations with the same counterparts. However, it would be through a new proposed infrastructure, a financial innovation called the Canadian Collateral Management Service, or CCMS, which is a TMX service. This is not a change in the way monetary policy is implemented. It is simply a technical change so we can make sure we have the legal capacity to use the service.
Senator Bellemare: Will these new ways of doing things speed them up?
Mr. Muller: It’s more like a gain in efficiency, both for ourselves and for our counterparts. If the service expands, it will be largely used to increase efficiency throughout the entire Canadian financial system.
Senator Gignac: Thank you, Mr. Muller. To enlighten us, if you had had these tools when the pandemic started, could it have gone differently? There was a significant cash flow problem. Even pension funds, which are not regulated the same way, were knocking on your door. Several financial players had cash flow problems at the start of the pandemic.
Without naming any financial institutions, could you give us a real example to show how this could have been a tool? Unless I’m mistaken and it’s completely irrelevant.
Mr. Muller: In a moment of crisis, the tool would increase our transaction volume with the same number of employees.
I was explaining to you that we talk about post-trade in English. Purchase and resale agreement activities are very manual and require many interventions. The CCMS mechanism would lead to considerable gains in efficiency.
Senator Bellemare: I have a follow-up question. I don’t understand why a legislative change is needed to use a mechanism that increases efficiency.
What’s the relevant section of the Bank of Canada Act?
Mr. Muller: I will ask my colleague to answer your question.
[English]
Andrew Kidd, Senior Legal Counsel, Financial Sector, Executive and Legal Services, Bank of Canada: As my colleague explained, joining the Canadian Collateral Management Service, or CCMS, will constitute a big change in terms of how the bank processes and operationalizes its critical repo operations. In connection with this change, the bank is taking the opportunity to clarify and clean up certain related provisions in the Bank of Canada Act. Many of these provisions have not been touched since the Bank of Canada Act was first enacted in 1934.
Neither of the proposed amendments to the bill constitute a fundamental change to the bank’s governing legislation. Rather, they’re aimed at ensuring the bank’s legal authority for repo and legal protections that apply to these transactions are clearly set out using modern terminology aligned with that of other financial Crown corporations. They’ll facilitate the Bank of Canada’s ability to fully participate in the CCMS.
If you’d like further details about either of the two provisions being added to the Bank of Canada Act, I’m happy to provide those details.
The Deputy Chair: If we could have that in writing, that would be welcome. If you can do it now, go ahead.
Mr. Kidd: I have prepared a short form and a long form. I’ll do the short form first. Let me know if you need more detail.
The first new provision, proposed section 18.01, will add the term “repurchase agreement” to the act to clarify the bank’s legal authority to buy and sell specified assets includes the authority to engage in repos. So modernize the terminology used in the act and bring the Bank of Canada’s legal authority for repo in line with that of other financial Crown corporations.
The second new provision, proposed section 18.02, will add a statutory legal protection that applies to all other financial Crown corporations and the parties that contract with them. It appears to be an oversight that the statutory provision does not already appear in the act.
The Deputy Chair: Thank you.
Senator Martin: This is all new to me, so I don’t fully understand. I do know, however, that the CCMS was launched in 2023, is that correct?
Mr. Walsh: Yes.
Senator Martin: That’s not very long ago. I was curious about the effectiveness of this infrastructure. Can you help me to understand that? It’s Canadian wide, but is it also linked with global systems? I’m curious?
Mr. Muller: The Canadian Collateral Management Service was formally launched in April 2024. This is at the inception part of the infrastructure. It is an infrastructure that exists in other jurisdictions and has been significant in its influence on the efficiency of the financial systems in those jurisdictions. It’s on the basis of understanding that this triparty service replaces or allows outsourcing the function. It’s cumbersome and operationally intensive for both counterparties involved in a repurchase agreement. By leveraging this platform and this technology, we receive significant efficiency gains. It should allow for new participants to enter the repo market, to develop the term “repo market” and thus reduce the refinancing risks involved in having to renew overnight repo transactions on a daily basis and thereby augment the efficiency of the financial system. It’s in part because of the numerous benefits to the individual participants in repurchased transactions and the system as a whole that it has had a significant positive influence in other jurisdictions. It is expected to have a similar impact in Canada, should adoption increase.
It’s for these reasons that it’s felt that the Bank of Canada needs to have the option to participate and use this service and the legal provisions to allow it to do so.
Senator Martin: So the CCMS is very new.
Senator Bellemare: Would it change the macroeconomic textbooks?
The Deputy Chair: That’s a great question. It’s all new, right? You said from the start: Modernize our financial system; propel us to the level of our global peers. When it comes to banking in Canada, we’re always either first or second, compared to Australia. I’m surprised we weren’t up to par with respect to our global peers.
You’re confident that with the launch of this application, the Canadian Collateral Management Service, we’ll be up to par with our global peers? You don’t see any roadblocks putting this into effect?
Mr. Muller: I’m not here to necessarily market the Collateral Management Service for the TMX Group, but the infrastructure has potential benefits to be substantive. With regards to your question, I’m told that the TMX Group has entered into a strategic partnership with Clearstream that is offering the technology platform that would be leveraged. That platform is proven and currently in use in other jurisdictions. My understanding is that together with other financial market infrastructures — the Canadian Depository for Securities Limited, or CDS, part of the TMX Group — that all of the key ingredients are in place for this platform to be substantive.
The largest Canadian banks have all agreed to be early adopters of the service and have started testing real transactions on this platform as of April 2024.
The Deputy Chair: We’ll go on to Senator Martin, but how often does the Bank of Canada enter into the repurchase, reverse repurchase, or buy or sellback transactions?
Mr. Muller: To reinforce the overnight target rate, the Bank of Canada could enter into markets on a daily basis. In practice, the Bank of Canada would probably reinforce the overnight rates quite seldomly, perhaps a few days a month. However, as part of the Bank of Canada’s normal operations to manage our balance sheet and the assets prior to the COVID crisis — and, as included in the speech of Toni Gravelle, Deputy Governor of the Bank of Canada, in March of this year, and the announcement of the asset composition of what the balance sheet will be, once the balance sheet has normalized in size — repos will be a key part of the assets that the Bank of Canada will acquire. It could comprise up to 15% of the Bank of Canada’s assets. As such, the Bank of Canada will have repos outstanding all the time.
Senator Martin: If something is so new as the CCMS, what about its reliability? Have there any glitches? Do we anticipate anything happening in that regard? I don’t know if you can answer that. Obviously, the Bank of Canada is confident in this new platform, but it’s new. There are always concerns about any new system.
Mr. Muller: My understanding is that it’s a proven system that is under regulatory oversight in other jurisdictions. The Bank of Canada will work with partners to ensure that this infrastructure, if it becomes of significant importance, is overseen by the proper jurisdictions in an appropriate manner.
The Deputy Chair: Thank you, gentlemen. Very insightful. We’ll move on to Division 20 of Part 4, which amends the Canada Business Corporations Act to harmonize fines for a corporation guilty of an offence related to the collection or sending of information regarding individuals with significant control and set separate fines and imprisonment terms on the basis of a summary conviction or a conviction or indictment for a director, officer or shareholder of a corporation guilty of an offence related to individuals with significant control.
Ms. Erin Hunt, you’re back on the floor, and the floor is yours once again.
Ms. Hunt: I’m here now for the financial crimes portion of my portfolio, so thank you. I will give you a brief presentation on this technical amendment to the penalty provision of the Canada Business Corporations Act. Maybe I’ll start with a bit of context in terms of why this act exists.
The use of anonymous Canadian shell companies can conceal the true ownership of property, businesses and other valuable assets. When authorities don’t have the tools to determine their true ownership, these shell companies can become tools of those who seek to launder money, avoid taxes, evade sanctions or interfere in our democracy.
The federal government committed in Budgets 2022 and 2023 to implement a searchable beneficial ownership registry of federal corporations. The registry was launched on January 22, 2024. The Canada Business Corporations Act sets out the obligations for federal corporations to submit their beneficial ownership information to Corporations Canada and has associated penalties for failure to comply. The proposed three amendments here would ensure that the penalty provisions are consistent with Canada’s criminal sentencing policy and with two other provisions already in the act. If left unchanged, these penalties could be at risk of being inoperative. We’re just making sure that these are clarified so that they will be operative in the act. Thank you.
[Translation]
Senator Massicotte: I’m asking the question because we are all obviously against money laundering; that’s very important. I am therefore happy to know that penalties will be increased or adjusted accordingly.
When I read newspaper articles about the recent experience with TD Bank, I see that it was very clearly in breach of its obligations. However, the Americans pushed very hard and we get the impression that Canadians didn’t push as hard. They’re trying to present an increase — I hope — of the penalty.
Can you tell us why this is a major problem for a Canadian bank? If you could comment on that, it would be very much appreciated.
Ms. Hunt: Thank you for your question, senator.
It’s a complex issue. Other changes proposed in the bill focus more on money laundering in general, and we could discuss those matters further.
As for knowing how banks fulfill their anti-money laundering obligations, that issue is a bit different from the proposals we are studying here. The proposals we are discussing in section 20 have to do with the way federal Crown corporations store and give information about their beneficial ownership. We want to make sure that penalties are consistent in the law and that they line up with the way criminal penalties are generally handled in Canada.
As for your question regarding banks, Canada has a very strong anti-money laundering system. Canada targeted many changes and developments on a federal level to ensure that our system can respond to emerging issues and risks in our society.
Among Canadian companies, 30,000 entities deal with our system and help make sure we can identify, dissuade, detect and prevent all cases of money laundering in Canada, and that we can also report certain cases to our police forces and others.
Senator Massicotte: When a disaster happens, especially for Canada’s reputation…. Canadian banks were very important for us. Now we are adjusting because we have to adjust, but we have to admit that Canada has a major problem. Why have the Americans taken such a strong lead in their approach, compared to ours?
Ms. Hunt: That is an excellent question. The American approach is different from ours when it comes to administrative penalties.
They are targeted to improve the way companies, banks and other organizations that participate in our system fulfill their obligations within that system. It’s not about punishing them. It’s completely clear, because of the way the Canadian system is established. Our penalties, which are different from American penalties, are there to make sure banks can improve the way they fulfill their obligations…. It’s not used to punish them.
Senator Massicotte: It’s all well and good to say we won’t punish them, but they stole and they manipulated the system. We’re talking about millions of dollars. Those are fine words, but we need to be convinced. For example, what is the amount payable for laundering $10 million? Give us other examples to show us that this is serious.
Ms. Hunt: That might be a better question for my colleagues at the Department of Justice.
There are two different matters at issue: the way in which banks fulfill their obligations within the system’s framework, and the penalties within the framework of our criminal legislation to ensure that people who commit crimes are punished. I see the issues pertaining to TD Bank, for example; it’s a matter of obligations as per the anti-money laundering system. There’s also the fact that we do all this to stop criminals. The sanctions and the system on the criminal law side ensure that we can prosecute people, companies and individuals who commit crimes in Canada.
Senator Massicotte: Thank you.
[English]
Senator Varone: My question as it relates to this particular piece, I have no problems with the criminality and the aspects of what you’re doing to prevent criminality, but on the civil side, the tenement of piercing the corporate veil through the knowledge of who the beneficial owners are and the registry of such an environment, our whole system of business organizations is founded on the ability to protect one’s assets through limited liability corporations. I’m talking about the frivolous and vexatious sides of the lawsuits, not the criminality, the unintended consequences of this kind of exposure to directors who are only trying to protect, through corporations, their assets. How do you deal with that? It’s a complicated question, I know.
Ms. Hunt: No, I’m struggling because I don’t know if I can answer that. I think it would be better to reflect on it and reply in writing.
Senator Varone: I get that a lot.
The Deputy Chair: Thank you for the question. It’s an important one, so we will allow you some time to reflect on it and reply in writing as soon as possible. Thank you. I was only joking for tomorrow, but it would be nice to have those answers this week. Thank you.
Do we have any other questions on this division?
[Translation]
Senator Miville-Dechêne: I have a newbie question. I don’t see the link between what you’re saying, meaning the idea of fighting money laundering, which is indeed very good, and the fact that we’re ready to impose a $100,000 fine on a company that collects or sends information on an individual with significant control over a company. On the contrary, I think I agree with my colleague by saying it seems to be an issue of transparency.
Ms. Hunt: The reason why we’re proposing these changes is because at committee stage, before it becomes law…. When Bill C-42 was studied at committee, Parliament wanted to change the penalties imposed on companies. There was one section where the penalties were applied, but two sections where the changes weren’t made at the same time. We want to change it all and ensure the three sections of the law establishing penalties for companies say the same thing. That way, it correctly reflects the way Parliament wanted the penalties to be presented in the bill.
It’s really a clarification to ensure the penalties are consistent within the law.
Senator Miville-Dechêne: I will read a bit more and maybe I’ll understand a bit better.
[English]
The Deputy Chair: Thank you, Ms. Hunt. I will invite Ms. Anne Loosen to the floor once again. We move on to Division 33 of Part 4, which
. . . amends the Criminal Code to broaden the criminal interest rate offence to prohibit a person from offering to enter into an agreement or arrangement to receive interest at a criminal rate and from advertising an offer to enter into an agreement or arrangement that provides for the receipt of interest at a criminal rate. It also repeals the provision that requires the consent of the Attorney General prior to commencing proceedings related to the offence.
Ms. Anne Loosen, the floor is yours once again. Welcome once again.
Ms. Loosen: Once again, my name is Anne Loosen. I’m a senior advisor with the Department of Finance. I have with me my colleague Kenyatta Hawthorne from the Department of Justice Canada.
Part 4, Division 33, on pages 586 to 589 of the bill, would amend the Criminal Code to enhance enforcement of the criminal rate of interest.
There are two components to these amendments. The first component of these measures criminalizes the offering or advertising of credit at an illegal rate of interest. Currently, the offence is structured around the concept of an agreement for credit at an illegal rate having been entered into. These amendments to criminalize offers would allow law enforcement to prosecute illegal lenders before victims have entered into a credit agreement.
The second component of these amendments would remove the requirement to obtain the consent of the Attorney General of Canada in order to commence proceedings related to the criminal interest rate. The requirement to obtain Attorney General consent was identified as a barrier to enforcement through several public consultations that the Department of Finance held in both 2022 and 2023.
Thank you.
Senator Varone: This is going to be a complicated question, but let me start by saying that Albert Einstein, who was a theoretical theorist whom, as we all know, was once asked how he felt about creating one of the most powerful forces in the universe, being atomic energy. He said, “Well, I didn’t; the most powerful force in the universe is compound interest.” That is a true statement that he made.
When you deal with compounding interest, this is where I get confused with the criminal rate of interest. Your standard mortgage form has interest calculated semi-annually, not in advance, but then when you get to your credit card statement, your unpaid balance is calculated monthly, and there’s nothing that deals with fees.
I’ve seen lending agreements that have set-up fees, payment fees for cheques, payment fees for credit cards, payment fees for cash and legal fees that are all wrapped in. At what point in time do you discern what is the criminal rate of interest, and how do you calculate that? It’s not just the amount of the face value. It’s how they compound it, and I’ve seen compounding weekly, daily and monthly.
I understand what you’re doing here, but how do you calculate it?
Ms. Loosen: I’ll take a crack at that.
In the Criminal Code, the criminal rate of interest is defined as a rate that is 60% calculated in accordance with actuarial principles. The Canadian Institute of Actuaries has a standard of practice where they set out how the criminal rate of interest is to be calculated.
I’m not a mathematician, but the definition that the actuaries have come up with encompasses any type of loan agreement. Even if the terms are unclear, if it’s an illegal loan, the terms might not be very well disclosed. It’s essentially an actuarial calculation, to answer the question.
This differs from the annual percentage rate, or APR, calculation that you might find in the Bank Act or in provincial consumer protection acts where the APR would be calculated very precisely, given the terms of the loan.
Did that answer the question?
Senator Varone: Yes and no.
I know how you deal with the banks in terms of how they lend, but credit cards are a different animal. If you owe $1,000 on your credit card bill but you only pay $10, you’re being charged monthly interest at that 22.75% rate on your unpaid balance monthly, and it is interest on interest.
How do you actually determine what you’re paying, because the criminal rate of interest is based on an annual rate, not daily, monthly and weekly compounding?
Ms. Loosen: The criminal rate of interest is based on an annual rate but it does encompass compounding, if that answers your question.
If you would like, I’m happy to follow up. The Canadian Institute of Actuaries has just published the new definition of APR for the purposes of the Criminal Code.
Senator Varone: How do fees roll into that?
Ms. Loosen: Right, I didn’t answer that part of your question.
Interest in the Criminal Code is defined very broadly, and it encompasses almost all fees, with some very narrow exceptions — for example, insurance charges. Aside from that one fee, the definition is quite broad.
Kenyatta Hawthorne, Counsel, Criminal Law Policy Section, Department of Justice Canada: I would supplement that. It includes all fees, fines, penalties, commissions or other similar charges, irrespective of the person to whom any such charges and expenses are to be paid or payable.
It doesn’t include any repayment of credit advanced or any insurance charges, as my colleague mentioned.
Senator Massicotte: When you do the calculation — and maybe give us a bit more information — what happens on compounding? What is that rate being charged, and what is the timing like? Maybe give us a bit more meat to say, “That’s pretty good; you guys are pretty sharp.”
All we know right now is that we’re being referred to another calculation by actuaries without really knowing any of the numbers.
Ms. Loosen: I’m not sure I understand the question.
Senator Massicotte: Give us an example. You have a credit card. You have a balance of $1,000. There are fees attached to it, and it’s only over two months, not a year, so, therefore, the annual rate is very high. You’re fending many agreements, but what happens?
We’ve seen cases being brought to court, and they’ve lost, and we have a very clear definition of that interest rate.
Ms. Loosen: Do you have any thoughts on this, Mr. Hawthorne?
Mr. Hawthorne: To the actuarial certificate aspect, what that does, essentially, is serve to standardize prosecutions. The aim is really to make them more efficient and ensure that the person isn’t prosecuted when they’re not in violation of section 347.
Essentially without that certificate, the Crown could call an expert or give evidence of the criminal rates when that wouldn’t be the case.
Senator Massicotte: Did it win its court cases, or did the judge throw it out as too complicated?
Mr. Hawthorne: If it didn’t meet the actuarial certificate requirements? Yes.
Senator Yussuff: On the same issue, there are two aspects to this using the Criminal Code for prosecution, which is a federal act. A lot of these payday loan organizations exist in provincial jurisdictions, so given that we have no ability to regulate in provincial jurisdictions, how do we, essentially, get to the real crux of the problem that exists right across the country, because they’re in provincial jurisdiction?
These guys have shielded themselves with the fact that they get the protection, because the province doesn’t want to regulate them to the degree they should.
Ms. Loosen: Well, there are a couple of points here. First of all, payday loans are exempt from the criminal rate of interest so long as provinces have a regulatory regime in place with appropriate consumer protection requirements.
I want to point out here, too, that these amendments and the criminal interest rate provision are not necessarily targeted at financial institutions or other lending organizations that offer credit products. This is more targeted toward the true-blue illegal lenders who are not regulated provincially or federally.
There is not necessarily a lot of evidence that this is happening broadly in Canada, just due to the nature of the problem of illegal lending, but we have heard anecdotal evidence from consumer groups and others that this is a real problem.
I hope that answers the question.
Senator Yussuff: I think we’re out of time, but I just want to say that if you ask most anti-poverty organizations, they will tell you that the existence of regulation in a province to deal with the problem that poor Canadians are dealing with every day is non-existent, despite what you may tell me, that there is provision to regulate. But from what people are witnessing and experiencing, it’s beyond criminal at the provincial level, recognizing that this is provincial and not federal jurisdiction. Thank you.
[Translation]
Senator Bellemare: This is somewhat related to it all, but I’d like to understand why you’re lowering the criminal interest rate from 48% to 35%. Why not 25%?
[English]
Ms. Loosen: I will answer your question in English. That’s not really contemplated in this bill, lowering to 25%.
Senator Bellemare: Why?
Ms. Loosen: As you may know, in Budget 2023, the government announced that we would be lowering the criminal interest rate to 35% APR, which was introduced in the Budget Implementation Act, 2023. Following those amendments, the department consulted again on further actions to fight predatory lending, and one of the issues identified as part of those consultations was enforcement of the criminal rate of interest.
Senator Bellemare: I ask the question because we previously had a private member’s bill on this issue, and 25% was the rate that was contemplated. Thank you.
The Deputy Chair: Senator Ringuette has been a strong advocate, and there have been private member’s bills on the criminal interest rate. She’s been at it for many years. Thank you for that.
Senator Yussuff: Our committee may choose to make an observation that this may be improvement, but when you’re a poor consumer, there’s very little to deal with. If we’re going to do something, do the right thing.
The Deputy Chair: That is well noted and we’ll discuss that in committee. Thank you.
We have three divisions left and close to half an hour, so 10 minutes per division. I ask that the opening comments be very concise and be open to questions. Get your questions ready.
Division 41 of Part 4 amends the Trust and Loan Companies Act, the Bank Act and the Insurance Companies Act to require certain financial institutions to make available information respecting diversity among directors and members of senior management. Mr. Khusro Saeedi, the floor is now yours. Thank you.
Khusro Saeedi, Senior Director, Framework Policy, Financial Institutions Division, Department of Finance Canada: Thank you, chair. My name is Khusro Saeedi. I’m the senior director of framework policy, financial sector policy branch with the Department of Finance. I’m here today at this point to speak to Division 41, which is found on pages 648 to 651 of the bill.
This measure introduces amendments to amend the financial institution statutes to put in place diversity disclosure requirements for federally regulated financial institutions, broadly similar to those presently found in the Canada Business Corporations Act. Changes to the governance regime in the financial institutions statutes and regulations are generally based on the Canada Business Corporations Act with modifications to reflect the specificity of federally regulated financial institutions.
Specifically, these amendments would require federally regulated financial institutions to annually disclose information respecting the diversity of their boards and senior management to the owners of the federal financial institutions, such as shareholders. These amendments follow public consultations in 2022 as well as consultations and cooperations with Indigenous partners in 2023, which revealed a high degree of support for this initiative. The details of the disclosure of diversity information would be set out in regulations.
The Deputy Chair: Do we have any questions on this division?
Senator Yussuff: Very quickly again, what is currently required for the institutions to divulge so we would know? Is it shared publicly? These are private corporations?
Mr. Saeedi: Yes. Currently there is no requirement in the financial institution statutes for banks and insurance companies that are federally regulated to divulge this kind of information. There is a requirement in the Canada Business Corporations Act that was put in place a few years ago that requires them to disclose information to the director of a corporations who then makes some of this information public, I understand. The approach taken in the financial statutes is to model the corporate governance provisions on those found in the Canada Business Corporations Act once those are put into place. This amendment would parallel and bring up to the same level as the financial institution statutes currently in place for general corporations.
I should note there are some diversity disclosure requirements at the provincial level for companies that are reporting entities under the securities regime. They’re a little bit different and a little narrower, and those would currently apply to some financial institutions that are publicly traded.
Senator Yussuff: How would that information be ascertained? Would it be the source of a website? Is there some place we could find that? How would we, as the general public, be able to understand where that information might be if I wanted to look it up?
Mr. Saeedi: In the legislation, the approach would be for the information to be provided to the owners of the institutions, which are shareholders for the most part, except for member-owned institutions, cooperative institutions, which would be the members, as well as to the Superintendent of Financial Institutions. This parallels the approach in the CBCA where the information is made available to the director of corporations, and then there would be a decision or approach taken by the Superintendent of Financial Institutions to make this public or not and in what fashion.
Senator Varone: There’s a fine line here. When I invest in a bank, I’m looking for a well-run institution. As much as I fully endorse and believe in diversity, equity and inclusion, I just find the two at odds with each other. I know there’s a corporate responsibility for disclosure, but the point that I’m trying to make is, as a shareholder, my first and foremost concern is my return on investment and not the disclosure of diversity, equity or inclusion.
The point I’m trying to make is how do you answer to a well-run institution versus one that is, in the eyes of the general public, well run by its diversity as opposed to its financial management?
Mr. Saeedi: It’s another complex question. All I would say is that the department did consult with a broad range of stakeholders on this measure, so it’s in place for the Canada Business Corporations Act. We consulted with a wide range of stakeholders, including industry stakeholders who have an interest in ensuring that their institutions are well run, and shareholder advocates who have an interest in ensuring that they receive the information they need in order to make investment decisions. I can speak generally that these were broadly supported amendments in the financial community.
The Deputy Chair: So if we don’t have any other questions on this division, I thank you. We will now move on to Division 42, and then will have Division 34, which is last.
Division 42 of Part 4 amends the Trust and Loan Companies Act, the Bank Act and the Insurance Companies Act to extend the period during which federal financial institutions governed by those acts may carry on business. Once again, Mr. Saeedi, the floor is yours.
Mr. Saeedi: This measure, as you noted, Part 4, Division 42 of the act, found on page 411, extends the sunset date found in the financial institution statutes. The sunset date — here it’s in the Bank Act, the Insurance Companies Act and the Trust and Loan Companies Act — is a date beyond which those institutions can no longer carry on business in Canada. It is a long-standing element of the Canadian financial institutions framework and effectively serves as a deadline for the completion of the regular federal financial sector review, which is a regular review that has taken place since at least 1992, and also in different formats before that, of the federal financial institutions statutes and the policy framework.
This amendment would propose a new date of June 2026 from the current date of June 2025, which would provide one extra year for the completion of the review of the financial sector statutes, which is currently under way. I am happy to take questions.
The Deputy Chair: We’ll move on to questions now.
Senator Yussuff: It seems that this is pretty serious business. The way the department is going about it seems ad hoc. Isn’t there a bigger question about the more comprehensive review so we’re not doing this from year to year to figure out what we need to legally cover because the legislation is not enhancing an indefinite period? Why is it done this way, rather than a comprehensive review and then fixing the legislation accordingly?
Mr. Saeedi: I’ll speak generally to how the sunset date works and what its function is, then speak about the review and one-year extension to put them into context.
The sunset date, which is serious business — it is the date on which banks can no longer carry on business — has been a long-standing element of the Bank Act, going back many decades — also, since 1992, the Insurance Companies Act and Trust and Loan Companies Act. The purpose of the date is to ensure that the financial institution statutes are regularly reviewed and modernized to reflect the current environment as the review goes on. There were reviews in 2001, 2006 and most recently in 2020, with a few intervening as well. Those force a comprehensive look at how the legislation works and new legislation to be put before parliament to modernize the statutes and to reset the date.
As has been recognized, there’s an element of the Canadian financial institutions framework that ensures it is up to date.
The sunset date is normally set at five years after the previous review.
There are occasions in the past, as is the case right now, that the government has chosen to extend the date by one or two years to allow for the review to take place over a slightly longer time period. That was actually done in the previous review; it was extended for two additional years, I believe. So in this case, the sunset date is being extended for one additional year, and that will allow government and parliamentarians to consider the submissions that have been received as part of the consultations for the review, which took place last year, as well as whatever amendments will come out of that.
Senator Yussuff: Thank you.
[Translation]
Senator Bellemare: Could we come back to section 41? I also have a question on diversity.
The Deputy Chair: You have a question on diversity?
Senator Bellemare: Mr. Saeedi will answer it.
[English]
The Deputy Chair: We’re going to finish at 6:15, but if we go a few minutes over, there are worse things that could happen.
If there are no other questions on this, we’ll move on. Thank you, gentlemen.
We will finish with our last section and with Division 34, Part 4, which contains measures that are related to money laundering, terrorist financing, sanctions evasion and other measures. Specifically, Subdivision A — this is why it’s at the end; it’s a subdivision — which amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to, among other things:
(a) permit information sharing between reporting entities for the purpose of detecting and deterring money laundering, terrorist financing and sanctions evasion;
(b) authorize, subject to certain conditions, the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC, to disclose certain information to provincial and territorial civil forfeiture offices, and to Immigration, Refugees and Citizenship Canada;
(c) authorize FINTRAC to publicize additional information pertaining to violations of that act; and
(d) extend the application of that act to cheque-cashing businesses.
At the end, in conclusion, it also makes consequential amendments to the Personal Information Protection and Electronic Documents Act, and the Cross-border Currency and Monetary Instruments Reporting Regulations.
This is a very thorough subdivision, so Ms. Erin Hunt, the floor is yours once again. Not to be repetitive on what I said — we’re clear on what it does cover at this point — is there anything you would like to add to that?
Ms. Hunt: I’ll perhaps recast some of the considerations so you can understand how we look at these within the regime.
Budget 2024 proposed to continue to strengthen and modernize Canada’s anti-money laundering and anti-terrorist financing, AML/ATF regime, to support stronger AML and ATF compliance, enhance information sharing and provide new tools for financial crime investigations, prosecutions and asset recovery.
So as you noted, the bill proposes the government’s amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or PCMLTFA. I will focus on that because that’s in Subdivision A. The first is to enhance the ability of reporting entities under the act to share information with each other; and to detect and deter money laundering, terrorist financing and sanctions evasion, while maintaining privacy protections for personal information. This will include an oversight role for the Office of the Privacy Commissioner, under regulations.
It also permits the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, to disclose financial information and intelligence to provincial and territorial civil forfeiture offices to support their efforts to seize property linked to unlawful activity and to disclose information to Immigration, Refugees and Citizenship Canada to strengthen the integrity of Canada’s citizenship process.
As noted, it will also extend regulatory obligations to cover factoring companies, cheque-cashing business, and leasing and finance companies. This is to close a loophole and level the playing field across businesses providing those financial services. It will also provide FINTRAC the ability to publicize more information around violations of obligations under the PCMLTFA, when issuing administrative monetary penalties. This is to strengthen transparency and compliance among the reporting entities in our regime.
Finally, it will make some small technical amendments to close a loophole with respect to the registration framework for money services businesses.
The Deputy Chair: Any questions on this subdivision?
Senator Varone: In 2017, there was in Ontario — specifically, the York region — a very large bust of criminal money laundering, criminal activity — criminality was everywhere. Five years later, the prosecutors dropped the case because of surveillance techniques and the detection of the money. They knew they were criminals, and there’s no issue, because of what they seized, but — and I don’t know where the law is; I’m not a lawyer — but at the end of the day, does this fix the detection, because that’s part of what this is doing, in terms of putting the criminals behind bars and not letting the cases collapse five years in?
Erin Cassidy, Counsel, Criminal Law Section, Department of Justice Canada: We’re not in a position to speak to individual cases, particularly ones that didn’t go forward. This would be a question that may be addressed to the RCMP, but what it sounds like may have happened — and this does happen from time to time, which is unfortunate — is that the prosecutor determined that, perhaps, there was a significant risk in relation to a charter breach, and for that reason, determined that it would not be appropriate to bring proceedings before the court.
That’s pure speculation, and I add that caveat to caution and frame what I’m saying there. This is not a pure Criminal Code matter, but it sounds like the prosecutor clearly had some concerns with the viability of bringing a proceeding before the courts. There can be many reasons they would do so, and that is part of their prosecutorial discretion. They have to determine that there is a reasonable likelihood of conviction, and if, in their assessment, the case brought to them by law enforcement doesn’t meet that test, then they can’t go forward with it.
The Deputy Chair: If there are no other questions for this division, we’ll go to our last question with Senator Bellemare.
Senator Bellemare: It is on section 41.
The Deputy Chair: We have five minutes on this to change it up and continue.
[Translation]
Senator Bellemare: Here, we’re asking for the disclosure of information regarding diversity on boards of directors.
What are the categories of questions we will ask? Will we ask if the person was born in Canada? What sex they are? Are we going to ask questions about their sexual relations? Are we going to ask questions about their parents, if they are Jewish or Muslim, and therefore ask about their religion? What kinds of questions will we ask about diversity?
These types of questions worry me. I understand that we want everyone to have equal opportunity. However, in what way does this promote giving equal opportunity? Doesn’t this instead encourage the opposite? What are the categories?
Mr. Saeedi: I want to emphasize that this is existing legislation. In this case, regulations will outline in detail the categories of questions pertaining to diversity, the categories that financial institutions should disclose.
However, I can say that the Canada Business Corporations Act has groups or categories.
[English]
The Canada Business Corporations Act regulations require disclosure for groups that are designated under the federal Employment Equity Act, so that is women, visible minorities, persons with disabilities and Indigenous persons. That is the approach currently taken in that statute.
As I noted to Senator Yussuff, the approach taken in the financial institutions statutes is that we will consult on this and see what we hear from stakeholders. There’s potentially a possibility of diverting from that, but the general approach taken in this statute is to model on the existing Canada Business Corporations Act, unless there is a reason to differ.
Senator Miville-Dechêne: You don’t have any percentage yet. If you put everybody there, is it going to be fifty-fifty for women and men, or all of that is later and maybe it’s never going to happen?
Mr. Saeedi: I don’t have the information. I don’t think we have the information on what the current breakdown would be. This piece of legislation would set in place a mechanism for that disclosure to take place.
The Deputy Chair: Maybe you could send us what you don’t have.
Mr. Saeedi: No, I don’t believe —
Senator Miville-Dechêne: No, it’s going to be in the regulations.
Mr. Saeedi: Yes.
The Deputy Chair: Thank you. We have no other questions. I know Senator Gignac had a question on Division 16, but we will revisit Division 16 next week. We’ve done Division 16. I know Senator Martin had a question on Division 34, but tomorrow we will have the Privacy Commissioner and the RCMP in for Subdivision A of Division 34.
Thank you very much. This brings us to the end of our meeting. Thank you to all our witnesses for being here. Thank you to our senators for their patience and their great questions. We truly appreciate everybody’s engagement, commitment, professionalism and availability. Thank you.
(The committee adjourned.)