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

Issue 7 - Evidence - December 8, 2011

OTTAWA, Thursday, December 8, 2011

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-5, An Act to amend the law governing financial institutions and to provide for related and consequential matters, met this day at 10:33 a.m. to give consideration to the bill.

Senator Michael A. Meighen (Chair) in the chair.


The Chair: Good morning and welcome to this meeting of the Standing Senate Committee on Banking, Trade and Commerce.


My name is Michael Meighen. I am a senator from Ontario, and I have the honour of chairing this committee.


We will continue this morning with our examination of Bill S-5, the financial system review act. I will begin by introducing the senators present today: Senator Hervieux-Payette, deputy chair of the Committee from Quebec; Senator Larry Smith from Quebec; Senator Carolyn Stewart Olsen from New Brunswick; Senator Donald Oliver from Nova Scotia; Senator Pierrette Ringuette from New Brunswick; Senator Mac Harb from Ontario; and Senator Wilfred Moore from Nova Scotia.

Our first panel this morning is composed of Brigitte Goulard, Vice-President, Policy; and Brenda O'Connor, Vice- President and General Counsel, Credit Union Central of Canada; and from the Canadian Life and Health Insurance Association, we will hear from Frank Swedlove, President, who has recently appeared before us; and Frank Zinatelli, Vice-President and General Counsel.


I want to welcome all our witnesses. Ms. Goulard, you have a short presentation, so you may go ahead.

Brigitte Goulard, Vice-President, Policy, Credit Union Central of Canada: Thank you, Mr. Chair, for inviting us to share with you some comments on Bill S-5, the financial system review act. My name is Brigitte Goulard, and I am the Vice-President of Policy with Credit Union Central of Canada. Joining me today is Brenda O'Connor, Vice-President and General Counsel, also with Credit Union Central of Canada.

Credit Union Central of Canada is the national association for the credit union system, its member organizations, provincial centrals and, through them, 378 Canadian credit unions operating outside Quebec. Credit unions are co- operative financial institutions that are owned by their members.

Canada's credit unions operate a branch network with more than 1,700 locations, and these branches serve more than 5 million members and employ almost 26,000 people. I want to point out that credit unions are the only financial institutions in over 380 communities.

Credit unions in Canada are provincially regulated financial institutions, and while it would appear at first blush that the federal government has a limited role in the regulation of the credit union system, in fact a number of institutions within the system are federally regulated.


Incorporated as an association under the Cooperative Credit Associations Act, the Canadian Central is a federal financial institution. Further, all of its provincial central members have opted to be regulated under the Cooperative Credit Associations Act. Additionally, Concentra Financial Services Association, a strategic partner to the credit union system, is the only retail association incorporated under the Cooperative Credit Associations Act. In 2010, the credit union system welcomed the Jobs and Economic Growth Act, which proposed amendments to the Bank Act to allow for the establishment of federal credit unions. We eagerly await the regulations that will give credit unions the opportunity to adopt a federal charter under the Bank Act.

For these reasons, we have a keen interest in Bill S-5. I would like to comment on three portions of the bill. First, we want to note our support for the proposed amendments to sections 9(3)(a) and (b) of the Canadian Payments Act. These amendments will allow a federal credit union to participate in the governance of the Canadian Payments Association as part of what has become known as the ``cooperative class.'' The amendments will permit federal credit unions to vote for CPA directors in the class designated for financial cooperatives, rather than in the banks class.

Credit unions have functioned well within the larger financial services industry as they have managed to leverage an ability to formulate policy and to speak at industry level associations and forums with a unified voice, presenting a single point of contact and a consolidated credit union system perspective on a variety of issues.

Placing the federal credit union in the cooperatives class will preserve and strengthen the credit union system representation at the CPA. It will ensure that a federal credit union will be represented by a director, who speaks for the interests of cooperative financial institutions in CPA matters. A strong advocate at the CPA is important for the credit union system's ability to advocate on behalf of credit unions and to continue to operate payments facility efficiently and cost effectively, which has a direct impact on overall credit union system competitiveness.


Second, we wish to indicate our support for the proposed amendment to paragraph 376(1)(g) of the Cooperative Credit Associations Act. This amendment would give associations a greater scope by allowing them to provide technology services outside the credit unions system.

It would allow a central to provide payment technology services to any member of the Canadian Payments Association. This expanded power will help strengthen the payment operations of the centrals that are so critical to credit union competitiveness.


Finally, we want to say a few words on the proposed amendments to sections 425 to 428 of the Bank Act and the general topic of Bank Act security. The proposed amendments have been introduced to address two recent Supreme Court of Canada decisions in which the court determined that an unperfected personal property security interest has priority over a subsequent but perfected Bank Act security interest.

While we understand the federal government's wish to clarify the situation resulting from the court's decision, we seriously question why a mechanism that is only available to banks should continue to be retained in the Bank Act. One of the goals of the modern PPSA legislation was to bring greater certainty and predictability to the resolution of priority competitions. To maintain the back tax security defeats this purpose as it cannot easily be harmonized with the priority rules of the provincial secure transaction regimes. Furthermore, PPSA legislation is used by lenders for the registration of the vast majority of the secured loans in Canada with the banks being the most frequent users. In this context, the section 427 Bank Act security has been marginalized and is no longer needed.

At a minimum, the Supreme Court decisions highlight once again the need for a more thorough review of the policy and technical issues surrounding the topic of personal property security in Canada. We believe it would be beneficial for all financial institutions to have access to a coherent personal property security regime that is simple to use and which places all institutions on equal footing.

There is a need for reform in this area, and the first step is the full review of the competing personal property security regimes in Canada.


To conclude, Credit Union Central of Canada thanks the committee for the opportunity to speak to you today about Bill S-5. We would be pleased to provide you with any additional information on the topics covered. In particular, we look forward to your questions.


The Chair: Mr. Swedlove or Mr. Zinatelli, we would like to hear from you, and then we will go to the senators for questions.


Frank Swedlove, President, Canadian Life and Health Insurance Association Inc.: I am happy to be here as the President of the Canadian Life and Health Insurance Association Inc. Joining me today is Frank Zinatelli, Vice- President and General Counsel of the Canadian Life and Health Insurance Association Inc.

The Canadian Life and Health Insurance Association represents the companies that provide 99 per cent of life and health insurance in Canada today.


The Canadian life and health insurance industry provides products that include individual and group life insurance, disability insurance, supplementary health insurance, and individual and group annuities, including RRSPs, RRIFs, TFSAs and pensions. The industry protects more than 26 million Canadians and over 45 million people internationally.

We welcome this opportunity to appear before the committee as you seek to develop your report to the Senate on this important bill. The industry is very supportive of this bill and urges that it be passed in a timely manner. Among the various statutes amended by Bill S-5 is the Insurance Companies Act, which is the governing statute for the regulation of life and health insurers at the federal level. Of course, life and health insurers are also subject to the rules and regulations that are set out in provincial insurance acts.

Following up on the Minister of Finance's September 2010 request for input on the scheduled review of legislation governing federally regulated financial institutions, Bill S-5 represents a welcome fine tuning of the various financial institution statutes. The bill contains provisions, first, to promote financial stability; second, to fine-tune the consumer protection framework; and third, to reduce the administrative burden and add regulatory flexibility.

With respect to the first of these objectives, we are pleased to see the amendment to the Winding-up and Restructuring Act, which changes the priority status of segregated fund policies in insolvency situations and will facilitate timely transfer of policies.

With respect to consumer protection, the bill would strengthen the Financial Consumer Agency of Canada Act and would also give the government broader regulation-making authority in this area.

With respect to the third objective, increasing legislative and regulatory efficiency, the life and health insurance industry is particularly supportive of some technical but useful proposals in this bill. For example, amendments would be made to the Insurance Companies Act as follows: to reduce administrative burden for federally regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements; to allow a segregated fund to invest in an insurance company through a mutual fund that the insurance company controls, provided the shares of the company are part of a recognized market access; and future adjustments on the limits on transfers to shareholders from participating policy accounts will be facilitated by adding regulatory flexibility.

We also support another useful provision that would provide federal financial institutions with enhanced flexibility to issue shares to foreign institutions owned by foreign governments. That being said, we are continuing to review this provision in more detail in comparison to the equivalent provisions in the other federal financial institutions statutes to make sure that Canadian life and health insurers will have as much flexibility under this amendment as those other financial institutions. We are continuing to discuss this issue with Finance officials.

The bill would also reset the sunset date for financial institutions to five years after the coming into force of the Bill S-5 amendments. In this regard, prompt passage of the bill will ensure the legislative stability and continuity that are so important to the financial services sector.


In closing, I would like to add that the life and health insurance industry strongly supports the provisions of Bill S-5. That legislation is relevant to the industry, which is prepared to provide as much support as possible to ensure the bill's timely passage.

The industry greatly appreciates the opportunity to participate in this committee's study on Bill S-5. We would be pleased to answer any questions you may have.


The Chair: Thank you, Mr. Swedlove. Could I ask you to confirm my understanding that both of you made submissions? Were you both part of the 30 or so institutions that responded to the call for comment and input?

Mr. Swedlove: Yes, we were, senator.

Ms. Goulard: We were as well.

The Chair: Did you both make your submissions public?

Ms. Goulard: No. I noticed yesterday during your hearing that you asked that question, so I went to verify to ensure I knew the answer. The CUCC made public within the credit union system; we distributed our submissions to our own system but did not make it public on our site. We viewed these changes as being very technical so we did not see the necessity of doing that.

The Chair: Mr. Swedlove, you did?

Mr. Swedlove: Yes, we made it available.

Senator Hervieux-Payette: You did what?

Mr. Swedlove: We made it available on our website. We made it public.

Senator Hervieux-Payette: Can we have access to yours?

Ms. Goulard: Yes, we can make sure you have access to it.

The Chair: You can send that to the clerk for our records.

Senator Harb: Thank you for your excellent presentation and for coming to meet with us today.

The minister appeared before us yesterday along with officials and they made a big deal out of the fact that this is technical and we are focusing on technical issues; yet, this is a five-year review of the act and you would think after a five-year review what the government should be doing is to go out and truly and totally review the act and consult with stakeholders. You came before us; you have some issues and some concerns, but nonetheless you do not want the process to be delayed; you want it to go forward.

Would you agree that what the government should have done with this act is to do a thorough consultation and involvement with the various institutions, including yours? The banks have some issues they wanted to bring forward that have not been addressed, and others perhaps the same. Should we just push it out and wait for another five years to deal with some of those issues?

Mr. Swedlove: One of the great strengths of the system that we have is that financial sector legislation is reviewed every five years. It does create an opportunity to deal with issues. The last number of years have been very interesting times for everyone. The general view of the industry is that no major changes in policy direction were needed at this time and that overall the financial system worked well through the financial crisis, and that probably what was best to focus on was dealing with technical issues, problems about regulatory burden, et cetera, that could be fixed.

We were not in a position to suggest major policy changes. There have been changes over the last several years, in any event, to deal with some of the fallout from the financial crisis. We felt comfortable with the direction that the government took.

Ms. Goulard: I want to support that. We also felt comfortable with the direction that Finance took. Also, we would like to mention that we have been working very hard with the Department of Finance on the federal credit union charter option. We have gone through a very heavy consultation process for the past three or four years on that option, so we felt they were listening quite well to us on that front.

Senator Harb: When it comes to cars, leasing and so on, banks as well as leasing companies have raised some questions, and they thought that this element should have been addressed as part of the review of the act. They moved forward, yet, at the same time, in a very shy way. They also, like you, just said, ``Put it aside. We will deal with it later. We will not make a big deal out of it.''

I am beginning to be concerned about to what extent we are shy and do not want to say what we want to see as part of this review. On the other hand, is it a fact that we are quite happy, and let us deal with the problems later, in another five years? Do you have any comment on that?

Mr. Swedlove: I will take a crack at that.

If there was a view that there were major policy issues and difficulties to deal with, we would have encouraged the government to deal with them. It is just that our view is the structure that we have in place is appropriate, that the system has responded well from a regulatory perspective in that we have good coordination mechanisms amongst OSFI, the Bank of Canada, the CDIC and FCAC all suggest that, relatively speaking, or compared to what we see from a regulation perspective around the world, that Canada does well.

We thought that the fact that we have shown that strength meant that a lot of changes were not necessary, and so that is why we supported the approach that was taken.

Senator Stewart Olsen: To follow up on what Senator Harb said, I am very pleased to hear you say you felt you were listened to, that you received a good audience from the ministry and that you work well with the ministry. It is my impression that the ministry tries very hard to keep in touch with our financial institutions because we recognize that the prudence as shown by all of you put Canada where we are. I am grateful for that. I know that when you make changes and you review an act, you cannot do everything all at the same time.

We did hear the credit union saying what they might like to see looked at next. I would be interested to hear from you gentlemen what you think we could look at in the next review, along with open ears, I think, from the Department of Finance department.

Frank Zinatelli, Vice President and General Counsel, Canadian Life and Health Insurance Association Inc.: One area that we have been discussing with Finance and that we hope the next time around will be considered is an issue that we refer to as ``self-evaluative privilege.'' This is an issue relating to companies doing self-examination or assessing how they are doing in complying with all the rules to which they are subject. However, at the same time, companies may be concerned under some circumstances of pooling all the concerns they have identified within their own companies and then having to disclose that in the context of litigation. That would be disclosed with regulators, et cetera, but we would not want to share that with litigation lawyers. Consequently, we thought a self-evaluative privilege would be a useful inclusion in the legislation. This is something that has been done in one province to date and that a number of other provinces are considering. That is something that we hope we would discuss next time around.

Senator Stewart Olsen: Thank you for that. The policy of incrementalism and doing what we can at the moment has proven very successful, and I am happy to see you are supportive of this bill and what was addressed.

Senator Moore: Ms. Goulard, I want to ask you about the third item that you mentioned on page 4 of your brief this morning. Could you run through that for us on a practical basis as to what it means for credit unions if this is not changed? Tell us how it works now.

Ms. Goulard: I will let my general counsel answer that question.

Brenda O'Connor, Vice President and General Counsel, Credit Union Central of Canada: As you know, all provinces have personal property security legislation where, if funds are advanced, security can be granted and registered under the PPSA statutes.

The Bank Act has a special security mechanism that is only available to banks. It does not align well with the PPSA registration system. It is extremely old, and the Supreme Court cases that came out this year were a result of credit unions that brought their issue to the Supreme Court, and the Supreme Court decided in favour of the credit unions. They had unperfected security interests, and they were held to be a priority of the Bank Act security. This is the reason that the legislation is now being amended to deal with that gap.

Our feeling is there are a number of places where the Bank Act security does not align with PPSA security and that it is possibly unfair for one banking institution to have a special security mechanism as opposed to the others.

Senator Moore: How does this work if someone comes to a bank, borrows $10,000 to buy appliances, and the bank puts a document on record? If the same person goes to a credit union, what is the security there, and is the bank security a priority over yours?

Ms. O'Connor: The bank security will have priority over ours, depending when it is.

Senator Moore: The timing of the registration of it, but is it the same otherwise?

Ms. O'Connor: It is a different registry system. The Bank Act security is registered with the Bank of Canada, and PPSA security is registered at the provincial level. It is federal security as opposed to provincially regulated security.

Senator Moore: Yes, but the bank can also record its security in the provincial registry.

Ms. O'Connor: Yes, and they do that regularly.

Senator Moore: Yes, so tell me again what you want here and why?

Ms. O'Connor: We are looking for a review of the two security systems. PPSA security is the more modern version of registry-based security. Bank Act security has the tendency to give a preference to banks only because they are the only ones who can take that security. It seems to us it is time for this to be considered.

Senator Moore: Does each province and territory have a personal property security act statute on its books that credit unions are able to use?

Ms. O'Connor: Yes. I believe so.

Senator Moore: Or that they operate under in each province and territory?

Ms. O'Connor: Yes.

The Chair: Ms. O'Connor, I do not want to put words in your mouth. I am looking at page 4, the last paragraph of your brief in connection with what Senator Moore was asking you questions about. Do I gather that your bottom line position is you think there is a need for a more thorough review of the policy and technical issues surrounding the whole matter of personal property security in Canada, but, in the meantime, you are prepared to or can live with what is proposed here?

Ms. O'Connor: That is right.

Ms. Goulard: To clarify, we have had this discussion with the Department of Finance, and they have also agreed this would be a good subject for discussion after the bill is passed. They also recognized that the amendments they put forward are meant to clarify a situation that was becoming a little more murky because of the Supreme Court of Canada decision, and they wanted to lay the groundwork to clear it up but agree this is something that would be subject to review. The law reform commission had looked at this issue several years ago and suggested that this particular provision be reviewed as well.

Senator Moore: You say section 427 of Bank Act security has been marginalized and is no longer needed. Is it no longer needed, or is everything covered by the Personal Property Security Act? Is that what you are advocating, so that would work for everybody, for all types of financing institutions, and therefore we do not need the Bank Act provision?

Ms. O'Connor: Yes, that is right. The banks do use the Personal Property Security Act legislation security, so they would not be disadvantaged by not having the Bank Act security.

Senator Ringuette: Page 3 talks about membership classes and participation of the federal credit union, if one is created and chartered by law. This is just an in-case measure, as I see it. My understanding is that the different credit unions and caisse populaires across the country have to go through a chartered bank in order to have access through the payments act.

Ms. O'Connor: That is not the case. The credit unions access the payment systems through their provincial central and the group clearer at the Canadian Payments Association. It is a group clearer. It is actually Central One Credit Union that represents the system at the Canadian Payments Association.

Senator Ringuette: You have one entity represented at that table?

Ms. O'Connor: Yes.

Senator Ringuette: How will the legislation change that?

Ms. O'Connor: When the amendments to the Bank Act were made a year or so ago to allow for federal credit unions, because they were formed within the Bank Act, the federal credit union was defined as a bank. If you look at the Canadian Payments Act, there are two classes of membership. One is a banks class for all banks, and the other is the cooperative class for coooperative institutions. By defining the federal credit union as a bank, they automatically fell into the banks class, and we had asked that it be moved into the cooperatives class. This is one of the issues we brought to Finance into our submission, and we had good discussion with them and were pleased to see the amendments made to the Canadian Payments Act.

Senator Ringuette: If ever we have a chartered credit union, would that displace your current group dealing with the Canadian Payments Act?

Ms. O'Connor: No.

Senator Ringuette: Would it substitute?

Ms. O'Connor: No, it would be additional. Group clearer would be there to represent the credit unions that choose to clear through the group clearer.

Senator Ringuette: That is important because of the number of credit unions out there that need an outlet.

I have another question. There are clauses here that increase the ownership threshold for Canadian banks by 50 per cent. Have you looked at these clauses within the act, and would you give me your opinion as to how this will affect the financial sector in Canada, which you are part of?

Ms. Goulard: No, I am afraid we have not looked at that particular section of the Bank Act. We have really focused on those particular provisions that affected the credit unions, whether they be the provincially regulated credit unions that are subject to certain provisions of the federal legislation or, potentially, the federal charter, but we have not looked at the provisions that affect solely the banks.

Senator Ringuette: I gather you have not looked at provisions in clause 5(22) in regard to foreign bank ownerships and foreign bank participation in the Canadian market and so forth?

Ms. Goulard: No. All credit unions are 100 per cent owned by their members, which are Canadian citizens, so we have not looked at those provisions.

The Chair: Senator Ringuette, I do not know if it is helpful to you, but the Office of the Superintendent of Financial Institutions will be here next hour and the Canadian Bankers Association next week.

Senator Ringuette: Do the other witnesses have comments on my questions?

Mr. Swedlove: There is the provision with respect to the ability of banks to purchase foreign banks and the role the minister plays. That also applies to the Insurance Act, and of course we have reviewed that.

With respect to the change in ownership shares, I am not sure of the provision. I have not checked that specifically, but if it is the one that relates to the requirement of banks to be widely held at a certain point or sell shares on the stock exchanges, the concept is that that is reviewed from time to time as the industry grows. We do not have any problems with that concept.


Senator Hervieux-Payette: I want to get back to one of my concerns and especially the consultation mechanism. As you heard the comments yesterday, you know that only a few briefs have been posted on line. However, I would like more details on the consultation process. How did you find out that these briefs were on line? Do you check every morning to see whether the Minister of Finance has submitted something for consultation? Have you met with anyone and, if so, who? I am wondering what kind of a relationship you have with the Department of Finance. I am under the impression that you are in contact. Do you meet? Are there any designated officials? Everyone has their own area of expertise; you are in charge of insurance, others are in charge of banking, and so on.

That means that only the Department of Finance can see the big picture. Nevertheless, I assume that officials talk to each other. However, as in any large organization, people often work in silos.

I would like to demystify the consultation process used in this case compared with the consultation process I preferred. As part of the old process, the banking committee would hold general consultations across the country. It would ask each organization what it needed to work better over the next five years. The committee would also receive comments from the country's various organizations. We do, after all, have 30 of them. I think that we heard from over 100 groups when we held public hearings for the comprehensive review of the Bank Act. There is a difference between 30 and 100 groups.

I want to know about the next step, the cohesion among the various organizations affected by this legislation. I also want to know what the actual process will consist of.

Ms. Goulard: We have an excellent relationship with the Department of Finance, largely because we have long been working on a federal charter option for credit unions. We have already established a solid relationship. Some employees of the Department of Finance are dedicated to the credit union issue because of the federal charter option.

We have been engaged in dialogue from the very beginning. The question was: will you issue a white paper and how will the consultations for the 2012 review be conducted? We already had an idea of what would happen owing to the ongoing dialogue with the Department of Finance. An announcement was made that the consultation would begin soon. The process used would probably be based on a document setting out guidelines and amendments to be made to the legislation. The Department of Finance held a round table with the various stakeholders, who were encouraged to make submissions. We met with them a few times to discuss issues that were important to us, such as access to the payment system. That was a very important issue for us because it would guarantee the co-operative aspect of a co- operative bank under the federal charter.

We felt that we were really consulted by the Department of Finance. I know that no public consultations were held as they were during the last review, but we have not felt that the Department of Finance has neglected to consult us.

Senator Hervieux-Payette: So how do you explain the fact that the Bank Act has not addressed the issue of security to your satisfaction? Was it not raised or did they simply not accept your proposal? Securities are extremely important in the case of a bankruptcy, as it is fairly important to know where we stand. I am asking myself the following question: were you told why that issue was not addressed?

Ms. Goulard: Yes, we have discussed that matter. The reason why the issue was not addressed was its high importance, which required a certain amount of consultation. We work with provincial centrals that would perhaps also like to consult their own province so as to involve it in the consultation process. Some documentation was provided and research was conducted, as I mentioned, by the Law Reform Commission of Canada.

The Department of Finance said that this was important, it was something they wanted to look at, but there was no time to do it within the set timeframe for 2012. However, it is something that will be addressed eventually. We may have been a bit disappointed that it would not be done right away. But we understand where they are coming from and are prepared to live with that decision.

Senator Hervieux-Payette: I had a look at the document. I think it was the other group that talked about the date set by the Canadian Life and Health Insurance Association, April 2012. Do you think that enough time was allocated for consultation? When did the consultation process begin and how long did it last?

I think it is important to know whether time was a factor in getting to the bottom of things. I should not ask this as a parliamentarian, but are the four months we have left to pass the legislation sufficient? Factoring into that time is the period when Parliament will not be in session. We will not be sitting for almost six weeks, or a month and a half. That means that there will be some pressure.

If we want to make amendments, the legislation will be referred back to the House of Commons, and if they decide to make amendments — Well, you get the idea. We do not have much time for an in-depth study of the bill.

Here is my question: what kind of timeframes do you envision for the next review in order to improve the related consultation process, which will preferably be done by our committee?


Mr. Swedlove: Having gone through many of these financial sector review exercises, my sense is that each one is quite different largely because the issues can be quite different. The approach taken by the government this time appears to be appropriate. In September 2010, those who were interested were asked to submit their proposals for change in the 2012 review. It was determined early on that this would be more of a technical review than a major policy review, so the timing seemed to us to be appropriate.

In terms of process, we made a submission, following which we had discussions at a series of meetings with the Department of Finance on our proposals. There was an attempt on their part to understand more fully the rationale for the proposals. Many of our proposals were accepted and adopted in the proposed legislation. A number of proposals that were not adopted were viewed by the Department of Finance as needing more time for reflection to gain a better understanding; and we understood and respected that. As Ms. Goulard has noted, sometimes these things can be quite complicated, requiring more time and discussion to reflect on change. The consultation process was very positive and reflected the technical nature of this review.

Senator Hervieux-Payette: You are so politically correct, I must say. Was the process in terms of the framework to garner a series of proposals? We were not made aware of it, and I do not consult the Department of Finance website regularly. When they issued that document in September, was it in the form of questions? Were you asked for an opinion on various sections of the bill? Were they limiting the scope of the review? You said that some parts you wanted to review were not accepted at this time and would need additional time. Was it because they were not in the department's document or was it because you were satisfied with the content of the document? I conclude that everything you submitted was not taken into consideration at this time. Was a delay mentioned to you?

Mr. Swedlove: A delay?

Senator Hervieux-Payette: A delay for addressing the questions that were left with a question mark.

Mr. Swedlove: For us, it is important that the legislation be passed on time. The measures in the bill really do contribute to increasing the efficiency of the industry and how we operate. While a number of elements are not included, possibly because more time is needed, it is more important for us that the bill be passed according to the timetable specified so that the five-year financial sector legislation review is maintained as an important principle for Parliament. That is more important to us than the issues that were left on the table or remain for further discussion.

Senator Moore: Ms. Goulard, with regard to section 427 of the Bank Act, you said that security has been marginalized and no longer needed. In your submission, did you request that the section be repealed?

Ms. Goulard: Yes, we did.

Senator Moore: What response did you receive?

Ms. Goulard: The response we got was that this section actually required more study. It was a policy decision outside the framework of technical amendment and required further discussion with other groups, rather than the small stakeholder groups only.

Senator L. Smith: It is a highly technical document. I am glad I went to law school because I was lost by page 45. I have a simple question for people who may not be technicians.

You mentioned your very good relationship with the ministry, the framework of technical adjustments, which was the focus of this review, and that in the next review you will raise issues that will propel further changes — messaging for the average Canadian. In view of the economic times we live in, what would you like to share with people who may not be technically oriented and understand all the intricacies of the Bank Act?

Is there something simple that you could say that would be interesting for people listening who may not be technically inclined?

Ms. Goulard: That is a good question. I am a lawyer and Ms. O'Connor is a lawyer, so I can understand that this is very technical. We had to bring other lawyers to help us understand this legal morass. Perhaps my comment would be directed not only toward this particular bill — I am not trying to be politically correct here — but for the public to take comfort that the Department of Finance is actually very keen on making sure that all aspects of the financial services sector in Canada are well looked after. I say this from a perspective of credit unions that are provincially regulated and that one would think might not get the interest of the federal Department of Finance to the same level that they have given to us.

We have our annual general conference every year. Always someone from the Department of Finance comes to that. I put in a call; all the time they answer. We have members come in; they take the time to meet with them. They are very much in tune with what is happening at the financial services centre, whether it be at the big bank level, who are always in the news, and with the small credit unions that are looking at those changes. We take comfort that although this particular legislation, this particular review is very much technical, the Department of Finance actually looks at all kinds of issues that are not only the technical ones.

Mr. Swedlove: Senator, I would say that aside from the removal of regulatory restrictions, the more technical things in the bill, what occurs in this bill is the government ensuring that it has all the levers possible to continue to ensure the safety and soundness of the system, plus levers to ensure that consumers are well taken care of.

The fact that there have been changes in the act to allow for more regulation in the consumer area reflects a desire that if the government feels it is needed to act, it has the tools and the ability to act. That is a positive part of the bill and, if anything, it improves on the already very strong, good system we have in place.

The Chair: It is nice to hear accolades for our hard-working civil servants. We do not always hear that. We know we are blessed in this country with an excellent civil service.

Senator Oliver: I do not have a question on the technical aspects of the bill, but I do have some sympathy for questions raised both today and yesterday by Senator Hervieux-Payette and Senator Harb about the system. I have an interest personally in parliamentary scrutiny and parliamentary oversight. I have heard many of you today saying that you have wonderful relationships with the Department of Finance and you meet with the Department of Finance, you discuss with the Department of Finance, you look at making amendments with the Department of Finance. Nowhere have I heard any of you, other than coming here today for an hour and giving some views about your conversations with the Department of Finance, say anything about the role of Parliament and parliamentary scrutiny on these very important matters.

In one brief, someone said that we strongly believe that there is a need for reform in the area and the first step is a full review of the competing personal property security regimes in Canada, federal and provincial. I cannot think of anyone better who should be involved in something like that than a parliamentary committee or a committee of the House of Commons and the Senate.

My concern is that too often in the things that we hear coming before us there are unilateral or bilateral communications with a department and a company or a group or an association and Parliament. The legislative branch of our whole parliamentary system is excluded, and it concerns me.

I have heard other senators expressing the same thing. There should be someone looking into ways in which parliamentary oversight can become a more integral part of this process, because right now it seems as though it is lacking.

The Chair: That sounds like more of a comment.

Mr. Swedlove: As you said, senator, you were not asking a question.

Senator Oliver: Would you care to respond?

Mr. Swedlove: From the perspective of an industry association, we are given a system, a process, and asked to participate in that process. We are certainly pleased to do so. If the government chooses another process, we would abide by that.

I would note that we as an association have been fortunate to appear before this committee and the House of Commons Finance Committee on many issues and feel that we do have the opportunity to make representations to you also quite often on many issues. We appreciate that access also very much.

Ms. Goulard: I have two short comments.

In terms of the section 427 security issue, I assume that whenever changes are made, and we hope that through our lobbying efforts they will eventually be made, it will eventually come before parliamentary committee because there will be legislative changes.

We were before you last week putting forward that the FCC is one of those bodies that we believe should be subject to parliamentary oversight. It is currently not in their legislation to be subject to oversight. We do very much believe that there is a place for parliamentary oversight in our institutions and we gave an example of that last week when we appeared.

Senator Gerstein: I must say that in my three years of having the honour of sitting on this committee, I have never heard a personal question asked of a witness, so it was with some surprise that I heard my esteemed colleague this morning ask of you, Ms. Goulard, or Mr. Swedlove, whether you were shy. I might say that I have now concluded that you definitely are not and that you properly did not answer the question yourselves, but I will answer it.

Having said that, I wonder if I am missing something here with regard to your relationship with the Department of Finance. I have heard the terms, and again I have never experienced this during my time on the committee, that you have excellent relationships; you view that you have had excellent consultations; you view that the department encouraged discussion; and that you view that the department had a genuine desire to consult. That sounds like a five- star answer. Is there something I am missing or misinterpreting as to your views of your relationship?

Mr. Swedlove: Obviously, five-star would be that they took our submission and put everything into legislation.

Senator Gerstein: That is not necessarily so. It is just that you had good consultations.

Mr. Swedlove: Our view is that we got very much a fair hearing. I do not think that was out of the ordinary. Historically, because everyone knows these reviews are coming up, there is the opportunity to plan for them, to get your ducks in order, if I can use that expression, so that you are in a position to enter into meaningful dialogue.

However, in the submission we made there are a number of technical areas that the Department of Finance would not be aware of as being an issue for the industry. That is the whole purpose of asking for submissions. It is reasonable that there be a dialogue and an attempt to understand what is going on.

One of the positive aspects that both Ms. Goulard and I have referred to are the fact that even in the areas where we have not seen what we wanted to see, there is an openness to continue the discussion, which we think is positive. It does not mean that at the end of the day there will be agreement, but at least the dialogue will continue.

Ms. Goulard: I will give Department of Finance five stars when we get our regulations for the federal charter. Hopefully, Finance is listening right now.

Earlier, Senator Hervieux-Payette asked whether or not there were issues that they had not raised in their consultation document and that we made a submission following through the process. One of those was having access to the cooperative membership class under the CPA act. This was not one of them that had been identified in the beginning by Department of Finance and we were able to bring this forward on the table through the consultation process and we able to obtain that particular amendment.

Yes, there was a true dialogue, so it was not an everything-is-done-and-ready-to-go process. For us, it was very important.


The Chair: Unfortunately, our time is up. On behalf of all of my committee colleagues, I want to sincerely thank our witnesses. My colleagues would give you five stars for your presentations, which are very useful to us. Thank you for being here and until next time.


We will start the second hour of our hearings this morning and continue with our deliberations on Bill S-5. We welcome on our second panel, from the Financial Consumer Agency of Canada, Commissioner Ursula Menke and Deputy Commissioner Lucie Tedesco; and from the Office of the Superintendent of Financial Institutions Canada, Patty Evanoff, Senior Director, Legislation and Approvals Division, and Philipe Sarrazin, Managing Director, Legislation and Policy Initiatives.

I gather that Ms. Evanoff has a presentation, which I think all members have received, and Ursula Menke would like to make opening remarks as well.

Ursula Menke, Commissioner, Financial Consumer Agency of Canada: Good morning and thank you very much for allowing me to make this presentation today. My opening remarks will be brief and focus on the impact of Bill S-5 on the FCAC, the Financial Consumer Agency of Canada.

The FCAC welcomes the changes the government is proposing to make to our act. The changes are largely technical amendments or clarifications to existing provisions.


One of the changes that will impact our activities is cheque cashing. The proposed amendment will help standardize the service to consumers — be they bank clients or not — in terms of cashing government cheques.

That will enable Canadians, including bank clients, to cash government cheques of up to $1,500 free of charge at any bank in Canada.


Among the changes that will also be impacting our agency's activities is an increase in the maximum penalty for a violation of a consumer provision. The amendments will increase to $500,000 the maximum administrative penalty that the FCAC can exact, bringing it in line with other federal regulators, such as the Office of the Superintendent of Financial Institutions and the Financial Transactions Reports Analysis Centre.

A final important change for us is that the bill provides that the commissioner, officers and employees acting under their direction are not compellable as witnesses in any civil proceeding on matters relating to their duties or functions. The remaining amendments are minor and technical in nature and will have no significant impact on the work we do.

That ends my remarks, and I look forward to answering your questions.

The Chair: Thank you, Ms. Menke.

Patty Evanoff, Senior Director, Legislation and Approvals Division, Office of the Superintendent of Financial Institutions Canada: As mentioned, I am the Senior Director of the Legislation and Approvals Division at OSFI, and my colleague Mr. Sarrazin is Managing Director, Legislation and Policy Initiatives. Among other things, we contribute to the development of legislation regulations and guidance on OSFI's behalf.

I would note that a number of important legislative changes were included in other pieces of legislation over the past several years. This five-year review of the financial legislation provides another opportunity to review the purpose and effectiveness of federal laws governing financial institutions in Canada.

The bill before the committee today contains further technical refinements to what we already consider to be a strong legislative framework.

From OSFI's perspective, the financial institutions legislation in Canada is clear, effective and enforceable. During the superintendent's appearance before this committee a short while ago, she mentioned the importance of clear and focused mandates for the federal agencies.

This bill does not affect OSFI's mandate, role or powers. The portions of this bill relevant to OSFI, for the most part, provide more clarity and consistency across financial legislation.

A key element in OSFI's mandate is to advance and administer regulatory framework that promotes the adoption of policies and procedures designed to control and manage risk. To fulfil this broad mandate, we look forward to five- year legislative reviews, such as this one, but we also regularly refine our own guidance, which is within the purview of OSFI, to ensure that we have an effective regulatory framework that is sensitive to developing risk and promotes industry best practices.

Thank you for the opportunity to appear here today, and I am happy to respond to your questions.

Senator Harb: Thank you for your presentation.

You mentioned the issue of the maximum penalty for violation. Would you tell the committee if there have been any penalties that have been levied against any institution over the past few years? If so, how many and how much was the amount of that levy?

Ms. Menke: I did not bring that information in detail, but we do regularly levy penalties. Last fiscal year, for example, we levied approximately a total of $175,000. The year before that, it was about $450,000. Those are totals for the year. It varies from year to year depending upon what we find, and our penalties are levied depending upon the nature and the impact of the non-compliance issue.

Senator Harb: It strikes me, from what you are saying, like we are trying to hit a fly with a two-by-four. The total punishment all around was 174, when your ceiling last year was $200,000.

Ms. Menke: Yes.

Senator Harb: What is the rationale now for suddenly jumping to $500,000, when probably the chance is pretty good you would never get there, ever?

Ms. Menke: I am not so sure about that, although I have nothing specific in mind, obviously. I think it is just to keep it in line with the other penalties and other organizations that have similar maximum, other organizations that are in the same sort of area in financial institutions area.

It is unlikely, I would say, that it would ever get to a maximum, but it has happened that we have gone to the maximum in the past, so it is not impossible. ``Unlikely'' is probably the correct word, yes.

Senator Harb: You are saying you want to use it as a deterrent to scare off the bugs?

Ms. Menke: Absolutely.

Senator Harb: This applies to institutions, right? You are changing it, taking it from $200,000 to $500,000. What is for individuals?

Ms. Menke: It is at 50, and it is remaining at $50,000.

Senator Harb: Why?

Ms. Menke: We have actually never fined an individual.

Senator Harb: Why?

Ms. Menke: There have been no cases where we found an individual specifically at fault for a noncompliance issue at this point in time. Yes, all actions of an institution are done through individuals, of course, but it is the institution that we penalize because we usually hold the institution responsible.

Senator Harb: In a sense, to be fair, we can all hide behind an institution, but if you are really trying to achieve what you want, and that is deterrence, perhaps you could have asked for something along the same lines for individuals.

Ms. Menke: We did not because $50,000 would be an awful lot for an individual anyway, and we have never, as I said, penalized an individual at this poiont in time, so really the issue did not come up.

Senator Harb: Ms. Evanoff, with this technical amendment to the act, the minister seems to be doing something that is more than technical in nature, and that is, in a sense, saying that you can only go to this point, after which he or she does not need you any more and will make the decision when it comes to the threshold.

From a bureaucratic point of view, can you explain how that will work? What mechanics do you have to put in place in order to make it happen? When an issue comes before you and it hits a threshold and you have to turn it over to the minister, what are the mechanics?

Ms. Evanoff: It is pretty much business as usual in some senses. First, are you talking about the ability to acquire a foreign institution?

Senator Harb: Yes.

Ms. Evanoff: That is a power that had been in previous versions of the financial institutions legislation and had been taken out, I believe, probably just as part of a streamlining initiative. It has been considered at this time appropriate to bring it back.

We would treat it like we would treat all ministerial approvals under the statute. From an administrative point of view, OSFI reviews all applications that require approval, whether or not that is superintendent approval or material approval. We analyse it from a legal point of view and a prudence point of view to determine whether we consider the institution has the financial and operational resources in order to be able to undertake the transaction. Then we would provide a recommendation to the minister, which the minister would then obviously consider and take into account any additional factors that he would see fit.

We very much support this provision and, again, it is very much in keeping with the way the legislation works today.

Senator Harb: It will not impact your impartiality? You have an employee-employer relationship with the minister. You will not go to the minister first and ask how they feel about this and turn around and make the recommendation in order to fit what the minister is saying, will you?

Ms. Evanoff: No, sir.

Senator Harb: You will look at the merits of the case and make the recommendation to the minister.

Ms. Evanoff: Yes, senator. We have a very well established approvals regime at OSFI, and we take that role incredibly seriously, as we are guardians of the legislative scheme.

Senator Harb: Even if it contradicts what you think the minister might want to do?

Ms. Evanoff: We will make a recommendation based on our mandate, which is with regard to the safety and soundness of individual financial institutions. The minister, of course, has the opportunity to add additional considerations that he may have in regard to the stability of the financial system or the overall size of the institution, which would be beyond prudential considerations, and that seems perfectly reasonable.

Senator Ringuette: My first question is to Ms. Menke in regard to the violation penalty. Last year, you said that there was $175,000. Would that include MasterCard or Visa violations of the code of conduct?

Ms. Menke: No. I have no authority under the code of conduct to undertake enforcement action. The code of conduct is a code for the institutions, and all I can do is basically monitor it and report to the minister.

Senator Ringuette: Thank you very much for specifying that to the members of this committee. In reality, you have no penalty mechanism, and your powers are extremely limited in regard to the oversight.

I have some questions in regard to the increase in the ownership of banks. In 2001, the ownership was at $5 billion. In 2007, it was increased to $8 billion. This legislation now increases it to $12 billion. In the last 10 years, there has been a 240 per cent increase. Knowing the rules that you have to enforce, how do you see this increase of 240 per cent in the current situation of the financial crisis, capital requirement and so forth.

I really want to have your perspective on this. You specified at first that you are on the legal advisory committee of OSFI. I do not know if you have all the implications in regard to your mandate, and I am having a very hard time seeing the liquidity requirement of Canadian banks to meet this increase.

The Chair: To be clear, to what financial institutions do the figures that Senator Ringuette gave you apply?

Ms. Evanoff: Senator, I will do my best to answer your question. I will step back for a second.

There are, let us call it, three classes of financial institutions, banks, for ownership purposes. There are the five large banks, which must be widely held in perpetuity. There is a second set of three banks that are currently widely held. It is within the purview of the Minister of Finance to consider a reclassification of those three banks to become closely held at some future point, based on public interest considerations. Then there is a smaller tier of banks, which can be closely held. They are the Canadian Tire banks and that kind of thing.

Those three classes of banks are delineated by a threshold based on shareholders' equity. Under this and previous reviews of the limits, those three classes of banks all stayed the same. In other words, the same institutions that must be widely held in perpetuity will still have to be widely held in perpetuity; the same institutions in the middle still exist in that class, and the smaller ones will still fall below the new threshold. Therefore, it does not change the ownership regime in Canada; it merely reflects growth in those limits over time.

Senator Ringuette: If it is in this legislation, it must have an impact. So what is the impact?

Ms. Evanoff: There is no impact in practice because the institutions in those three bands, for ownership purposes, are exactly the same institutions as today. It reflects the technical increase in the band to keep them in those three slots based on the growth that has occurred since the last increase.

The Chair: It is an increase in the ceiling?

Ms. Evanoff: Correct.

The Chair: Or the floor?

Ms. Evanoff: Yes, the increase in the band or the delineation between the three classes of banks.

Senator Hervieux-Payette: I do not understand. We want to know why. It went from $8 billion to $12 billion. What was the rationale behind that? In the minister's testimony yesterday he said that below $12 billion you are the only one responsible to review it, and over is $12 billion you do the review and recommend to the minister. That is the way I heard it.

You have a lot of confidence in your institution, but why did we go from $8 billion to $12 billion and why do we have that big discrepancy over the years? You talk about growth, but it does not explain why it would not be reviewed twice. When you review it and recommend to the minister, I suppose the minister also reviews it in line with the other groups.

Can we have the rationale for this amount of money? Did you recommend it?

Ms. Evanoff: No, this really is a matter for the Department of Finance. They have proposed the revised thresholds but, as I explained, my understanding is that it is a continuation of the status quo and a continuation of the ownership policy as we have it today and as it is administered today. It is not the introduction of a new ownership regime.

Senator Hervieux-Payette: That does not give the answer. Why from $8 billion to $12 billion and why would you be solely responsible for the review up to $12 billion with the minister coming in only after $12 billion? Why is there that gap? Is it because there are too many or it is too comprehensive? We want to know the rationale behind that.

The Chair: Or is it because the minister only wanted to review very large transactions and $12 billion is larger than $8 billion?

Ms. Evanoff: Perhaps there is a little misunderstanding here. The ownership regime and the review of it are seamless. When anyone wants to make an investment in a Canadian bank, regardless of its size, if an approval is required it is always ministerial approval for significant interest in a Canadian financial institution, and it always has the review of OSFI prior to recommending the approval of a significant interest, or a controlling interest in the case of a small bank in Canada. That is not changing.

I am wondering if there might have been a bit of confusion between the limit for the foreign acquisition and the $12 billion that applies to the ownership regime.

Senator Ringuette: It is the ownership regime that started in 2001. It was established at $5 billion and 10 years later we are looking at $12 billion, which is a 240 per cent increase. I want to know the rationale for this increase.

You explained very well the three classifications and so forth, but unless you tell us that in the last 10 years the assets of our Canadian banks have grown by 240 per cent, there has to be a rationale. We cannot approve legislation without having facts and rationale.

I understand it is not your mandate, but OSFI is playing a very important role in this, and I want to know your rationale.

Ms. Evanoff: Senator, the only thing I can say is that it does not change the ownership regime for banks and it does not change the role that OSFI plays in regard to reviewing the ownership of banks. It makes no policy changes per se. I can appreciate you would like a rationale for the change in the actual number. That is a proposal brought forward by the Department of Finance, not by OSFI.

I am afraid I have done my best to explain.

The Chair: Senator Ringuette, we will have some time next week. Perhaps we could inquire whether someone from the Department of Finance could come before us to explain that. Would that be helpful?

Senator Ringuette: Yes, please.

Senator Oliver: The minister explained it yesterday in his evidence.

The Chair: Let us review that and see. I do not have the text of what he said.

Senator Oliver: I do not have it here, but he explained that point yesterday, and I thought quite clearly.

The Chair: We will have a look and we can consult with Senator Ringuette. If that is indeed the case, she will have her answer; if not, we will try to find someone from Finance. Would that be all right?

Senator Ringuette: Yes, that would be very much appreciated. I understand that Ms. Evanoff looks at the legal aspect of bills and not the ``whys'' and ``why nots.''

I thank you very much.

Senator Moore: Ms. Evanoff, you say this bill does not affect OSFI's mandate, role or powers, but that is not quite right because the minister has now taken back the power with regard to the approval. You now would make a recommendation but before you approved the transactions, right?

Ms. Evanoff: Yes. When I say powers, I mean our supervisory powers.

Senator Moore: You say that a key element in OSFI's mandate is to advance and administer a regulatory framework that promotes the adoption of policies and procedures designed to control and manage risk. Does that extend to the financial vehicles that institutions trade in or offer for sale?

Ms. Evanoff: No, it does not.

Senator Moore: Who looks after that?

Ms. Evanoff: It would be the securities commissions, for example.

Senator Moore: Do you have anything to do with that? Do they canvass that by your office?

Ms. Evanoff: No, sir.

Senator Moore: Do you make opinions on that?

Ms. Evanoff: No, not on financial products.

Senator Moore: I am concerned about that. In the recent meltdown one of the big problems was with derivatives and people's lack of knowledge of what they were and what they contain. I still do not know if they do know. I am concerned about there being no requirement for a prospectus to be prepared and issued so purchasers can know what they are getting into. Do you have anything to do with that?

Ms. Evanoff: No, sir, we do not.


Senator Hervieux-Payette: My question is for Ms. Menke or her colleague. Could you explain to us why the witnesses are not compellable? In law, people are rarely exempted from appearing before courts. Almost everyone in Canada is answerable for their actions. I want to know what the reason is. Has the government received a massive number of requests? We are generally accountable for our actions.

Ms. Menke: It is not a matter of our actions; it has to do with third parties that are facing off in court, where we are being asked to testify. In that context, the purpose is to receive information that is usually minimally relevant to the process. That has happened to us a number of times. I cannot say that it happens regularly, but it has happened to us in the past.

We are asked to testify as to whether or not the institution is a bank, or something to that effect. That is why this provision was included in the legislation. Testifying in such cases was not a good use of our resources. Those are obviously not cases we are involved in.

Senator Hervieux-Payette: I would like you to send us that document, so that we can know how many cases there have been, how many of your staff have been asked to testify on similar issues. Are we talking about 5, 50 or 500 of your employees? I would like to know what the numbers are.

As I said, as soon as there is departure from the usual rules of law, I need definitive evidence in order to know whether your institution could be crippled by its court appearances. However, if you are asked to testify a few times a year, I am less likely to agree with an exemption. This is not necessarily a matter of taking sides, but of providing accurate information. In court, judges always appreciate being provided with accurate information by neutral parties, instead of having two sides give them two personal opinions in a debate.

Ms. Menke: I will send the clerk the information you asked for.

Senator Hervieux-Payette: The maximum cheque amount — and you conducted a study on this — is set at $1,500. That is the first thing you talked about. You talked about old age security pensions and the guaranteed supplement over the next five years — I am talking about pension cheques including the supplement. Will all those cheques be covered? The old age pension cheque is less than $1,000, but I do not know what amount it comes up to with the supplement. Is only one cheque sent per couple? In that case, the amount may be higher. How did you arrive at $1,500?

Ms. Menke: That amount was set some time ago and has not been reviewed since. The figure was established a while ago. I cannot answer your questions. All I can do is ask around to try to obtain that information for you, as I do not have it. Our office has not conducted any studies on that issue.


Senator Hervieux-Payette: For the benefit of my colleagues, we are told that Ms. Menke does not know the maximum number for couples with their pension and their supplement combined. If it is does not cover, this would be an item that would be easy to correct. Maybe it is $1,550, maybe it is $1,700, but I do not know and I do not know how the cheques are issued. With a couple there might only be one cheque. If the amount is over that amount of money we could make sure.

I do not understand why a couple receiving the supplement — meaning they are among the poorest of seniors in our country — would pay and another couple receiving a cheque and has other revenue would not pay to change that cheque. That would be very interesting to know. I suspect there are quite a number of them. Certainly, there are thousands of couples in this country receiving the pension and the supplement. We might be able to address this question and perhaps make sure they are treated the same as any other seniors in this country.

Ms. Menke: We will have to get you that information.

Senator Hervieux-Payette: Thank you so much.

Senator Moore: Who established the number?

Ms. Menke: It would have been the Department of Finance.

Senator Moore: Along with the information you get for Senator Hervieux-Payette, would you include the background and establishment of that number? Has it grown? Could you provide that as well?

Ms. Menke: I will let you know that as well.

Senator Moore: That would be helpful. Thank you.

Senator Hervieux-Payette: I will be more specific: It has to be good for five years because we will review the bill in five years. Therefore we need to make sure. I know there is a small cost-of-living increase every year, but 2 per cent or 3 per cent could make a difference between having to pay to change a cheque and not having to pay to change a cheque. Even though it may be a very small amount of money, such as a few dollars, for some seniors it is a big amount of money.

Ms. Menke: We will provide you with the information.

Senator Ringuette: In relation to the payment to change a cheque, would that also apply to the payday loan? Are payday loans under your supervision?

Ms. Menke: That is not under our jurisdiction, or under the jurisdiction of the federal government generally speaking. The Bank Act is specific. That provision only applies to banks. Only banks are required to cash cheques.

Senator Ringuette: Remind me, and maybe I have forgotten, but in regard to bank accounts I know, because I have read about it, that in the U.K. they made it mandatory for any citizen who wants to have a bank account the banking institutions could not refuse to open a bank account. Does Canada have the same kind of legislation?

Ms. Menke: We do. Banks are subject to that.

Senator Ringuette: Is the caisse populaire subject to that?

Ms. Menke: No.

Senator Moore: The Government of Canada cheques up to $1,500 can be negotiated free of charges in any Canadian bank, or would it be just in the chartered banks?

Ms. Menke: I think they are all considered to be chartered, but any Canadian bank that has a branch. It is any branch of a bank.

Senator Moore: Someone mentioned a Canadian Tire bank earlier. Can they go there or just to chartered banks and their branches? Is it cooperatives?

Ms. Menke: No, at this point in time cooperatives are part of the legislation but we do not have any subject to the federal legislation.

Senator Moore: What are the institutions?

Ms. Menke: They have to have a branch. For example, the institutions that are purely over the Internet would not be covered by that. That gives you generally an example of what would not be covered. There needs to be a branch. The consumer must be able to go to a branch.

Senator Moore: It can be more than our chartered banks.

Ms. Menke: Yes, absolutely. It is any bank that has branches.

Senator Ringuette: To clarify, in the instance of the Canadian Tire bank, would a Canadian Tire store be recognized as a branch?

Ms. Menke: I would not think we would recognize the store itself as a branch. It would need to be a branch of the bank.

Senator Ringuette: Going back to Ms. Evanoff and the three-tier banks, it only applies to the first and second tier, not the third tier, the Canadian Tires and the Bay, President's Choice and so forth.

Ms. Evanoff: It would depend on the business model of the bank as to whether or not they had a place a client could walk into. I am sure that varies by institution.

The Chair: Colleagues, apropos of what Senator Oliver raised a while ago, for the information of honourable senators I have been given what I believe to be the text of what we heard yesterday from Ms. Pearse of the Department of Finance in response to a question from Senator Harb. He said:

How did you decide on the $12 billion? Why is it not $16 billion or $18 billion?

Ms. Pearse said:

We looked at the growth in the size of the sector between the last amendment in 2007 and the next five-year block. We made a decision that $12 billion was an appropriate minimum threshold to define the difference in ownership structure between large financial institutions and medium-sized ones.

That is what was said yesterday by Ms. Pearse. I do not know whether the minister had any specific comment on that. That was the response of the Department of Finance. Whether it is a satisfactory response to my colleagues, I do not know, but I thought I should let you know what was said. We can discuss that and see whether we need additional information.

Senator Ringuette: If you are looking at me, I will state publicly what I said to you privately. If that means that in the last 10 years our chartered banks have increased their capital worth by 240 per cent, it means that growth, which is humongous, has been, for a good portion, built on excessive fees, and I maintain that position. I wanted to put that on the record.

The Chair: I want to get on the record that you will not be surprised to know that I firmly disagree with you, and you also neglected to take into consideration the next five years, as Ms. Pearse said. They were trying to protect growth over the next five years, not taking it over the past five years.

If senators have no more questions of our witnesses, I will thank each and every one of you for being here. I am sorry that you were witness to a little discussion between Senator Ringuette and me, which perhaps does not have anything to do with your evidence, but thank you for taking the time to join us.

(The committee adjourned.)