Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 8 - Evidence - December 15, 2011
OTTAWA, Thursday, December 15, 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 10:31 a.m. to give clause-by-clause consideration to the bill.
Senator Michael A. Meighen (Chair) in the chair.
[English]
The Chair: Good morning, colleagues. We are here to proceed with clause-by-clause consideration of Bill S-5. Before doing so, I thought it might be helpful, given our discussion yesterday, to ask officials from the department to come back and provide a little bit of additional, if not repeat, clarification on what they were telling us when they appeared previously.
Back again for a repeat appearance are Mr. Jeremy Rudin, Ms. Jane Pearse, Ms. Eleanor Ryan and Ms. Leah Anderson. In the audience we have other senior officials, so we are well supported here.
Colleagues, you will remember that yesterday two questions were raised, primarily by Senator Moore, the first dealing with the brief of the Canadian Payments Association and the second dealing with a comment in the brief of the Credit Union Central of Canada.
With respect to the brief of the Canadian Payments Association, you will recall that they thought it would be helpful to clarify the amended definition of "clearing and settlements system'' in the Payment Clearing and Settlement Act as proposed in Bill S-5, and specifically the scope of the term "jurisdiction'' and whether it means outside of Canada or simply outside of a province.
I have just reread the briefing notes, which all senators received, and I think there is a reference to that in them, but perhaps one of you might comment on that.
Second, yesterday the Credit Union Central of Canada suggested that section 427 of the Bank Act has been marginalized and they would propose that its ongoing utility and necessity be reviewed.
With respect to that second item, section 427, we did discuss this. Sometimes one forgets quickly, so perhaps I could read from the transcript to help us in our consideration of section 427.
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 a 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.
Continuing on later:
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.
To deal first with section 427 with that background of our discussion during our previous hearing, I will turn the floor over to Mr. Rudin.
Jeremy Rudin, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance Canada: Thank you very much, but I will ask Ms. Pearse to speak to that.
Jane Pearse, Director, Financial Institutions Division, Department of Finance Canada: I appreciate knowing what the position of the Credit Union Central was.
I think what you heard there was that the amendment that we are proposing in Bill S-5 is a very technical one to respond to the Supreme Court of Canada issue that was raised. It does not address the broader question that was brought forward to you of whether this clause should have a greater policy review in the future.
As was noted by Ms. Goulard of Credit Union Central, the amendment in Bill S-5 is very narrowly focused on a request for a view that came forward from the Supreme Court of Canada that there was a lack of clarity in the Bank Act wording, and we are responding to that.
The Chair: Well, we understand that it is very narrow. The question is, are you prepared to review it given the comments of the witness? I would like you, if you can, to confirm what Ms. Goulard said:
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.
She said she could live with it as it exists now, presumably based on the premise that the department had agreed to continue discussion of it. Is that accurate?
Ms. Pearse: I think that is accurate, yes.
Senator Moore: Why does it require more study, and what are the other groups beyond the groups that were involved in the discussions leading up to Bill S-5?
Ms. Pearse: Bank Act special security interacts with provincial types of security, and having clarity about how lenders can perfect certain types of security is a very important commercial tool. There would be a broad number of stakeholders that would be very interested in any amendments to this section and any changes to the policy with the federal government going forward in this area.
Senator Moore: This section was not canvassed when you talked to the stakeholders that you met with regarding Bill S-5? Did you put that in abeyance? How did that transpire?
Ms. Pearse: When the minister announced that we were looking at the review process, issues were raised across the financial sector legislation. Some stakeholders raised the policy construct of Bank Act special security, and the decision was made to amend this section only to address the technical issue or the narrow issue raised by the Supreme Court as opposed to opening up the policy consideration of how the federal government should change its policy in this area.
The Chair: Ms. Pearse, would you have any objection if the committee were to decide to urge the minister to continue the discussions over the question raised by the Credit Union Central? Does that cause you any problem?
Ms. Pearse: No.
The Chair: You are prepared, as Ms. Goulard took it, to continue discussions?
Ms. Pearse: Yes.
The Chair: Does anyone else want to comment on the Credit Union Central's point?
If not, we will go to the question raised by the Canadian Payments Association. Excuse me; it is the reverse. It was the Canadian Payments Association who raised the question of jurisdiction. I am sorry about that.
Now we turn to the question of the Canadian Payments Association who proposed that a clarification be made to the amended definition of clearing and settlement system in the Payment Clearing and Settlement Act as proposed in Bill S-5, and specifically the scope of the term "jurisdiction'' and whether it means outside of Canada or outside of a province.
I reread the briefing notes and it seems to me it is both, but I ask you to comment.
Leah Anderson, Director, Financial Sector Division, Department of Finance Canada: Stepping back for one minute for the benefit of everyone, the purpose of that amendment combined with the other ones to the Payment Clearing and Settlement Act is to allow the Bank of Canada to designate clearing and settlement systems, in particular with a move to potentially designate a new clearing and settlement system that deals with derivatives contracts.
The issue we faced in that prospect was that currently the definition in the act requires that a clearing and settlement system have a bank within it. We have proposed here eliminating the requirement for a bank because it is possible, or likely, that the future derivatives clearing and settlement system within Canada will not have a bank but will be done through the securities dealers of the banks. That is the motivation for the change.
In terms of this issue of legal certainty and jurisdiction, we did consult with legal counsel. As you know, bank is a head of power that you can put a hook into, but removing the concept of bank we applied this concept where the head office of the clearinghouse needed to be in a different jurisdiction from the head office of at least one of the participants. That clearly invokes the trade and commerce power, which clearly gives us the jurisdiction to regulate those clearinghouses.
With respect to the application outside of Canada, there is a requirement that at least one of the participants in the clearinghouse be Canadian in order for the Bank of Canada to ultimately be able to designate that system.
The Chair: Did I miss it? Did "jurisdiction'' mean outside of Canada or simply outside the province?
Ms. Anderson: Both.
The Chair: Both.
Is that clear to all parties or is that beyond contestation? Is there any controversy as far as you are concerned with that interpretation?
Mr. Rudin: No, Mr. Chair, we feel that the wording is quite clear.
Senator Moore: I am not as comfortable as Mr. Rudin. The Canadian Payments Association says we are unclear as to the scope of the term "jurisdiction'' associated with that participant and whether it means outside of Canada or simply outside of a province.
They have legal counsel. They looked at this. They are unclear, so why are you so sure? Does it say both or do they have to go back and find another rule that gives you certain powers? This is pretty important, so does the definition explicitly say both, outside of Canada and outside of a province of Canada?
Mr. Rudin: In crafting the policy intent, we rely on our support from the Department of Justice for the legal wording, so I will ask our counsel to speak to that.
Joseph de Pencier, Senior Counsel, General Legal Services, Department of Finance Canada: Thank you, Mr. Chair. I am from the Department of Justice and a member of the Legal Services Unit at Finance Canada. This matter was looked at and we and our drafters are confident that the choice of the term "jurisdiction'' here is a very deliberate one to refer both to jurisdiction in Canada and outside of Canada.
Senator Moore: You are confident, but how is it spelled out? You are looking at this internally, but how does Joe Citizen or the Canadian Payments Association know what you are intending if you do not spell it out? Why do you not say that it means both?
Mr. de Pencier: I think the choice of the drafting here was deliberate. The simplest formulation was chosen that does in fact refer to both and is consistent throughout federal legislation.
Senator Moore: I do not understand, if it is so clear, how this important organization to the financial sector in Canada would be unclear about that. They made a very strong point of bringing it to our attention. I do not know why you would not just lay it out there.
Maybe I am simplistic in my thinking, but I do not know why it just does not say that.
The Chair: Is there a particular reason other than your feeling that it is clear enough?
Mr. de Pencier: Again, this is a drafting convention that is used. The drafters strive for consistency within an act and from legislation to legislation. My understanding from the drafters is that this is a tried and true formula to deal with exactly this sort of situation. There might be some concern, if you went back and tried to use a different formulation, about what it would imply for other pieces of legislation. It is not a good thing to have inconsistent formulations at use. We have to take a broader view than just a particular section in order to achieve the policy intent.
The Chair: I do not want to put words in Senator Moore's mouth, but I think if you said, "As in the past this shall be termed to mean both within and without,'' it would be clearer, but I am not a drafter.
Mr. Rudin: The concern would be that if in this case we were to define "jurisdiction'' specifically and "jurisdiction'' is used in other cases without that definition it would raise uncertainty in other cases where the definition is not clear. We feel this is sufficiently clear. We do not want to create uncertainty about what "jurisdiction'' means in other contexts.
I cannot speak for the Canadian Payments Association, but we have certainly contacted them and had a good discussion with them since.
The Chair: I do not think there is much dispute about the fact that there have been quite a few discussions.
Senator Moore: In your discussions with the people and stakeholders interested in Bill S-5, was this raised by the Canadian Payments Association?
Mr. Rudin: To the best of my knowledge, the Canadian Payments Association did not raise it with the Department of Finance prior to their meeting with you.
I would note that it is, however, in the clause by clause, the description, which is not part of the bill. The intention is stated, and, of course, it is now also on the record as a result of this discussion.
Senator Moore: It was not raised with you in your discussions with them.
Mr. Rudin: Not prior to yesterday, not to my knowledge.
Senator Hervieux-Payette: Since we have started the Senate, we have fortunately to have the text clearer. I read it in English and in French. It is not clearer in French than it is in English. Why do not use these words? If on your side, you do not see it that it is international and interprovincial, why do you not use these words? I mean, it is very easy. The way it is worded, you have to think twice to know that you have to have head office there, and then you talk —
[Translation]
It would be in a province other than the one where the head office is situated.
[English]
I almost would almost say that it is in your imagination that you think it is not in the same province. It is not said or mentioned. I feel if you were coming with a clearer sentence, we have time to just put it on the table and make it clearer. Why do we send it to the house and start it all over again this process? We have the opportunity to do it.
Mr. Rudin: As I said, my concern would be that by clarifying in the statute the definition of this term, which is used elsewhere, it would undermine the clarity of its usage elsewhere because now we would have two situations, one in which "jurisdiction'' is defined to mean "interprovincial and international'' and one in which it is not and opens the possibility in some unrelated issue for the court to say, "What do they mean by jurisdiction here? It is not defined.''
In the Payment Clearing and Settlement Act, it is defined, and therefore, the definition that is in mind here is different than that in the Payment Clearing and Settlement Act, which is not the government's intention.
We would be loath to do this.
Senator Moore: That is simply intellectual laziness. Come on. You could have written in there that, in this instance, "jurisdiction'' means "ABC.'' It is all you had to do. Instead you have to do a guessing game, as Senator Hervieux- Payette has said.
Senator Campbell: I am not part of this committee, but it would seem to me that from what you just said there is a lack of willingness on your part to actually do the job here and to make a definition here that works for all of it. I agree with you that you cannot have a definition on one issue that is contrary and against another issue, but your job is to come up and do that job. Just from the short amount that I have heard, I do not think it has been done.
Ms. Anderson: Since the CPA raised this, my colleagues have been in contact with the officials, and they have indicated to them that they are comfortable after we explained the rationale behind the precise wording.
Senator Campbell: It is not the CPA that has to be comfortable. It is this committee that has to go through this bill and do clause-by-clause consideration. It is not the CPA I am worried about.
The Chair: Are there any other comments or questions? If not, I think it remains for me to thank you very much for returning this morning to help us in our continuing consideration of Bill S-5. I think I can excuse the witnesses.
Mr. Rudin: Thank you, very much.
The Chair: Colleagues, we will go to clause by clause in a moment. I want to propose colleagues that we go clause by clause and then, near the end, suggest that the chair ask the committee whether the committee wishes to consider appending observations to the report. We can go in camera or not as we see fit at that point to decide. Would that be satisfactory?
Hon. Senators: Agreed.
The Chair: I always find this rather arcane, but I am reading what is in front of me.
Is it agreed that the committee proceed to clause-by-clause consideration of Bill S-5, An Act to amend the law governing financial institutions and to provide for related and consequential matters?
Hon. Senators: Agreed.
The Chair: With leave, is it agreed that the committee be allowed to group clauses?
Hon. Senators: Agreed.
The Chair: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chair: Shall clause 1, which contains the short title, stand postponed?
Hon. Senators: Agreed.
The Chair: Shall clauses 2 to 20 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 21 to 40 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 41 to 60 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 61 to 80 carry?
Hon. Senators: Agreed.
[Translation]
The Chair: Shall clauses 81 to 100 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 101 to 120 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 121 to 140 carry?
Hon. Senators: Agreed.
[English]
The Chair: Shall clauses 141 to 160 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 161 to 180 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 181 to 200 carry?
[Translation]
The Chair: Shall clauses 201 to 220 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 221 to 225 carry?
Hon. Senators: Agreed.
[English]
The Chair: Shall clause 1, which contains the short title, carry?
Hon. Senators: Agreed.
The Chair: Shall the title carry?
Hon. Senators: Agreed.
The Chair: Shall the bill carry?
Hon. Senators: Agreed.
The Chair: Does the committee wish to consider appending observations to the report?
Hon. Senators: Agreed.
The Chair: Does the committee wish to proceed in camera?
Hon. Senators: Agreed.
The Chair: We will proceed to consider possible observations in camera.
Senator Tkachuk: Do we need a motion to report?
The Chair: That comes after we finish.
Can we suspend in order to clear the room to go in camera, please?
(The committee continued in camera.)
(The committee continued in public.)
The Chair: Is it agreed that I report this bill to the Senate without amendment but with observations?
Hon. Senators: Agreed.
The Chair: Is there any other business?
There being none, I wish everyone happy holidays. Thank you for your support this year, again. I think we have done some productive work. I look forward to some meatier items on our agenda in the New Year.
(The committee adjourned.)