THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, May 11, 2023
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:30 a.m. [ET] to examine the subject matter of those elements contained in clauses 118 to 122 concerning cryptoasset mining in Part 2, and Divisions 1, 2, 6, 7, 26, 33 and 37 of Part 4 of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Hello to everyone here in the room and joining us online. Welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy.
My name is Pamela Wallin, and I am the chair of this committee. I will introduce other members joining us today: Senator Deacon, Senator Gignac, Senator Loffreda, Senator Marshall, Senator Massicotte, Senator Ringuette, Senator Smith and Senator Yussuff. We also have joining us today Senator Dean and Senator Cardozo.
Today, we continue our examination of the subject matter of certain elements contained in Bill C-47, the Budget Implementation Act. I think you received the email, the memo, today. Panel one will be looking at GST/HST regarding cryptoasset mining; panel two will look at the Pension Benefits Standards Act; and panel three will look at the Bank Act.
A reminder and a plea to all senators: Our time is very limited, so it’s very important that the questions are on-topic and that we have no long preambles and that we keep both questions and answers as tight as we can.
Our first panel will examine Part 2, treatment of mining of cryptoassets under the GST/HST. We have the pleasure of welcoming, in person, three witnesses representing the Digital Asset Mining Coalition: Daniel Brock, partner at Fasken Law Firm; David Robertson, partner at EY Law LLP; and Tamara Rozansky, partner at Deloitte LLP.
Welcome to you all. Thank you for joining us.
Mr. Brock, you have opening remarks on behalf of the group? Please go ahead.
Daniel Brock, Partner, Fasken Law Firm, Digital Asset Mining Coalition: Thank you, Madam Chair and senators, for inviting us today. Before we start, I would draw your attention to this one-page document. We gave you some other materials for your reference later. We tried to distill down to one page the essential issues that we expect we will cover today. I wanted to point that out for you.
As was said, I am Dan Brock. I’m a partner at Fasken. I am joined by Tamara Rozansky and my colleague David Robertson. Together, we are advising an industry coalition representing more than 23 companies and organizations, all participating in Canada’s growing digital asset and blockchain ecosystem.
The coalition came together last spring to address a surprise legislative proposal published by the Department of Finance in February of 2022. The proposal would increase our members’ costs of carrying on business in Canada by 5% to 15%. It is about this proposal, as it appears in Bill C-47, that we are here to speak with you about today.
In 2017, Canadians might have been using computers in their basements or garages to mine for bitcoin. Today, almost all digital asset mining is big business. Companies are using industrial-scale computing to verify and secure transactions that occur on a public blockchain.
At today’s market rate, the transaction fees and subsidy for adding a single block to the bitcoin blockchain have a value of almost $200,000. More than 1,000 blocks get added to the blockchain every week. That is more than $200 million in potential revenue per week for mining pool companies that mine for bitcoin. There are, however, no major mining pool companies in Canada. All are non-residents of Canada, based primarily in the U.S.A., in Asia and in Europe.
Canada’s role in this emerging industry is not mining for bitcoin. Instead, Canadians are the suppliers of high performance computing power that makes mining for bitcoin possible. Canadian companies take advantage of our cooler climate, our skilled workforce, our excess of hydroelectric energy to produce and export clean computing power as a commodity, like wheat or precious metals.
Canadian computing companies are quickly becoming industry leaders in the supply of clean computing power that international blockchain mining pool companies want. Since 2018, this high‑performance computing sector has brought more than $2 billion in revenue into Canada. It has invested $1.5 billion in the rural and resource communities in which they operate. It has created 1,500 well-paying, high-tech jobs in these communities. The average age of employees in most of these companies is under 35 years old.
Our main concern with the finance proposal on cryptoasset mining is that this early success and the potential for future growth in Canada are being put at risk. There are several problems with the proposed GST changes. Let me highlight three.
First, the proposed new section 188.2 declares that a Canadian company that (a) allows its computing resources to be used by non-resident foreign mining pool companies for cryptoasset mining and (b) shares in the proceeds of that mining will not be able to receive input tax credits. By contrast, all other companies that sell their computing power to non-residents are entitled to input tax credits, regardless of how that computing power is used or how their fees are calculated.
Second, by denying input tax credits to Canadian computing companies, they make them less competitive in the international marketplace. The GST replaced the old federal sales tax in 1991, specifically to remove Canadian sales taxes as an input cost for Canadian businesses. The GST is to encourage both investment and Canadian exports and to make our goods and services more competitive in the international markets. Proposed new subsection 188.2 does the exact opposite.
Third, the GST proposal creates a competitive disadvantage for computing companies across Canada depending on the province in which they reside. The GST proposal creates a perverse incentive for companies operating, for example, in Quebec or Newfoundland where the embedded sales tax cost to these companies will be 15%, to move their operations to Alberta, where the embedded sales tax costs will be only 5% — or outside of Canada altogether. The GST should never lead to this type of competitive imbalance for businesses within Canada.
What is the solution? We are asking that a clear exception be included with the GST changes. We have included, actually, a copy of the proposed amendment with the materials you received. This exception should state, clearly, that if a Canadian company supplies its computing power to a mining pool operator who is a non-resident of Canada, then subsection 188.2 does not apply to them and, instead, the ordinary GST rules will apply.
With that, we look forward to your questions.
The Chair: Thank you very much. Very helpful, very concise.
Senator C. Deacon: Thank you to our witnesses. You have brought a lot of clarity to this issue, clarity that I, at least, did not feel I received last week from the Finance officials.
I can’t think of another industry where we’re trying to reach outside of the country to achieve a policy objective. As I understand it, the services that are being provided are globally competitive digital services running data centres that are processing for companies outside of Canada. There are contracts in place to do that, I would assume, with base-level fees and maybe performance fees. I don’t know. However, the reality is that what the government seems to be after is outside of Canada. That is what I’m clearly picking up here.
Mr. Brock: If you look at the diagram we’ve spoken about, the law is trying to reach over to the right side of the ledger, to outside of the border.
Senator C. Deacon: Very clearly. I know how important input tax credits are, as someone who has run a small business that exports services. I have done that for 25 years, so I understand how important it is.
We have also spent a lot of time here studying the importance of digital exports and intangible exports to the future of our economy. This is clearly a disincentive to provide digital service exports. Have I missed something?
The Chair: I think “why” is the question.
David Robertson, Partner, EY Law LLP, Digital Asset Mining Coalition: Senators, we watched the testimony of the Finance officials last week. The challenge we are having with the Finance officials is this. We worked with Finance since they came out with draft legislation. I will be clear; they surprised us again by putting it into a notice of ways and means motion, without a chance to see what the revisions were going to be.
In the testimony that was given last week, Senator Marwah asked a very pointed question, a very direct question, and said please just confirm — the key question here is: What constitutes sharing in a payment? With the amount that you are getting paid for your computing services, if you’re getting a bonus payment because your customer has made more money or has been more successful, does that constitute sharing? That is the problem. Finance has indicated to us, “Don’t worry, your computing company should be fine.” But there is that word “should.”
We’re not seeking something more than is being represented. We’re seeking clarity. Any businessperson will tell you that what causes problems for business is uncertainty. We’re asking for certainty, a simple amendment that makes it very clear that where a Canadian company is allowing their computing resources to be provided to a non-resident to be used for cryptoasset mining or anything, to be honest, that in those circumstances it’s zero-rated, regardless of how the payment they receive for those services is determined. We have taken the bill and the proposed measure, and all we’re asking is for one small amendment to be added to it that gives us that certainty and clarity.
The way I know this is not consistent with GST policy is what Mr. Brock indicated. If an exception doesn’t apply — Most of the companies that are doing this are in rural Quebec and Newfoundland. Why? Because there’s clean hydroelectric power, and no matter how much they use, it doesn’t contribute to global warming. But their costs will go up by 15%. In contrast, if you are in Alberta — my home province, where we generate more from fossil fuels — there is an incentive being created from the GST, which was never intended to tax business inputs. It was to encourage our exports from Canada. Here I have a provision that if an exception doesn’t apply, we’re encouraging those companies in Quebec to shift their operations to jurisdictions in Canada where there is a lower tax rate or, as my friend points out, outside of Canada altogether. We have examples of that.
Senator C. Deacon: I am wondering if we could ask Finance Canada for clarity on that word “should.” I can’t think of another sector in Canada where we would be reaching outside of Canada — that is what’s happening here — to get clarity that this is a Canadian service being sold globally, but it is not mining.
The Chair: So you did not have the opportunity to show them this amendment?
Mr. Robertson: We received the notice of ways and means motion when everyone else did. They had shifted from February a year ago, and while there is an exemption provided now, it is still not clear. If you turn to the front page of this document, all I have to do is look at the definition of “mining activity” in proposed paragraph (c), which states that mining activity means allowing your computer resources to be used for a purpose or in connection with validating transactions or bitcoin mining. I am just the computing service company, and suddenly I’m engaged in a mining activity because that’s what my customer is doing.
Mr. Brock: Outside of Canada.
Mr. Robertson: Outside of Canada. For the definition of a “mining group” look at proposed paragraph (b), which says, “share mining payments.” That word “sharing” doesn’t appear elsewhere in the GST legislation. It is ambiguous as to what it means.
By way of example, many landlords charge their tenants a triple-net lease. They take a percentage of sales. Are they now sharing in the revenues?
In this industry, the fees that Canadians are getting — We are taking our low-cost electricity, turning it into a higher value‑added service called computing power and selling it at a higher amount to these international pools. There are three forms of payment, and those payments being made by the mining pool are, in part, based on either the expected performance of the pool based on how much computing power there is around the world — because they are taking computing power from Canadians and other jurisdictions and putting them together.
All we are really asking is that the government, because it’s a ways and means motion, provide the certainty so that these Canadian businesses know they are getting their input tax credits.
The Chair: To Senator Deacon’s point, we will go to Finance and ask, but I want to know if they have seen this.
Mr. Robertson: Yes.
The Chair: So they have seen this. We will ask for a response to that.
Senator Smith: This is new for many of us, especially myself. Is government regulation or lack of clear regulations hindering the growth of this industry in Canada? Is it simply a matter of misunderstanding the industry among governments and bureaucrats? What types of communication are needed to ensure more clear policies are raised?
Tamara Rozansky, Partner, Deloitte LLP, Digital Asset Mining Coalition: I would say, absolutely, it’s clear that there is a misinterpretation of what this industry offers to Canada.
When this legislation was written back in 2015, it thought there were people — which there were at that time — in their basements doing crypto mining. That’s no longer the case. There has been a huge evolution in this industry. There are a number of factories across Canada doing this crypto mining provision. I think it’s also important to remember that this is still in evolution. The crypto mining of today will one day be the ChatGPT and A.I. or something of the like of the future, which I can’t even forecast.
Mr. Brock: I would add that there is a need for a policy framework around this. We wouldn’t stand before you and say that the legitimate public policy concerns that have been raised about this industry are not things that need to be considered and addressed. That’s a simple fact. The development of a policy framework that could manage all aspects of a new industry like this, which is disruptive, growing and has lots of potential, would be important. As a coalition, we ask the government to pause on introducing this legislation until such time as we could consult more broadly and begin to develop that policy framework.
There is a little bit of irony in this because what we would say to you about these GST provisions is we don’t need any more regulation than the current Excise Tax Act. It works just fine. It will work just fine for this industry. Apply the basic rules of the Excise Tax Act to this industry, and companies that supply services from Canada to non-resident recipients — who are in the box here, the two people doing the mining — that is a taxable supply, but it is rated zero in order to ensure that Canadian goods and services are competitive internationally.
What they have done with this proposal is they have quite literally created a whole new mini regime within the Excise Tax Act that is unlike anything else in the act. They put it in an obscure part of the act and said this entire commercial industry is completely taken out of the GST. It’s not a commercial activity, which is demonstrably untrue.
Senator Loffreda: Thank you to our panellists for being here this morning.
Did you do any research on a quantitative or aggregate level as to what the effect will be on the industry, not only the growth but the current industry in Canada? I do understand you have expressed your concerns to the government. We will follow up.
Why is there this misunderstanding on such an important industry? If I look at these numbers, by 2025, there will be an additional $2 billion to $3 billion in revenue. Why do you feel there is a misunderstanding? How can we correct that going forward?
Mr. Brock: This is a rapidly evolving international commercial space with many issues, so people within and outside of government can be forgiven for trying to keep up with what’s happening.
When we first began to consult, this coalition came together. The industry is new. There is no industry association per se dealing with these companies. When this legislation was tabled, this group literally formed organically around ourselves because we needed to be able to have communication with government.
When we began that communication in the spring of last year, it was clear to us that the lawmakers, the people who had prepared the bill, didn’t fully understand how this industry had evolved. We had a very good exchange with them. We felt it was constructive. We have immense respect for the officials at the Department of Finance who work on these things.
This is a bill to deal with an industry that largely doesn’t exist any longer. People are not mining for crypto in their basements. That’s what this law is meant to target. This is an industry that’s supplying a service to a global industry, and we are competitive in that space.
There was a sense that communication needed to happen. We felt we made progress. Then, despite our best efforts, the legislation was tabled in the Budget Implementation Act.
Again, we thank you for the opportunity to present. Our reason for being here before you is because we think there is a problem with this. It is not good enough to say, “No, no, do not worry, you do not have a problem.” There is a problem. I’m sitting beside two tax experts who say there is a problem with this. Getting them to acknowledge that and work with us on a solution would be the optimal outcome.
The Chair: Thank you.
Senator Massicotte: Thank you. I will repeat what is obvious, which is that there may be a problem, but we are cautious. The government is made up of sharp people who know what they are doing. Quite frankly, there may be a very good answer to this question. We need to find out. We need to pursue it, and we will do that.
It is a complicated business. Look at this chart. You have a bunch of trailers. Looks like you have 50-100 people working full time with the high-tech in the trailers. You have the word “mining.” It is complicated.
When you do GST, since 1991, there are some industries that are exempt completely from collection of taxation. For example, a consumer, a person who rents an apartment, a space, the consumer benefits from us, so nobody pays. You don’t pay when you get in; you do not get a credit when you get out. Maybe it is something of that nature. They have to decide how they want to treat it.
Mr. Robertson: To be very clear, the legislation does not deal with the non-resident aspect. It is as if the legislation was drafted as if all of this was happening in Canada. That was the impression. That wasn’t, in fact, the case. You can go to websites and see. We have listed on this page all of the major mining pools. They represent 99% of the entire bitcoin network. They are all outside of Canada.
What this legislation was trying to say is that for those people, there is this person who has got transferring their bitcoin and they are paying a fee to that mining pool to do that, and they do not know who it is. Well, if that were in Canada, then I would say that is a financial service and that is exempt.
This is going one stage back to the people who are providing the computing power to the person who would be providing the financial service. Our rules in Canada are, if I provide computing services to a bank in Canada, I still charge GST. I get my input tax credits. It is the bank that does not recover their input tax credits.
The analogy is this is like turning and saying that if you are the Canadian company providing the software that supports the New York Stock Exchange, you can get your input tax credits if you can identify everyone who is trading shares on the New York Stock Exchange. That is what it is doing. It is ignoring the fact is that the Canadian is selling to the New York Stock Exchange, and the stock exchange’s doing that.
Senator Massicotte: There has been a lot of discussion, at least in Quebec, about to the fact that we have a certain amount of hydropower, and it is a limited amount. Now with all of the hydrogen and all of the needs of power, there is a good discussion occurring whether the use of hydropower for your use is worthy; it is worthy now because there is excess supply, but I’m not sure that that will be the case five or ten years from now.
Mr. Brock: This is a public policy discussion that the industry is having in multiple provinces. When we talk about clean, Canadian power, the future of Canadian power supply is a hot topic across Canada.
What is interesting about this industry, the companies that provide this high-performance computing in this space, for example, the grid in Ontario — the grid in Ontario has peaks and valleys. A lot of time and money are spent in managing those peaks and valleys. When there are valleys, we take surplus power and we sell it, give it away or pay someone to take it in New York to stabilize our grid. All of the companies taking power from the clean grid in Canada in this industry, they take the power when it is in the valley.
Whenever a utility needs that power to heat homes, as happened in Sherbrooke, Quebec in February of this year, the utility called Bitfarms — the company that is the largest electricity consumer with the utility in Sherbrooke — and said, “We’re having a spike in demand, it is very cold.” They dialled down their computers. It is called “dispatchable load,” allowing them to manage the load. You are shrinking the delta between base and peak, making the grid more efficient.
In Sherbrooke, the utility is a relatively small utility that was built to supply the forestry industry, hockey stick factories, et cetera. Those industries have left. That infrastructure is still there. It is not utilized.
The grid struggles to be maintained, and there is a cost to ratepayers. This new business for that utility is hugely important as a revenue stream.
Senator Massicotte: And how much money would they make from this arrangement in Sherbrooke?
Mr. Brock: What is the cost of power?
The Chair: We are getting into the weeds here a little bit.
Senator Yussuff: I understand your dilemma.
Finance Canada is going to help us figure out how it is going to be solved, recognizing what is already in the system and we have to figure out a way to deal with this. But the challenge is that jurisdictions in this country compete with one another for business, whether you are in Alberta or Quebec. That is a reality. That is what the provinces do. We do not do it very well, but that is what they do.
Tax policies, from their perspective, are meant to skew that one way or another. Aren’t you asking us to pick who should be the benefactor?
Mr. Brock: We are asking you not to pick. In other words, federal tax should not be involved in the competition between provinces for businesses. That is for provincial governments to decide what their tax policy and public policy will be. They will take steps to attract business as best they can.
The federal government has to be entirely neutral as to how businesses operate in the country. They want to support businesses in every province. The GST very specifically is designed not to skew that. Some provinces have combined high‑rise tax, and some provinces like Alberta and British Columbia do not. Alberta has no sales tax. Those are provincial decisions that are made. The federal government should not be doing that.
With this law, they are effectively getting involved in that game because the taxes are going to be attributed to these businesses in an important way.
Mr. Robertson: One very simple example, when Ontario harmonized, the mutual fund industry said we are picking up and going to Alberta. Rules were brought in known as the Selected Listed Financial Institution rules which ensured that there was no competitive advantage where you were.
If there is not an exemption that applies to this industry — Finance Canada has indicated was the intention that they were to be excluded; we’re just asking for certainty. If there isn’t that exemption, that is how I know that this is incorrect public policy, because it means that Alberta is now favoured under the federal GST/HST system. Alberta is going to be favoured over Quebec and Newfoundland.
Senator Gignac: On this provincial topic you raised, Quebec has a low-carbon footprint industry in Quebec. Since you have explained the distortion that this could create and disadvantage Quebec, have you made any representation to the Quebec government or received some support from the Quebec government regarding the amendment you propose?
Mr. Brock: Regarding this specific law, no, we have not. Quebec has its own tax regime, but on the sales tax it follows very closely. The policy being set by Ottawa will largely be adopted by Revenu Québec.
Ms. Rozansky: Quebec has announced they do intend to harmonize with this.
Mr. Brock: Right, so adopt this. Again, this has all happened rather quickly. The industry is still in an informal association. We are focusing our conversation at the federal level with Finance Canada.
The Chair: Thank you. You have left it in our hands. We will do our best to get answers ASAP on this. It is a part of the problem with the process we have got and how this works when it comes to us with such tight timelines.
I thank you for your contributions today and for educating us and we hope others.
We will continue with our second panel. We are looking at Part 4, Division 2, regarding the federal pension framework — Pension Benefits Standards Act, 1985.
We have the pleasure of welcoming, in person, Todd Saulnier, President of the Association of Canadian Pension Management’s Board of Directors. Joining us virtually today is Roman Kosarenko, Member of the Board of Directors of the Pension Investment Association of Canada.
Welcome to you both, and thank you for joining us on short notice. We will begin with an opening statement from Mr. Saulnier, followed by Mr. Kosarenko.
Todd Saulnier, President, ACPM Board of Directors (Mercer), Association of Canadian Pension Management: We thank you for the opportunity to share our thoughts on the bill being studied in this chamber.
[Translation]
I am president of the board of directors of ACPM, the Association of Canadian Pension Management. The ACPM is a non-profit advocacy organization. I’m also an actuary and investment consultant with over 30 years of experience.
[English]
My role outside of ACPM is to support pension plan sponsors with the creation, design implementation and effective governance of pension plans and other retirement income solutions.
ACPM’s vision, in this case, is to be a leading advocate for pension plan sponsors and administrators in the pursuit of a balanced, effective and sustainable Canadian retirement income system. Our membership includes some of the largest private and public sector pension plans in Canada, which manage trillions of dollars in assets and covering millions of pension plan members.
In this particular bill, I should note that a few years ago, the ACPM was part of a coalition with a number of national organizations, including the Canadian Institute of Actuaries, the Canadian Life and Health Insurance Association, the Canadian Association of Retired Persons and the National Institute on Ageing. We all got together to advocate for additional tools for Canadian retirees to better manage their longevity risk. In other words, allow them to retire in dignity, without fear of overspending or underspending their accumulated retirement savings.
One of the government’s responses to our recommendations at the time was to enact legislation in the Income Tax Act to create a new retirement income vehicle called Variable Payment Life Annuities. While the word “annuity” is a little confusing since the vehicle is not an insurance product, this was an important step in bringing this pooled retirement income solution to Canadians.
This particular bill includes changes to the Pension Benefits Standards Act and the Pooled Registered Pension Plans Act, and it is really the next step to this. Once these changes are enacted and supporting regulations are passed, administrators of federally regulated pension plans and pooled registered pension plans will be able to add this retirement income vehicle to their plans.
While much of the technical working details for variable life pensions, referred to as “variable life benefits” in the legislation, will be dealt with in the regulations, we do have a few comments for clarification.
One of the things that I struggled with was the definitions in the Pension Benefits Standards Act. The way it reads, it seems as if variable life benefits are both defined benefit provisions and defined contribution provisions. Furthermore, it seems as if any defined contribution plan that allows for variable life benefits becomes a defined benefit provision as well.
The wording surprised me. I didn’t think that was the intention. I would certainly expect variable life benefits to have certain similar features that you would expect of defined benefit plans, such as requiring actuarial evaluations, assessment of mortality, those sorts of things, but I wouldn’t expect them to fall in all the defined-benefits provisions. That was one of the things I thought was confusing.
In order for this to really be successful, what we have learned is that scale is important. It’s important for three reasons.
One, it allows for the pooling of mortality risk. In order to be able to pool, you need a lot of individuals. That’s very important.
Second, it allows for this vehicle to build well-diversified portfolios. You need a lot of assets in order to be able to build diversified portfolios that can pursue higher returns, providing better pensions for retirees.
Third, cost. Bigger assets allow you to reduce costs for the participants. That is a key element of the Pooled Registered Pension Plans Act, to manage costs. That is important.
We have seen evidence outside of Canada. In Australia, for example, with their superannuation plans. One of their large plans, the QSuper, just added this feature to their pension plan a year or two years ago. In their first year of operation, they saw a surprising number of individuals sign up for this feature. It does seem to be welcomed by individuals, and you can understand that. Not everyone is an expert in managing their own assets and managing longevity risks, so having a trusted organization do this is certainly welcome.
I mentioned that because it’s important that the legislation support the pooling of assets and, in particular, allow plans to merge if and when the circumstances are right. I think the legislation has that concept in there, but there are other areas that could be clarified.
For example, if a pension plan that offers a variable life benefit decides that it can no longer support it because there is not enough individuals or the administrative costs are too high and they want to terminate that provision, the way I read the legislation, there isn’t a way for them to transfer that to a pooled registered pension plan, which there may be more of. I think that would also be a way to pool assets.
The Chair: If you could just wrap things for us.
Mr. Saulnier: There are two other items. One is on termination. It is important that if you were allowing for the termination of variable life benefits, in addition to the useful options listed there, it is important to identify default. Default should be lined up with what was expected by individuals using it, and also recognizing that as retirees age, they may have difficulty making decisions, and so we really worry about retirees being vulnerable.
A realistic default option should be identified, such as a transfer to another pooled pension plan with that variable life benefit or an immediate life annuity. That could be identified by the administrator, communicated and so on.
The last item is very important with respect to the pooled retirement pension plans. Broad participation would be appropriate in order to make this worthwhile for Canadians.
With this legislation, the Pooled Registered Pension Plan has the potential to become a universal source for Canadians to access a bona fide lifetime pension by allowing any Canadian to transfer in their registered assets, whether it be RRSPs, RRIFs, pension plans or deferred profit-sharing plans. They should be able to transfer them into a pooled registered pension plan to purchase or allocate to a variable life pension or combination of variable life pension and a variable benefit.
The Chair: Thank you. I will go now to Mr. Kosarenko for some comments.
Roman Kosarenko, Member of the Board of Directors, Pension Investment Association of Canada: Thank you, Madam Chair and senators. I am grateful for the opportunity to speak to you today.
The Pension Investment Association of Canada represents the interests of Canadian pension plans big and small. Our member plans manage $2.8 trillion of assets on behalf of millions of Canadians.
In my day job, I manage pension and retirement savings investments for a large private employer. I am a former member of the OSFI-FSRA Technical Advisory Committee for the Review of Defined Contribution Plans. I was also a member of the Longevity Coalition that my co-panellist just spoke about earlier.
The VPLA, or variable payment life annuity, provisions of Bill C-47 are important for two reasons. First, the bill provides a regulatory template for Canadian provinces that will speed up the enabling amendments to their own pension benefit statutes. Second, enabling VPLA for federally regulated defined contribution, or DC, plans may improve retirement outcomes for many underprivileged communities, including First Nations. This is because DC plans are more common among small employers operating in those communities.
However, Bill C-47 does nothing to address the biggest retirement issue of our times. A far larger proportion of retirement savings remains without a practical ability to convert accumulated assets into affordable lifetime income, which is what VPLA is about. Individual and group RRSPs have 10 times the assets and continue to outgrow registered DC plans in membership. RRSP arrangements are the main retirement savings vehicle for unorganized labour, those working irregular hours, the self-employed and those for whom emergency access to their retirement savings is essential.
In the Income Tax Act, there is a theoretical possibility of transferring RRSP assets into a pooled registered pension plan, or PRPP, and getting access to VPLA that way. However, the PRPP regime is not viable in its current form and requires a major overhaul.
A PRPP’s stated objective is to be a low-cost pension plan. The price controls embedded in the PRPP regulations did not account for significant difficulties in implementing these plans by financial institutions. Except in Quebec, there was no requirement for employers to provide access to a PRPP or a superior retirement savings arrangement. Financial institutions did not invest in distribution of PRPPs. Their sales force is still structured to sell higher-fee products. As a result, there are very few institutions licensed to provide PRPPs in Canada, few members and very little assets. These plans have not achieved a meaningful scale to be a viable line of business for financial institutions.
Thank you. I will be happy to answer your questions.
The Chair: Thank you very much. Very helpful.
Senator Marshall: Thank you very much for your presentations. It’s very interesting. I understand, from the notes we had and even from your presentations, that this is something that is in its infancy stage in Canada.
I can see the benefits of it, but is there an existing framework or some sort of governance structure? While I see the benefits, I also see some risks in it. Is there a framework anywhere that would protect pensioners who are interested in being part of a variable payment life annuity plan?
There is reference to a couple of provinces, I think Quebec and Saskatchewan. I’m interested in where we are and where we’re going. The impression I get from the notes is that the federal government isn’t there yet. Maybe none of the provinces are there yet. I would be interested in hearing from both witnesses as to where we are and where you think we are going.
Mr. Saulnier: You are absolutely right. We are in infancy in terms of this particular approach in Canada. I alluded to that. The first step is the Income Tax Act. The next step is the federal act. Next would be the regulations, and that’s where all the technical details would be housed, in terms of how you do the calculations, what you communicate, what the timelines are, the actuarial report — all that detail needs to be well crafted and reviewed.
There are existing examples of this in Canada, sort of outside of this framework, which have been operating for many years. There is a pension plan in British Columbia, at the University of British Columbia, UBC, which offers a vehicle that looks very much like this and has been operating very successfully for decades. I mentioned there is an example outside of Canada, in Australia, which is working. In fact, they actually studied what UBC did and used that to model their legislation. That was quite interesting.
Target benefit plans might be another comparator. It’s not exactly the same, but it’s fairly similar. In New Brunswick, you have target benefit legislation. In Quebec, you have target benefit legislation. That framework, I think, works very well in terms of a regulatory framework, in terms of valuations and how you protect people who are making those decisions by ensuring the communications are clear and that you’re communicating as things progress.
Senator Marshall: If there are people who didn’t want to participate, it wouldn’t be mandatory.
Mr. Saulnier: Absolutely.
Mr. Kosarenko: I can only add that Income Tax Act regulations with respect to VPLA were published last year, and they were very thoughtful. A lot of protections for plan members are already contained there. The VPLA as it exists now is only permitted within registered pension plans and PRPPs, so they were within the perimeter, so to speak.
My view is that protections are sufficient, and if they are not sufficient, they will be added in the regulations under the Pension Benefits Standards Act.
Senator C. Deacon: Thank you, witnesses. I will go to you, Mr. Kosarenko. You mentioned in the past, I believe, that there is about $1.5 trillion worth of Canadians’ money in RRSPs and RRIFs. Before I came to this job, I didn’t have access to a pension plan. We build up our right to it over time, and a chunk is taken off of our income to do so. For me, the bulk of my retirement savings are in RRSPs. Many Canadians are entrepreneurs, like me — as you just said — and they don’t have access to anything else.
Can you explain the guardrails, the measures, that may be needed to make this sort of transition easier? Could you give us some insight into how this might be a more reliable transition, as it’s reliable to go from an RRSP to a RRIF? What are your thoughts and your recommendations in that regard to make it easier for people to transfer to a VPLA?
Mr. Kosarenko: Right now, there is no regulatory pathway to do that. I am an investor, just like yourself, senator. I have been a DC plan member for almost all my life. People who change jobs have pots of money inherited from prior employments, and those generally would be locked into those RRSP accounts and, later, can be converted into a RRIF-type income, but it’s not lifetime income.
The value of VPLA is in the lifetime income component. That was what the Longevity Coalition advocated for, and that’s what VPLA is. Unfortunately, VPLA currently is only permitted for registered pension plans and PRPPs. RRSP assets cannot be transferred to registered pension plans; they can only be transferred to PRPPs, but PRPPs are practically more dead than alive at the moment.
The Office of the Superintendent of Financial Institutions Canada, or OSFI, used to publish annual statistics about PRPPs. The last data set that we have from 2018 says there are 186 members after seven years. There are only five licensed institutions. I think they decided to stop publishing the data.
The situation in Quebec is a little better because there was a mandatory access requirement for employers. They have lots of plan members but, unfortunately, still very few assets. If you count progress in Quebec over seven years, they added on average about 5 million per institution per year. This is nothing. That’s not a scale on which you can provide a low-cost solution. The elephant in the room is that for the bulk of those RRSP monies held by Canadians, they don’t have the ability to convert them into lifetime income.
The way to resolve it, I think, is to follow the template from the report on dynamic pension pools published by the National Institute on Aging and the Global Risk Institute. It can be achieved by permitting decumulation-only VPLA pools, so basically permitting individual membership in PRPPs for retirement-eligible Canadians, those who are aged 55 plus, without the condition of them being in employment with a participating employer of a given PRPP.
It should also be permitted to register a PRPP without any participating employer if such PRPP strategy is to accumulate assets from transfers.
The Chair: Thank you very much for that very specific direction there.
Senator Loffreda: Thank you to our panellists for being here. With respect to payments to retirees from the variable payment life annuities, do you foresee any unintended consequences due to these amendments such as large and sudden variations in payments? Are you concerned with such variations? Any thoughts on setting limits —
Mr. Saulnier: Setting limits to payments.
Senator Loffreda: Or any concerns on large payments or the variation of payments.
Mr. Saulnier: I haven’t given thought to the large payments. I have given more thought to minimum in order to make the product actually viable in terms of administrative cost. But you do raise an interesting point. If somebody has a very large RRSP balance or large DC balance, could they potentially skew the mortality? I guess that’s something that would need to be managed in the regulations in the actuarial process.
Senator Loffreda: Thank you.
The Chair: Mr. Kosarenko, do you have any thoughts you want to add in response?
Mr. Kosarenko: I can add that the experience of the University of British Columbia Faculty Pension Plan shows that variability is manageable. That plan existed for over 40 years and the plan members did see variability in payments but it was fairly tolerable for them.
We also know that the funding and distribution policies of those VPLA pools can be structured in a way to smooth the variability over the years. Obviously, regulations can be structured to put safeguards around those mechanisms in the distribution policy, but it’s within our means to do that. It is possible to control variability of payments.
The Chair: Thank you very much.
Senator Yussuff: Thank you for being here. Of course, the big elephant in the room is not in here. We’re talking hypothetically about what could be in the regulation and what should be in the regulation and, more importantly, how it will govern the interests of the people whose interests we need to protect.
As we know, the annuity market in this country is relatively small. Only a few companies are selling annuities because we don’t have scale; we have a small population. In order for this to work, we need scale, and in order to get scale if it is not mandatory, it’s not likely to work. That’s the big challenge we face in the context of making this going forward, because you need to bring other players into the marketplace to make this happen.
This has been a challenge for quite some time. Private pensions to a large extent are not growing unless you are in the public sector. The PRPP market, despite when it was proposed, except for Quebec, remains pretty well nowhere in the country. No other province is even contemplating providing for PRPP. Unless the government does something totally unethical somewhere down the road to make it mandatory for people to belong, I don’t see how this will work. We just can’t decide that we are going to do this and going to do that. Ultimately, this will die a natural death. You need volume to make this work. Am I wrong in that?
Mr. Saulnier: No, you certainly need the volume, and that was one of the points we had made. My other colleague here said it as well, one of the ways that could be achieved is if you allowed for a decumulation-only product. The way the PRPPs work, you have to be with an employer, but if the legislation would support opening an account without being related to an employer, you could see a lot of retirees getting to the point of retirement with accumulated assets allocating to the vehicle and purchasing a VPLA. Then, the product could potentially be viable because you would have larger account balance by participant and you would build up scale.
As was mentioned, this is in its infancy, but I think if the legislation would support transferring assets in at the point of retirement for any Canadian no matter whom they worked for, whether it’s an RRSP or where those registered assets are, if they could be transferred to a PRPP, then I think you could build scale. Now, it’s up to industry and others to come up with ways to make the business case to make that happen, but I think at least there would be more incentive for them because the product would be viable.
The Chair: If the source is not connected to an employer, do you fear that cash might be generated in other ways and then used in this system? Concerning ways. I’m saying if you are not employed by X, Y and Z company but you’re seeming to generate income in a variety of ways —
Mr. Saulnier: It has to be a registered asset. You can only put money in an RRSP if you have worked for somebody at some point in your career.
The Chair: Mr. Kosarenko, do you have any quick comments on Senator Yussuff’s comments?
Mr. Kosarenko: A quick note that mandatory annuitization is a policy choice, but it’s not a necessary choice in our case. We have a large RRSP asset base, and what I know from experience of other plans like the Saskatchewan Pension Plan, almost 40% of their retirees elect the annuity option. So even if their experience is unique, even if we put it down to 20%, it is still a massive amount of money and will provide the scale to make it viable.
Senator Gignac: You referred to Australia. To continue the discussion on the topic raised by my colleague Senator Yussuff, is it the same thing proposed here as what would be in Australia, or is it mandatory there? Why it’s so popular in Australia?
Mr. Saulnier: I think the reason why it’s popular — and it’s probably the same in UBC; I don’t work with UBC; Mr. Kosarenko may have a better understanding there — is trust in the supporting organization that offers the plan. In Australia it’s the QSuper. There is a lot of trust in that organization. When they came up with this new product, they already trusted the organizations and so it was a simple solution. In Australia the typical approach is to take your assets and put them in your bank account; that’s it. This was another option which really appeals to a lot of retirees.
If we can build that trust — it may happen with pension plans before it happens with PRPPs, and that’s okay, because if we allow for mergers, eventually those assets will grow.
The Chair: You have general policy advice, that’s for sure, about what government needs to be thinking about and contemplating. Do we have your specifics here on what you would like to see change here?
Mr. Saulnier: I don’t, no.
The Chair: Do you have any specific language you want to share with us? You can forward that at a particular point.
Mr. Saulnier: Yes.
The Chair: Mr. Kosarenko, do you have a final comment?
Mr. Kosarenko: Just a technical observation is that in the new proposed section 16.6 of the PBSA there is no provision for converting variable benefits into variable life benefits. That appears a simple error of omission as the section was drafted after the present section 16.2. There is no reason why converting variable benefits into variable life benefits should be prohibited, because variable benefits are equivalent to a RRIF. Transfers from RRIFs to PRPP are permitted, and VLPA is permitted within PRPPs, so I would recommend making that clarification.
The Chair: Thank you very much. That’s very specific, and we can put that to the Finance Officials. We appreciate that. Mr. Roman Kosarenko and Mr. Todd Saulnier, thank you very much for your contributions today and for giving us some insight.
Honourable senators, for the final portion of our panel, we will be taking a look at Part 4, Division 1, a fair external complaints handling system for banking and external complaints body for the Bank Act.
We have the pleasure of welcoming with us today in person today John Lawford, Executive Director and General Counsel, Public Interest Advocacy Centre. Welcome and thank you for joining us. Please go ahead with your opening remarks.
John Lawford, Executive Director and General Counsel, Public Interest Advocacy Centre: Thank you, Senator Wallin.
The Public Interest Advocacy Centre is pleased today to speak to Part 4, Division 1, amendments to create a single external complaints body, or ECB, for retail banking complaints.
This amendment is a key step in increasing consumer protection for banking customers in Canada. This is because, at present, the Bank Act allows for multiple competing ECBs from which the banks, not consumers, have the option to choose. There are presently two ECBs: the Ombudsman for Banking Services and Investments, or OBSI; and the ADR Chambers Banking Ombuds Office, or ADRBO. One works; one does not. Customers need just one and one that works for all customers and not the banks.
In November 2022 Canada attended the G20 conference in Bali, Indonesia and signed on to the G20 and Organisation for Economic Co-operation and Development, or OECD, High‑Level Principles on Financial Consumer Protection. The 2022 version now includes the following pointed phrase in Principle 12, under Complaints Handling and Redress:
Recourse to an independent redress process should be available to address complaints that are not efficiently resolved via the financial services providers’ and intermediaries’ internal dispute resolution mechanisms.
Canada’s competing ECB structure under the Bank Act was arguably offside Canada’s commitments in 2011, but it is undoubtedly so now.
The law now must change to disallow a possible ECB that is structured in a biased fashion, both to eliminate for-profit ECBs, which are not independent due to this profit motive, and to avoid giving banks leverage over independent ECBs by threatening to leave or actually leaving, say, the OBSI.
Bill C-47, the budget bill, aims to align our law with the G20 and OECD high-level principles under this proposed new section 627.471, which states why those principles are in our legislation. This is good. However, the PIAC urges some caution on this effort in that the timeline for the FCAC’s, that is the Financial Consumer Agency of Canada’s, recommendation and the minister’s eventual designation of a new single ECB is not specified.
Perhaps a deadline could be inserted into the bill to ensure the sole ECB is chosen and in place within one year of Royal Assent. Also, during the transitional phase for the resolution of all then-existing complaints from the former ECBs, perhaps there should be a timeline that is limited to six months to avoid having the lingering of old ECBs despite this change in the law.
Thank you very much. I await your questions.
The Chair: Thank you very much; that was very clear. Senator Deacon, please begin.
Senator C. Deacon: Thank you very much, Mr. Lawford.
I remember in my first months on the banking committee in 2018 looking at this issue of an independent and transparent complaints structure and the competing structures that were in place at the time. I don’t think any of us had any satisfaction in terms of where we got on that issue.
It strikes me that the ECB has to have some teeth to it. We have a monopolistic, oligopolistic banking system where consumers often do not know that it can be better if they are actually the centre of the customer service. I treat it like my granddaughter who never tasted ice cream. She did not ask for ice cream until she tasted it. Once you know something can be better, sometimes your expectations rise.
We made some recommendations that the FCAC get involved four years ago in screen scraping and overseeing that to make sure it was safely done while we transitioned to open banking.
There hasn’t been the sort of teeth, so far, in any of these issues to push these issues along. It seems that the banks still have control over final decision-making on too many items. We want to get to something very specific that we can recommend in observations — because that is really all that we can do with the Budget Implementation Act — about how to make sure that this new body has the teeth to force accountability as it relates to managing complaints.
What are your recommendations there?
Mr. Lawford: I would recommend, at first, supporting this as an initial plank for FCAC to prove that they can follow through on a consumer protection matter and get it done. This has been an irritant. I have been working on this since 2010, to reverse the two-ECB thing, and I’m getting a little tired of this now.
Having a regulator that would show the banks that, yes, when the government commits to making a change and states it in the budget, they will follow through and give the appropriate powers and that will be achieved. Then, moving up from there, as you say, there is an open banking consultation. Finance is working on it. Perhaps there will be a little momentum.
Senator C. Deacon: It is the specific elements that I would like you to tell us about so that we can report back. We would like to have observations that make it very clear what we expect in terms of transparency and accountability and the ECB having teeth to push back against the oligopoly.
Mr. Lawford: In the oversight of the FCAC on the ECBs, there are a number of provisions. It’s just that in the past, I believe, consumer groups, like ours, have been frustrated when we point out that there are shortcomings in the ECBs, and two independent looks at these things and the FCAC’s own look finds deficiencies, but nothing is followed through on. Recommending that they follow through on their finding of insufficiency and ask for a work plan would be one that I would recommend.
The Chair: Thank you. That is absolutely an observation that we can make. Senator Loffreda.
Senator Loffreda: Thank you, Mr. Lawford, for being here.
You covered the need for this amendment to align with G20 principles and increase consumer protection, which is always important. Are there other issues and reasons why we would need this amendment? Have you seen trends in bank customer complaints lately in the recent years? If so, is it because of our economy, COVID or behaviour? Your thoughts are welcome on that.
Mr. Lawford: Sure, I can give a lot of reasons besides just lining up with the G20 and the independents. It is less confusing for consumers to have one place to go. It is taking the leverage out of the banks to be able to choose their own judge and jury, so to speak. It just helps to hold the whole system to have a consistent level of consumer protection, no matter which bank you have.
Senator Loffreda: In terms of recent trends, have you seen complaints increase, and, if so, is it related to our economy, COVID or what have you?
Mr. Lawford: I have seen a lot of complaints — and these have been caught by the FCAC recently — having to do with things like balance protection insurance on either your line of credit or your credit card. That is a level of subterfuge, I believe, by the banks who are very pointedly pressing their sales force to add new products, because the margins on retail banking need to be kept up.
There is all sorts of turmoil, as you said, with mortgages and interest rates, and the banking sector is facing a lot of challenges right now, so they want to keep their retail solid.
One of the kinds of things that the FCAC and the OBSI can do is following through on these types of complaints so that there is a consistent approach. So the FCAC fines the banks, for example, for insurance oversales, and then in individual cases people get their money back. Unfortunately, with at least one of the two ECBs, sometimes that does not happen.
Senator Loffreda: So this amendment is a step in the right direction.
Mr. Lawford: Yes.
Senator Loffreda: Thank you.
Senator Massicotte: I simply want to add my two cents that we should include those comments. It is atrocious with the banks, the delays they take and the reports. I fully encourage you on your amendments. We should bring it forth completely, as much as we can.
Senator Marshall: Thank you.
I might be a bit offside with this question, but from your remarks, you think we need this, right? But this isn’t the end. These legislative amendments are not what you are looking for, are they? You want to go further.
Mr. Lawford: Yes.
Senator Marshall: One of the issues that concerns me is that it looks like there may be a separate Crown corporation or a separate agency set up to do this. I don’t think the government needs another separate agency.
You do not sound convinced that the Financial Consumer Agency of Canada is the right body to do this. Can you talk about that? Where do you see the end being? This doesn’t say where the end will be. This is like we’re halfway through. Talk a bit about what you would like to see as the final product.
Mr. Lawford: Sure. Ultimately, I would like to go to a financial consumer code. That was part of the discussion when the Department of Finance, as Senator Deacon mentioned, was talking about doing a review of this five years ago. It became the consumer section. I think it is Part XII.2, or whatever, in the Bank Act, the new section. However, that mostly swept the old consumer protection sections into a new section and did not provide a lot of new rights, only a few to deal with vulnerable banking customers. It is not as complete as a financial banking code or a consumer banking code like they have in Ireland and Australia, which have specific protections for consumers.
When I was here in 2018, I gave the example of the guarantor, who is usually a family member. They sit down in front of a banker, with their son or their daughter. The banker then asks them to guarantee the loan and, of course, they cannot say no to their child in front of the banker. That person should get independent legal advice and have a meeting separately, without their son or their daughter in the room. That is required by the Irish and Australian codes. We do not have that in Canada. That is a practical example of where I want to be before too long in Canada.
To tell you about these regulations, getting the one ECB is just getting us back up to the baseline of consumer protection and then we need to add more.
Senator Marshall: Do we need a separate corporation or a separate agency? What would be your preference? Can we just spin it off and give it to somebody else, like the Financial Consumer Agency of Canada?
Mr. Lawford: In the United States, the federal agency responsible for the protection of banking customers is under attack now, I believe, in the U.S. Supreme Court, but that type of structure is what we would like. That came out of the financial crisis in the United States.
FCAC still has an informational DNA. They provide transparency and information for consumers but not as many teeth. They are getting some with this new section of the Bank Act. However, if this ECB thing goes through, they will have to monitor that.
No, a more protective situation like the Consumer Financial Protection Bureau in the United States is more my preferred structure.
Senator Marshall: That is what you would prefer.
Mr. Lawford: Yes, I would prefer that. Thank you.
Senator Cardozo: Welcome, Mr. Lawford. As you know, in my previous role as the commissioner of the Canadian Radio‑television and Telecommunications Commission, or CRTC, I dealt with your organization quite a bit. That was 20 years ago. It is wonderful to see that, 20 years later, you are still presenting the views of consumers with a lot of credibility and authority.
At the CRTC, we counted on PIAC’s voice on a number of issues so that we heard, in a detailed, legalistic manner, what the issues were and how we could deal with them. Thank you for that and thank you for coming here.
My question relates to that in part. Under the Telecommunications Act, the commission could award costs to your organization when you were doing the extensive work involved in these kinds of issues. Is there an authority that can award costs to your organization when you are addressing financial issues?
Mr. Lawford: No. That is largely because banking, in particular, and related fields, don’t have a regulator like the CRTC that has open public proceedings. A lot of this stuff is done behind closed doors in the Department of Finance. That is the way we regulate banking in Canada. That’s fine. If the minister wants to get something done, it’s six people in a room and it gets done. However, it’s not the best for public transparency. As we’re seeing here, sometimes the outcomes consumers get are put very much second. We do better in those sorts of regulatory processes like CRTC where we can show up. Yes, they do have a cost-award process. A similar one could be set up if there were an umbrella regulator where we could appear and the public could as well. That has always been resisted by the banking industry.
Senator Cardozo: To be clear, the cost did not come from government or from the CRTC but, rather, from the corporations who were a part of each hearing, right?
Mr. Lawford: That is similar to the way that the OBSI is funded right now. Member banks have to put money into the pot and then their operations are covered by that money.
Senator Cardozo: In terms of the two ECBs, you mentioned that one works; one doesn’t. What makes an ECB work well?
Mr. Lawford: For one, taking complaints. The ADRBO — I’m presuming I have qualified privilege here — does not take all of its complaints. It has an initial look, a stage where they reject about 75% of complaints and OBSI rejects about 7%. There’s a huge barrier to get over to get through to the ADRBO chambers. Royal Bank, TD and now Scotiabank are all members. That is a massive number of banking customers in Canada that face a higher hurdle, just to get their case heard when they go to an ECB.
Second, we have anecdotal evidence from people who have been through the process, who approach us and say, “I have had a bad experience.” I have had a couple for OBSI and many for ADRBO, but that is anecdotal.
Senator Cardozo: Do people need legal advice and help in order to help them make a proper complaint?
Mr. Lawford: There is a difference between the two ECBs that has been identified in the independent reports recently done by Poonam Puri and by FCAC. Both said that the OBSI assists complainants to make their complaint. Their officer thinks that that is an appropriate role, but ADRBO is the opposite and requires a lot of documentation that is rather opaque and difficult for people bringing their complaints, so a lot of people abandon them, so they are not assisted in the same way as OBSI would assist them.
The Chair: Thank you for that.
Senator Ringuette: Thank you for being here. I wholeheartedly agree with what you are saying.
We are seeing, regularly now, under the auspices of our financial institutions, the privacy of personal data being breached. Would you see this new entity also taking on this responsibility to correct this issue?
Mr. Lawford: I think it would be appropriate to give them maybe a co-jurisdiction with the Privacy Commissioner. As you know, the Privacy Commissioner’s mandate will probably change with Bill C-27. We have some concerns that it will be reduced. It may be that financial consumers need to have another layer of protection in their regulator. Often two regulators see the same issue from two different points of view. I would be in favour of that. I’m sure that others would feel that we only need to have one place to go.
The Chair: Senator Deacon, we will let you wrap things up here.
Senator C. Deacon: Thank you, Mr. Lawford, for your work on this over a generation almost. I want to go into what else we can be observing that needs to be done to plot a structure.
The move towards open banking is an important one to make the system more consumer-centric. Competition drives oligopolies to focus on consumers rather than on how they can increase revenues.
I think that there is an opportunity here for us to reinforce how important it is. I go to the point that you had made earlier about fraud. There are many digital technologies to prevent fraud, especially amongst vulnerable parties, that are not being applied in our system because it’s not required.
How important do you see, first, having a very accountable, strong, independent complaints body that has teeth; and, two, having the role of competition try to drive a more consumer‑centric approach by getting technologies that really help customers to solve problems today, like fraud, that could be prevented or detected much earlier in the process?
I look at sending Interac monies and how the banks kept on saying, “Well, you’d better be careful,” when that problem could be prevented.
Mr. Lawford: The process for open banking is still in consultation. It has been a little bit slow-rolled by the banks and Finance, although it is wrapping up, I understand, this summer. Full disclosure, we have been participating in their roundtables, but the competitors are complaining that it is slow. Yes, it holds back innovations on protections and this sort of thing.
One thing that you might want to consider observing is that the rest of the BIA, or Budget Implementation Act, in very many sections — maybe you are studying them, maybe not — says that there is now a requirement for safety and security, for whatever department it is. That is a new requirement.
I’m blanking right now on the other parts of the BIA, but perhaps one of your analysts could find them for me. There are a number of new sections going in that say that if you do not have security, and can prove to Finance that you have it, then you are deficient as a financial institution. I would just look to adding that to the consumer part as well, because I do not think it is in these amendments that we are speaking about right now.
Senator Gignac: Thank you, witnesses.
Division 1 of Part 4 of the bill amends the Bank Act, but in Quebec, the biggest financial institution is not a bank; it is Desjardins Group, a provincial jurisdiction. Do you have any suggestions or remarks for the Quebec government? People in Quebec will not go to this external complaints body because, correct me if I am wrong, it will not apply or relate, and they have consumer protections in Quebec, as well. So are we heading toward some fight between Quebec and the federal government regarding consumer protection? Are you looking at the unintended consequences?
Mr. Lawford: Yes. You are testing the edges of my jurisdictional knowledge. My understanding is that if they are dealing with a federally regulated financial institution — and you can correct me if Desjardins in Quebec is that — customers should be able to go to whoever the new ECB is for their banking situation. For some other things, insurance and investments, consumers would have to go to the Autorité des marchés financiers or to the Quebec provincial consumer body. There is a growing problem on the investment side with the merger of the Mutual Fund Dealers Association of Canada and the Investment Industry Regulatory Organization of Canada right now that is not being paralleled in Quebec, for example, because they have a more integrated system.
I cannot fully answer your question. I would be happy to take it away and try to write to the committee, but if there is a federally regulated financial institution, any customer, in Quebec or elsewhere, should be able to go to this new ECB.
Senator Gignac: Thank you.
The Chair: Mr. Lawford, we really appreciate this. It was very helpful. We will say thank you. We will stay gathered here as a group for a brief in camera session. Thank you so much.
(The committee continued in camera.)