Bill Respecting Regulatory Modernization

Third Reading

June 20, 2022

Honourable senators, regulatory modernization is critical. More accurately, regulatory modernization is critical if Canada wants to encourage businesses large and small to innovate and achieve productivity improvements, become a globally competitive market for innovators and deliver affordability to consumers. It’s important if we want to reduce the administrative burden for both business and government and if we want to minimize government spending.

You understand that I think it’s important, and I want to thank the government for creating the annual regulatory modernization process. I wholeheartedly support Bill S-6 and the motivation behind it. However, I want to be clear that it’s not a full-throttle regulatory modernization act. I still think it’s closer to being the legislative irritant-reduction act that I mentioned at second reading.

Canada desperately needs a major whole-of-government approach that will meaningfully address our own OECD-leading legacy of regulatory burden. We’ve got to create the regulatory agility — and a culture of regulatory agility — that will protect Canadians and spur innovation and productivity growth.

More than anything, I hope that’s what you take away from my speech. There’s an urgent need for ongoing agile regulatory reform across our economy, reform that protects Canadians and spurs innovation and productivity growth. It shouldn’t be one or the other.

In my remarks, I first want to provide three examples illustrating our substantial regulatory modernization challenges, and they’re just the tip of the iceberg. Second, I want to provide two places where government is currently excelling at consultation and reform, and third, I want to provide a few humble suggestions for moving ahead in a faster and broader way.

Here are a few glaring examples where regulation creates administrative burden, prevents innovation and is not serving consumers or market forces.

First, in the Banking Committee, we heard testimony from Electricity Canada regarding the incremental changes in Part 1 of Bill S-6, sections 4 through 8. In short, these changes were welcome but didn’t even come close to meeting the regulatory barriers currently blocking innovation, market forces and the achievement of our climate objectives.

For example, Canada’s electric metering legislation is now 40 years old. I’d say it’s in a mid-life crisis. Narrowly designed to regulate vertically integrated power utilities, it has not kept up with market developments like the advent of electric vehicles, also known as EVs, or decentralized grids. As a result, in Canada, EV charging stations can only charge for the amount of time used and not the actual amount of electricity delivered. Consequently, owners with cheaper, slower-charging EVs are subsidizing those with fast-charging EVs because they’re charged for time, not energy.

Consequently, condo and rental property managers are disincentivized from providing charging stations in their buildings. Regulatory inaction means that they cannot afford to install revenue-grade metering in their parking garages. But that actually doesn’t matter because these highly accurate revenue-grade meters, used worldwide, do not meet Measurement Canada’s strict historical regulations.

Meanwhile, the federal government is investing heavily in the increased adoption of EVs. Budget 2022 alone included another $1.7 billion in EV subsidies and $900 million to build an additional 50,000 charging stations. Yet, the hard work of modernizing the underlying regulations so market forces could support their adoption continues to be ignored.

Why does this matter? Last week, the United Kingdom ended EV subsidies because it had successfully created a mature, stand-alone market. Canada’s multi-billion-dollar investments continue. The lesson learned there, for me, is to align regulation and procurement practices to catalyze market activity and minimize the need for government investment.

Second, I want to point out a lack of effective engagement with stakeholders. The fact that it was an issue is evidenced widely but specifically in Part 8 of Bill S-6. Our colleagues on the Social Affairs Committee were told that Immigration, Refugees and Citizenship Canada officials only consulted with officials in related federal departments. Immigration lawyers, privacy lawyers and provincial governments were not consulted, although each were affected by the changes or had opinions. That’s for sure. Senator Woo spoke to the resulting information-sharing amendments that occurred in the Banking Committee.

Canadians can no longer afford for our deputy ministers to allow their officials to view their respective roles and responsibilities through the narrow lens that assumes that the customers they serve are only within government. As a result of the failure of these officials, the minister had to intervene with amendments in committee.

Canadians are counting on our professional public service to do a much better job. As Senator Smith pointed out last week, it is the stakeholders in regulated sectors who are best positioned to provide feedback on how regulation affects their organizations and the lives of Canadians.

What is the lesson learned here? Let’s require public officials to engage transparently with stakeholders in meetings where technical standards and regulations can be discussed with all affected parties in the same room, be it virtual or physical, rather than making decisions in a black box hidden away in some corner of Ottawa and then announcing the result in Canada Gazette. This process fails Canadians and only enriches lobbyists.

Lastly, the Canadian Food Inspection Agency, or CFIA, was responsible for parts 4 and 5 of Bill S-6. The lack of or limited extent of consultation was, again, an issue. But it’s not like they aren’t conducting a lot of consultations at the CFIA.

On January 21, 2022, at the high point of the potato wart crisis, the CFIA launched a 30-day consultation with Canadians on their proposed change to the size of diced white potatoes sold in cans. I didn’t realize that potatoes were sold in cans. Regardless, why on earth is the CFIA involved in regulating their cube size?

Astonishingly, as Senator Downe pointed out in his Twitter post, this occurred in the midst of the P.E.I. potato wart crisis that cost P.E.I. farmers an estimated $50 million in lost revenues. What is the lesson learned? We must become ruthless in limiting the extent of regulatory capture in Canada.

I hope these three examples give you some sense of how legacy laws, regulations and practices need to be updated to become much more agile if we want to harness innovation to create opportunities, jobs and prosperity. Simply, inaction undermines that future prosperity.

Much of what we heard in the Banking Committee was reflected in our observations, notably:

While the committee supports the intent of Bill S-6, it believes that regulatory modernization of legislation must occur more quickly and on a much wider scale than what was proposed in the bill.

The committee also suggested:

introducing an economic and competitive lens for regulations;

measuring the quantity and overall cost of regulations;

setting targets for regulatory reduction that apply to all federal legislation, regulations and policies; and

examining whether certain streamlined measures that were introduced during the COVID-19 pandemic should be continued.

I’d also like to reinforce the need for Canada’s regulations to be, first, pro-competitive, meaning that the playing fields are levelled, giving innovative new entrants a reasonable chance of challenging established incumbents; and second, that they are technology agnostic, so that changes are not needed to address accelerating forms of innovation.

Now, what about those examples of effective consultation that I alluded to? Senator Woo, in his third reading speech, asked whether the Senate might consider conducting a special study on how we can improve regulatory modernization in Canada. I, for one, wholeheartedly support this idea.

We have some recent examples of work that the federal government has already established that are setting a whole new standard for regulatory modernization. It’s not Bill S-6 that is setting the standard, but it is the consultation process that’s currently guiding the implementation of open banking and the Retail Payment Activities Act.

Both of these regulatory modernization processes have diligently involved highly effective consultations among players in an open forum alongside government officials. The groups involved are from the smallest innovative company to the largest incumbents and involve true consultation and not communication. These are models that I dream might be replicated across the whole of government.

Let me give you one small peek into the importance of the payments modernization process to give you an idea of the complexities being managed and the importance of it to Canadians. It’s currently under way as a result of implementing Budget 2021’s Retail Payment Activities Act. For context, Canadians made roughly 20 billion individual transactions in 2021, totalling nearly $10 trillion in value.

The Canadian Federation of Independent Business estimates that interchange rates for cards average at about 2%. In Europe, these rates are 0.3%, or about one seventh as much as we’re paying in Canada, due in good part to how the EU manages competition and regulation. In effect, Canada’s system is an excess tax on every single transaction made by every consumer every day, paid to the financial sector, all because our regulations haven’t kept up. Fortunately, that situation is changing, and very quickly.

The Bank of Canada has been running a consultation process to create the regulations needed to implement the Retail Payment Activities Act that will be a much more inclusive approach to how payments are managed. As evidence of how it’s going, I will quote one of the leading critics of the status quo. Laurence Cooke, Founder and CEO of nanopay:

Ten years after starting to create a safer, fairer and more competitive payments ecosystem, we finally have real traction. The Bank of Canada and the Retail Payments Supervision team set up a transparent and agile consultation process that included all stakeholders, and have set a new standard for how regulations should be created.

When Laurence said this, I had to check his health and his identity because he does not compliment regulators. The same sorts of responses were regularly heard 18 months ago during Finance Canada’s consultation process on opening banking, which is moving closer and closer to its implementation phase.

What is the lesson learned? Great examples of effective consultation exist within government. A failed consultation process can no longer be tolerated by our most senior government officials and ministers.

Lastly, let me widen the path forward. By design, regulations must protect the public from the harm created by unsafe products, underperforming services and hazardous conditions while enabling an innovative marketplace. Too often, regulatory stagnation prevents these objectives from being achieved. This happens because the world is changing around us at an accelerating pace, and our current approach to updating regulations is not keeping up.

Similar jurisdictions, including the United States, the European Union and the United Kingdom, have implemented changes to address these challenges — and they did it decades ago — by prioritizing a strategic approach to standard setting and mandating the effective use of standards in legislative instruments.

These countries have been using steadily evolving industry-led standards to complement and focus but, most importantly, not replace required regulatory efforts. Industry-led standards involve extensive and broad consultation amongst stakeholders, but through an independent expert standards body rather than a government department.

Standards establish accepted practices, eliminate unnecessary complexity and needless duplication, like the duplication we see across Canada and the regular conflict across this country because of competing jurisdictional authorities in here.

Governments around the world have turned to combining legislation, regulation, standards and certification programs as the go-to compliance mechanism for managing traditional sectors as well as high-risk emerging technology. Canada does not as yet.

Here are three very specific things that Canada could do to accelerate the intention of Bill S-6 based on the advice that I’ve received from standards-setting organizations.

First, enact Governor-in-Council powers to list recognized standards, codes of practice and certification programs for the regulations it administers to provide sufficient, up to date and relevant safeguards.

Second, establish a national secretariat to facilitate cooperation amongst federal, provincial and territorial authorities with jurisdiction in the establishment, harmonization and maintenance of recognized standards across jurisdictions.

Last, update the Cabinet Directive on Regulation to limit regulations to essential requirements and require regulations to be technology agnostic.

We’re seeing evidence of the government moving in this direction. It just incorporated language in new legislation supporting the use of standards necessary to secure critical infrastructure. That’s in section 15.2(2)(l) of Bill C-26, recently introduced and called the “Critical Cyber Systems Protection Act.” This inclusion helps de-risk regulatory policy and ensures that relevant, up-to-date safeguards are implemented to reflect contemporary realities.

It also fits with expert testimony provided at the Standing Senate Committee on Legal and Constitutional Affairs in March 2022 when studying Senator Miville-Dechêne’s Bill S-210. The recommendation was to enact Governor-in-Council powers to recognize standards, codes of practice and certification programs as a way to provide sufficient safeguards.

Colleagues, I want to conclude by reminding you that an acceleration of our ability to update critical standards and regulations protects our future prosperity, our sovereignty and our security, consumers and accelerates our ability to address the challenges and opportunities of our ever-changing world.

At a time when the federal government is making so many major strategic investments in digital infrastructure and modernization and in fighting climate change, understanding both past design failures and emerging models for success is critical. The Senate can help, as Senator Woo suggested. There is much more evidence out there to guide us in broadening Canada’s regulatory modernization efforts well beyond Bill S-6. Thank you, colleagues.

Hon. Tony Loffreda [ + ]

Honourable senators, I rise today at third reading to speak to Bill S-6, an Act respecting regulatory modernization. I want to thank Senators Woo, Smith and Deacon for their excellent speeches. I intend to be brief and complementary. It is getting late. This must be the latest I’ve spoken on a bill, so I will be brief.

My gratitude goes to all senators from the seven standing committees who studied the subject matter of certain parts of the bill, as well as my colleagues on the Banking Committee for their review of the bill.

As you know, the bill makes common-sense changes to 29 different acts of Parliament that will modernize Canada’s regulatory system.

Senators may remember that the government’s commitment to regulatory modernization was first announced in the Fall Economic Statement 2018. At the time, the government acknowledged — as Senator Deacon expressed so eloquently — that:

Many federal regulations have been developed and built up over decades. Over time, some regulations can become obsolete and present a real barrier to innovation.

The government committed to introducing an Annual Regulatory Modernization Bill to remove outdated and duplicative regulatory requirements. This is an important step forward and one that is certainly appreciated by the business community.

As Senator Woo pointed out last week:

The modern regulatory system must . . . promote business investment and innovation; second, it must ensure the health, safety and security of Canadians and the protection of the environment. . . .

I agree completely with him. It’s no secret that Canada’s regulatory system is complex, often outdated and a red-tape nightmare for many businesses — which has the chilling effect of slowing down innovation, stalling growth and hindering productivity. The changes proposed in Bill S-6 are meant to eliminate irritants and reduce the overall administrative burden.

For instance, the bill accelerates the coming into force of amendments to the Trademarks Act that were introduced as part of Canada’s Intellectual Property Strategy. I asked Ms. Miller from Innovation, Science and Economic Development Canada about this provision when she appeared before the Banking Committee. I argued that having a strong intellectual property and trademarks system is key to attracting foreign investment and to Canada’s overall global competitiveness. Indeed, Ms. Miller confirmed how important it is. She said:

The importance of intellectual property in making sure that Canada is an attractive place to do business, an attractive place for Canadian companies to grow and scale up and be able to compete globally, cannot really be overstated. It’s an incredibly important asset for businesses to be able to understand and then use and deploy strategically.

She went on to say:

By permitting the entry into force of the amendment, that will really underline the importance of using that intellectual property, that trademark, in Canada; that not only reinforces your brand in Canada, it reinforces it as well globally. . . .

Colleagues, this amendment, like most others in the bill, although minor in scope, has the combined effect of making our regulatory system more efficient and less burdensome.

As Mona Fortier, President of the Treasury Board, said, “We’re modernizing rules to make it easier for Canadians to get things done.”

Allow me to say a few words about results and consultations.

In its Regulatory Policy Outlook 2021, the OECD reminds us that governments “spend far too little time checking whether rules work in practice, not just on paper” and they need to “move past the traditional “set and forget” rule-making mindset and develop “adapt and learn” approaches.”

But for the government’s annual regulatory modernization exercise to be successful, the government must engage early with all relevant stakeholders. As the OECD suggests:

People —

— and I would suggest businesses too —

— are more likely to view regulations as fair if they are engaged in the deliberative process and the outcomes of consultations are clearly explained.

And as early as possible. Even in business, when we did budgets and looked at projections and strategies, we obtained the best results when we involved stakeholders — the bottom-up approach. You then take the decision on top, but you need the engagement. To get the engagement, you have to get them involved, and it’s important to involve stakeholders early in the process. We’ve heard Senators Woo, Smith and Deacon make the same point, and it’s an important point.

As we described in our Banking Committee report:

. . . a number of witnesses expressed their dissatisfaction —

— and I’m stressing the point —

— with the limited or, in some cases, the lack of government consultations on the regulatory changes proposed in Bill S-6. Since extensive and inclusive consultations lead to better regulations by allowing the government to gather valuable expertise and feedback, the committee urges the government to improve its consultation process for the regulatory modernization by including more diverse stakeholders —

— diversity is very important —

— using online consultations more frequently and reaching out to stakeholders sooner in its regulatory development process.

The government’s Let’s Talk Federal Regulations pilot project is a good start and will help address some of the concerns raised by industry when it comes to consultations. This new platform has a lot of potential and I hope it will be able to enhance the government’s engagement practices — engagement, engagement, engagement. You need engagement from the business community. There is a lot of talk that the government must improve those links to the business community, and I think it’s a fine place to start.

It is also extremely important for the government to monitor and assess the impact of any new regulatory changes. In my view, our Joint Committee for the Scrutiny of Regulations is an important part of that review.

Honourable senators, although we may have felt rushed in pre‑studying and studying Bill S-6, we did some great work, and we should feel confident in adopting this bill at third reading today.

The government’s commitment to reviewing regulations yearly, through legislation, is a great decision. I certainly look forward to participating in the legislative review of any such bill in the future. The Senate can contribute much value and expertise to this exercise. Thank you.

The Hon. the Speaker pro tempore [ + ]

Is it your pleasure, honourable senators, to adopt the motion?

Some Hon. Senators: Agreed.

An Hon. Senator: On division.

(Motion agreed to and bill, as amended, read third time and passed, on division.)

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