STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Tuesday, October 17, 2000
The Chair (Mr. Maurizio Bevilacqua
(Vaughan—King—Aurora, Lib.)): I'd like to call the
meeting to order and welcome everyone here this
afternoon. As you all know, we're dealing with Bill
We have the pleasure to have with us, from the
Insurance Brokers Association of Canada, Kevin Umlah,
president, and Francesca Iacurto, director of public
affairs; from the Investment Funds Institute of Canada,
John Mountain, vice-president, regulation; and from the
Public Interest Advocacy Centre, Angie Barrados, policy
analyst, and Camille Ainslie, researcher.
Many of you have appeared before us, so you know you
have approximately five to seven minutes to make your
presentation. Thereafter we'll engage in a question
and answer session.
We'll begin with Kevin.
Ms. Francesca Iacurto (Director, Public Affairs,
Insurance Brokers Association of Canada): Good
afternoon, Mr. Chair and committee members. On behalf
of the Insurance Brokers Association of Canada, we
would like to thank you for the opportunity to present
our views on the federal government's new financial
services legislation, Bill C-38.
I'm Francesca Iacurto and I'm the Director of Public Affairs
for the Insurance Brokers Association of Canada. Our president,
Kevin Umlah, who's also an insurance broker in the Halifax area is
The IBAC is the national professional organization
representing the 11 provincial and regional associations of
property and casualty insurance brokers in Canada. These
associations represent some 28,400 independent insurance brokers
all across the country. Most of them work in small and medium-sized
Insurance brokers are the main distribution network for
property and casualty insurance companies. Property and casualty
insurance mainly includes movables, automobiles and risks other
than life insurance.
Insurance brokers offer impartial advice to their clients
concerning their insurance needs, interpret for them the complex
legal documents that insurance policies are and represent them
before the insurance companies when emergencies occur.
I will now turn to Mr. Umlah, who will continue our
Mr. Kevin Umlah (President, Insurance Brokers
Association of Canada): Thank you, Francesca, and
As this committee is no doubt aware, independent
insurance brokers, although provincially regulated,
have a large stake in federal reforms to the financial
services sector. Not only do they work with and
provide the services of federally chartered insurance
companies to consumers, but they also compete directly
with other federally regulated insurers and financial
institutions that provide insurance. In view of this,
IBAC has actively participated in the lengthy review
process leading up to this bill and has made
representations at every available opportunity.
The perspective of independent insurance brokers on
the reforms to the financial services sector is unique
and threefold. As members of the SME community and
taxpayers, we are concerned about Canada's financial
services sector and its contribution to our country's
economic growth and productivity. As consumers of many
products and services offered by financial
institutions, we are concerned about price,
accessibility, and consumer protection rights,
particularly as they relate to tied selling. As
members of the SME community and the principal
distribution channel for property and casualty
companies, we seek competition on a level playing field
with other players in the financial services industry.
Our summary position on Bill C-38 is that it is a very
balanced piece of legislation, which we fully support. We
believe it achieves the difficult task of effectively
addressing the many different and sometimes competing
stakeholder interests in the financial services sector.
We also believe this bill will provide the necessary
measures to increase the viability and competitiveness
of the insurance industry and Canada's financial
services sector as a whole.
Our key recommendation with respect to this bill is
therefore that it be passed as quickly as possible so
that its considerable consumer and industry benefits
can begin to take effect.
Before I go on to offer IBAC's views on key
areas of interest, I will take this opportunity to
express our deep gratitude for this government's
resolve to proceed with the reforms contained in this
We also sincerely thank the many members of Parliament
across all parties who listened to the concerns of
independent insurance brokers and carried them forward
during the lengthy review process that culminated in
this bill. Thank you to all.
In terms of specifics, we are most pleased that this
bill effectively addresses and brings closure to the
longstanding concerns of independent insurance brokers
in two important areas, namely bank sales of insurance
and tied selling. I will briefly discuss each of these
First, we believe Bill C-38 should be most praised for
what it does not do, which is to change the rules
governing bank sales of insurance at the retail level.
Our summary review is that the existing restrictions in
this area benefit consumers by providing them with
greater choice, and the property and casualty sector as
a whole by maximizing competition. There is therefore
no doubt that, primarily for what it does not contain,
Bill C-38 is instrumental to the continued strength of
our sector and is wholeheartedly supported.
Second, as this committee is no doubt aware, we have
longstanding concerns with the ability of banks to tie
the provision of certain services, insurance in
particular, to extensions of credit or other products
and services. Tied selling is a practice that
adversely affects competition, as consumers no longer
base their purchasing decisions on factors of price or
product attributes. It can result from coercion by a
seller or from a customer's perception that they might
have received preferred consideration by volunteering to
accept another product or service from the same
seller. Either situation should not be tolerated.
While the 1998 amendment to Bank Act prohibiting
coercive tied selling in relation to loans was a good
first step, the extension of this prohibition to all
other bank products and services will ensure that
competition between banks, providers of insurance, and
other financial institutions is on a level playing
field. Consumers will also greatly benefit from the
requirement that the prohibition on coercive tied
selling be disclosed to them.
All in all, we are very
pleased with the tied selling provisions proposed in
Bill C-38 and would recommend that this committee not
consider any changes to the wording.
Before concluding, I will also mention that we fully
support the five-year sunset provision for this
legislation, largely because it will provide a welcome
moratorium on the debate over the issues to which this
legislation is attempting to bring closure. At the
risk of putting the cart before the horse, once the bill
becomes law we would strongly urge that the federal
government not formally reopen or reconsider any parts
of the legislation unless absolutely necessary.
With respect to the eventual review of the prohibition
on bank sales of insurance, we fully support the
committee's recommendation, which was stated in the 1998
report entitled The Future Starts Now. You will
recall that this matter was only to be reconsidered
once the results of the future evaluation of the
consumer protection regime proposed in this bill were
Keeping the debate on bank sales of
insurance closed for several years will provide
investors with market certainty and a stable policy
framework within which sound business decisions can be
made. It will also enable our industry to continue to
serve as a model for greater competition in the
financial services sector.
Indeed, the property and casualty insurance industry,
with its multitude of players, is an excellent example
of how well abundant and fair competition, more choice,
innovation, and excellent service can benefit Canadian
consumers and the economy at large.
To conclude, I will reiterate that we fully support
Bill C-38 and recommend that priority be assigned to
passing it quickly and with as few amendments as
possible. While we realize that technical amendments
to the legislation will be necessary, we strongly urge
this committee not to consider any amendments that
would be contrary to or inconsistent with the June 1999
white paper, particularly in relation to the areas of
bank sales of insurance and tied selling.
Once again, IBAC commends the federal government and
this committee for its receptiveness to our concerns
over the years and for introducing this quality piece
We thank you for the opportunity to appear before you
today, and we would be pleased to answer any questions
you may have. Thank you.
The Chair: Thank you, Mr. Iacurto.
We'll now hear from the Investment Funds Institute of
Canada, Mr. John Mountain.
Mr. John Mountain (Vice-President, Regulation,
Investment Funds Institute of Canada): Thank you very
The Investment Funds Institute of Canada wishes to
thank the committee for the opportunity to comment on
We appreciate that with all the talk of the
upcoming election, you may have more interesting things
to do than to spend time thinking about a technical
bill. But we do appreciate your attention.
This bill represents an important stage in the review
process that has been ongoing steadily since the last
major changes to the Bank Act in 1992, and our industry
Let me introduce IFIC. We are the national
association of the Canadian mutual funds industry. As
of the end of August of this year, IFIC's membership
included 83 mutual fund managers who manage 1,468
publicly offered mutual funds holding in the aggregate
$438 billion in assets. These assets represent nearly
100% of all investments in Canadian mutual funds. IFIC
also represents 144 firms that distribute mutual funds
to retail investors and 76 affiliate members
representing law, accounting, and other professional
firms providing service to the industry.
On behalf of our membership we would like to emphasize
our strong support for this legislative package. Our
members believe it is an important step forward in
improving the financial institutional framework for all
Canadians. We think it is extremely important that
this legislation move forward as quickly as possible.
If an election occurs prior to the passage of this bill,
we strongly urge the new government to pass it as soon
In our presentation today, Mr. Chairman, we would like
to focus our comments on the issue of the Canadian
Payments Association. We believe that expanding
membership in the association is a wise step. It
reflects the rapidly evolving nature of the financial
services sector and should serve to strengthen the
basic component of our economy's infrastructure.
The first issue I would like to discuss is the
membership requirements. IFIC is pleased to see that
money market mutual funds appear on the list of
potential Canadian Payments Association members found
in proposed paragraph 4(2)(h)
of the bill. We are also pleased
that our members constitute a class, class (d), in
proposed paragraph 9(3)(d), for the purpose of electing
directors to the board from representatives named by
the members of our class.
IFIC's only concern with the membership provisions at
this point is with the requirements for membership that
will be set out in regulation. We trust that these
requirements will be such that they will yield a class
of members and representatives truly able to speak for
the interests of money market mutual funds.
Our second point, Mr. Chairman, is governance of the
association. It is a more general concern and involves
what we would call the “tenor” of the Canadian Payments
Association. It will be important for this new
expanded association of financial service providers and
its various committees to work collaboratively. A
spirit of trust and cooperation will have to reign among
all those contributing to the goals of the association.
For that to occur it will be important that the
association as a whole be guaranteed a certain
independence in its deliberations. It would be
unfortunate if such a key component of our economy
became needlessly politicized.
In this regard, we would like to draw the committee's
attention to three features of the new association that
do have the potential for frustrating the emergence of
a collaborative culture: first, the appointment
directly by the minister of three non-member
representatives to the 16-person board; second, the
appointment “in consultation with the Minister”
of 18 of the 20 members of the stakeholder advisory
council; third, the right of the minister not only
to delay or disallow any bylaw, rule, or standard of
the CPA for the sake of the public interest, which
is reasonable, but also to issue positive directives to
the association obliging it to make certain bylaws,
rules, or standards.
Given the new dynamics of an expanded membership, IFIC
believes these three provisions are excessive. Each
could be curtailed while at the same time preserving
the minister's ultimate and heavy responsibility for
the safety and soundness of the payment systems.
Combined, we are afraid that these provisions
constitute a vote of non-confidence in the ability of
financial service providers, under the chairmanship of
the Bank of Canada, to regulate the payment systems on
One of the association's explicit duties is to take
into account the interests of users, a goal likely to
be achieved as a result of the competitive mix around
the new board table. At the same time, nothing should
be done to dampen the full and committed participation
of all members. An arm's-length degree of independence
would foster collaboration as well as generating the
necessary leadership to tackle changing conditions.
IFIC does not recall that so much discretionary power
in the hands of the minister was ever contemplated by
the Bank of Canada and the Department of Finance in
their discussion paper on governance of the
association published in December 1997.
We would encourage members of the committee to canvass
other financial service providers for their views on
the governance of the association before making the
report to the House. If at that point the committee
still believes amendments are not necessary, we
would hope that the committee would indicate in its
report the nature of our concerns and that they would
be taken into consideration by the government when it
drafts its regulations.
Our third point is status of designated payment systems.
While the minister is given considerable discretionary
power to direct the affairs of any payment system he or
she so designates, it is not clear from the text of the
bill when a payment system will be designated and how
such a designated system will interact with the members
of the Canadian Payments Association. For the
moment, the status of designated payment systems
appears to be in limbo.
Finally, regarding the upcoming regulations, in
addition to the requirements that money market mutual
funds must satisfy to become members of the CPA, there
are other key elements of the governance structure that
remain to be determined by regulation: the size and
composition of the board, the number of directors to be
elected from each class of members, the number of votes
a member is entitled to cast for the election of
directors, and the dues to be paid by each member.
Passage of Bill C-38 is only the penultimate step in
what has been a long process. For us and for all
involved, as either providers or users of payment
systems, those upcoming regulations will be critical.
Any direction the committee can give to the
government in the spirit of our comments today would be
Thank you for your attention. We look forward to
answering any questions you may have.
The Chair: Thank you very much, Mr. Mountain.
We'll now hear from the Public Interest Advocacy
Centre, Ms. Angie Barrados, policy analyst.
Ms. Angie Barrados (Policy Analyst, Public Interest
Advocacy Centre): Thank you very much for inviting us
to present our views on Bill C-38 before the committee.
First I'll just say a few words about the Public Interest
Advocacy Centre, or PIAC. PIAC is a non-profit
organization that provides legal services and research
to Canadian consumers and the organizations that
represent them. Our work primarily concerns important
public services, including telecommunications,
broadcasting, energy, and of course financial
services. PIAC has a national board of directors and
members that include individuals, groups, and
organizations representing 2.5 million Canadians.
Like several other consumer organizations, we have
been following the financial sector reform process
closely and have advocated strongly for greater
consumer protection in the sector. We are generally
very pleased with the results of the reform process and
support the consumer-oriented provisions of Bill C-38.
As good as the bill is for consumers, though, there are
several important gaps in its provisions. The
committee actually has the chance to rectify these
gaps, so I would urge you to seize this opportunity.
Today I'll draw your attention to three main points,
the first of which is rural bank branch closures.
PIAC recently published a study on rural bank branch
closures. In the study we determined that in the
10-year period between 1989 and 1998, about 45% of
rural bank branches had closed. Since 1998, many more
branch closures have been announced. The situation
therefore is considerably worse now than when the task
force on the future of the Canadian financial services
sector published its recommendations, and this is why
we feel that additional measures to address the problem
should be considered for the bill.
When a bank branch closes in a small town, it causes
difficulties for consumers and businesses in the entire
area, who are then faced with having to travel long
distances to do their banking. I'm sure some of you
are aware of this problem. Small towns tend to revolve
around the gas station, the local shop, the post
office, and the bank. Once the bank closes, the shop
and the gas station may be next, and then who will want
to stay in the town? Obviously, it's a very hard
situation on these communities, and recently it has
been happening more
and more often.
When we published our report,
one comment I heard many times was that it's nice to
know at least someone in Ottawa cares about what's
happening out here. So I'd like to urge the members of
this committee also to become people in Ottawa who care
about the fate of the small communities all across
To that end, we have several practical recommendations
that are not overly interventionist that would address
First of all, keep a close eye on the
problem, which isn't really being done right now.
Something that's really important for rural communities
is to have access to a bank machine, even if they don't
have access to a bank branch, and this isn't being
Track the issues, and then, more
than that, make sure in some ways banks are
accountable to consumers. Get the information out
there, and get the banks to report on what they're doing to
solve the problem. If they're not doing enough, then
at least consumers will know about it and will be able
to make their voices heard.
Provide the know-how to communities that need to
organize alternatives to a branch that's closed.
Community leaders need to know what might be involved
in establishing, say, a credit union branch, or options
for post office banking, or other agency arrangements,
and what other towns have done in similar situations.
Don't leave every town to figure out the whole thing
themselves from scratch.
Also, make sure Canada Post's activities in retail
banking are actually beneficial to consumers. Post
office banking clearly has the potential to enhance
rural consumers' access to financial services, but
there are important concerns. There's clearly no
public interest to be served by Canada Post promoting
services that could compete with credit union branches
or offering low-quality services such as white-label
The second main topic to which I want to draw your
attention this afternoon is accountability of the
proposed Financial Consumer Agency of Canada
that's established by the bill, or the FCAC. We feel
that the establishment of the FCAC is a very positive
step and definitely key to the overall consumer
protection framework. We're quite concerned, however,
about some of the details in its enabling provisions.
In particular, we would urge the committee to ensure
that there's full public reporting of FCAC activities.
It's going to be very disappointing for everybody who
has been involved in this reform process if the FCAC
reports don't really tell us what monitoring has been
undertaken and what the results of the monitoring have
Secondly, make sure the FCAC has an adequate
mandate. The general expectation is that the FCAC will
generally oversee consumer matters in the financial
services sector, and it should have the mandate to
match this expectation. At the very least, clause 3
of the bill should be brought into line with the
mandate outlined in the government's white paper.
Thirdly, make sure a consumer advisory committee
is established, and put this in the legislation. The
implementation of this legislation depends heavily on
regulations, like so many other pieces of legislation.
Establishing a consumer advisory committee would put
consumers on an equal footing with the industry in the
process to develop these regulations by making sure
there's a fair, effective way for consumer interests to
be heard. Obviously the banking industry has a lot of
resources behind it. Consumers don't always have the
same resources, so put us on an equal footing with the
The third overall point I'd like to draw to your
attention is the issue of holds on cheques. This is
one area in which we feel the bill's access provisions
could be improved. More and more consumers are going
to cheque-cashing outlets to cash their cheques, where
they are charged very high fees and don't get the
benefits of having a bank account. Why? The main
reason is the holds of up to ten days that banks place
on many cheques. Most people need their cash right
away. Unfortunately, all the other provisions in the
bill that promote access to bank services for
vulnerable consumers are undermined by these hold
Rather than merely requiring banks to state
what their hold policy is, we feel that the bill should
actually limit the hold periods. In particular, cheques
cashed within a province should be held no longer
than two days, and all government cheques, both federal
and provincial, should not be held at all.
More detail on our recommendations can be found in the
submission we made to this committee this summer.
Thank you very much for the opportunity to address
you. I'd be happy to answer any questions.
The Chair: Thank you very much, Ms. Barrados.
You may not see it, but there's a light flashing that
means a vote is going to take place in 15 minutes—or
13 minutes now. So we'll probably have a five-minute
round of questions, beginning with Mr. Epp.
Mr. Ken Epp (Elk Island, Canadian Alliance): I
have a few really quick questions here.
First, to Mr. Mountain, I'm curious about your
concerns on the powers of the minister in appointing
the representatives to the boards. Why is that? Don't
you trust the minister?
Mr. John Mountain: I trust the minister. My
concern is if the minister is the ultimate authority in
all decisions, the board will not assert its own sense
of obligation. I'm not sure I'm describing that
accurately, but my concern is that it won't take its
role as seriously as I think it should.
Mr. Ken Epp: Okay. Do you think the board,
because they're appointed by the minister and
therefore, I guess, can be dis-appointed
by him, would feel inhibited? Is that what you're
Mr. John Mountain: I'm sorry, do you mean the
stakeholder advisory committee, or...?
Mr. Ken Epp: Well, both of them. You mentioned
this on the stakeholder advisory committee as well as
the governing board.
Mr. John Mountain: No, it's more a sense that if
the minister has such total authority over every aspect
of the board's processes, the board will be
essentially rendered nugatory.
Mr. Ken Epp: Okay, but the reason the minister is
there is because that is the feed of the people via
their government to hold these financial institutions
accountable. If you're going to take that away, then
all you're going to have is the financial institutions
running their own show and they don't have to give a
rip about the consumer.
Mr. John Mountain: To be clear, I was not
suggesting that the power of the minister be taken away
completely. What I was suggesting was that the power
to appoint a certain number of the members of the
stakeholder advisory committee should be taken away,
that the power to appoint anybody to the board itself
should not be there, and that the power to tell
the board explicitly to create a rule or a standard of
a certain type should not be there.
I did say that the minister should have, under the
legislation, the power to disallow or disapprove
proposed rules, which I would have thought would give
him the authority to do what you just said.
Mr. Ken Epp: I'm a little confused there. Maybe I
didn't hear you right, but I wrote down in my notes
that you don't like the minister's
ability to delay or disallow bylaws. I may have
Mr. John Mountain: No, I was telling you what his
power was when I came back to what I don't like. I
thought I said that I didn't like his ability to force
them to make certain bylaws.
Mr. Ken Epp: Okay.
I want to ask the first group, why are you supportive
of the five-year sunset provision? You're talking
about this bill bringing closure, and it seems to me
the five-year sunset provision forces us to open it
again at five years. Is there not an inconsistency
Mr. Kevin Umlah: I'd suggest that we've been
debating most of these issues now for the last 10 or 12
years. Passage of the bill would give us certainly at
least a five-year window before these issues are
revisited, and we'd certainly appreciate that bit
of a breather.
Mr. Ken Epp: Okay.
My time is almost up and we have to run, but to Angie,
what is your objection to the post office running basic
financial services in rural areas where bank branches
have been closed? It seems to me they could provide a
valuable service to those communities and fill in
exactly the vacuum that's left when the branches
close. What is your objection to that?
Ms. Angie Barrados: Actually there is no objection
at all. We think it's probably a good idea. It's just
that we see there isn't any strategy right now about
it, and the credit unions are somewhat concerned that
the post office could become a deterrent to opening new
credit union branches. A credit union branch is a
better alternative than post office service.
The other thing is in Ontario right now the post
office is placing the white-label ATMs, which are the
non-bank ones that charge additional fees. We are very
concerned about that, because they're completely
unregulated and they don't offer very good service.
Generally, we would like to see more post office
banking, but we'd like it to be done under a strategy
that assures that it's in the public interest.
Mr. Ken Epp: In other words, what you would like
to see—and just tell me if I'm right or wrong here—is
if a branch is closing, they have to give notice. And
by the way, some of the others indicated concern about
that. This bill addresses closures. They have to give
notice of up to six months before they do that.
Ms. Camille Ainslie (Researcher, Public Interest
Advocacy Centre): We're concerned about the
distribution of closures, and that we won't be made
aware of where the closures are happening so that in a
rural community it's flagged. This is a bank that's
closing in a rural community. At the moment that's not
The Canadian Bankers Association says that overall
the number of banks are increasing, but what they're
failing to accept is that the distribution in rural
areas is actually diminished. The banks in rural areas
have actually diminished, from the reports we have.
Mr. Ken Epp: So would you be happy if during that
time of notice everybody was apprised of this closure?
It should be public knowledge, as opposed to being just
a secret little notice to the town council or
something, and then actual notices being sent out,
maybe to adjacent credit unions and others: there's
going to be a vacuum here; come and fill it. And if
Ms. Camille Ainslie: Exactly.
Mr. Ken Epp: —then the post office could do it.
You'd like to have that in that sequence.
Ms. Camille Ainslie: Yes.
Ms. Angie Barrados: Basically, what we're saying is
the notice provisions are great, but something has to
happen. The notice provisions are there for a reason:
for the community to be able to organize alternative
I've been told there is actually some cabinet
directive to the post office, saying that they shouldn't
compete with other better services, but we just haven't
seen this in public. I think it's very important that
we do see something like that.
Ms. Camille Ainslie: In addition, we did
commission a survey, and there seems to be some
consensus among rural inhabitants that they are
concerned about post offices operating as banks. Now,
we didn't have the funding to go into that in great
detail, and we do feel this is an issue that needs to
Mr. Ken Epp: Okay. We probably don't want to see
the post office getting into the lending business and
mortgage business and stuff like that, but basic
cheque-cashing services and so on I think are totally
Ms. Camille Ainslie: That's absolutely it. That's
exactly what we're saying. There are issues of
confidentiality and training and so on, and unless
there's some overall study done we can't pin down the
exact issues people in rural areas have with the post
office acting as a bank. It's a good idea in
principle, but it does need some concerted planning.
Mr. Ken Epp: Thank you, Mr. Chair.
The Chair: Thank you.
On behalf of the committee, I'm sorry, we only have
five minutes to get to the House of Commons. I know
it's not very far, but we have to be there.
I want to raise an issue I think many people have been
talking about. I think Mr. Mountain brought it up: the
issue of a possible election call. As a committee, we
operate business as usual. But I do want to put on the
record that I think Bill C-38 is an extremely important
bill for the financial services sector, which I think
has been quite patient in waiting for this legislation
to actually take hold. When you consider consultation
and white papers and reports by a lot of committees, I
just want to tell you—and I'm not supposed to talk
about hypothetical situations, but I will today—that
if an election call takes places, I'm one of those
individuals who really thinks that this is an absolute
priority bill to be reintroduced. I think it's of
extreme importance to not only your sector but indeed
the economy. I just want everyone to know that's where
I stand on this particular issue.
The meeting is adjourned.