STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Tuesday, March 13, 2001
The Chair (Mr. Maurizio Bevilacqua
(Vaughan—King—Aurora, Lib.)): I would like to call
the meeting to order and welcome everyone here this
As we all know, the order of the day is Bill C-8, an
act to establish the Financial Consumer Agency of
Canada and to amend certain acts in relation to
Many of you have appeared in front of the finance
committee, so you know how we operate here—of course,
always in a fair fashion, and results are always
I want to begin by welcoming everyone. We have
representatives from the Credit Union Central of
Canada, Sun Life Financial, CS CO-OP, and City Lumber
We will begin with the representatives
from the Credit Union Central of Canada. We have three
individuals with us: Mr. Wayne Nygren, president and CEO,
Credit Union Central of British Columbia; Bill Knight,
president and CEO of Credit Union Central of Canada;
and Brian Topp, senior vice-president,
Credit Union Central of Canada.
You have approximately seven minutes to make your
remarks. Then we'll hear from other witnesses, and
thereafter we'll engage in a question and answer
Mr. Wayne Nygren (President and CEO, Credit Union
Central of British Columbia): Good morning. It's
good to be here.
of all, I apologize for not bringing the Vancouver
weather with me, but I didn't want to bring too much
Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Not
even Saskatchewan weather.
Mr. Wayne Nygren: Not even Saskatchewan weather,
I want to spend a few minutes this morning talking to
you not just about the credit union system in Canada
about how Bill C-8 fits in and affects us as we move our
A lot of you, especially members from
probably Saskatchewan, Quebec, and British Columbia, know
that credit unions play a major role in the economy and the
economic environment of British Columbia. We have
approximately $22 billion in assets and 335 locations in
British Columbia. In Canada the credit union system
serves over 10 million members. It's a major player in
the country, with $56 billion in assets.
Just reflecting back on the credit union system in
this country, it was started mainly to fill a gap.
There was no real need to go into a profit centre to
make money or to build equity for shareholders. It was
there because there was really no need,
especially in the rural communities. So this is the
reason why the credit union system started. As it
grew and expanded, it enhanced its powers, and it moved
into being not just a filler or a provider of services
that weren't there before but into becoming a major player
in the economy, especially in the provinces I
As you will recall, in the last year or so we've been
very active in expanding our network. You know that
we've purchased 51 branches of chartered banks over the
last while. That made a lot of sense to us, as the
banks were prepared to close in those areas. We were
able to buy the branches and add them to our networks and
provide more synergies.
We are determined to stay in the communities. For
example, in British Columbia there are now 38 communities
where the only financial organization is a credit
union. We want to continue to make sure our presence
is there. We will do whatever we can to make sure
The challenge we have before us with Bill C-8, and the
old Bill C-38, is the fact that we have set up
member-owned structures that are autonomously controlled
and operate in unique environments. As the
world is evolving and we get into a global
environment, we've had to look at how we can start
working with other financial organizations, combining
the credit union system assets and volumes across the
country and developing synergies for ourselves.
The member-owned and -controlled structures we
have had over the years certainly are very effective,
and we intend to keep that. But we have to be able to
ratchet this business up to a higher level. We have to
be able to merge, to work alliances, and to
develop synergies to keep our businesses
growing and prospering.
We want to talk to you this morning about some of
the obstacles in Bill C-8. For the most part we feel
very positive about the bill. We feel there are only
one or two areas that have to be looked at in terms of
the associational part of it, one association owning
another association. That does create problems for us
in comparison with the old 10/50 rule we had before.
With that introduction, I'll pass it over to Bill, and
he can go through some of the issues we face.
But let me say that we are supportive of the bill.
There's just the “associational” aspect that does make it
difficult with the unique structure we have to ratchet
it up to start merging and amalgamation. It does
affect us, and it does create some difficulties and
hardship in pulling our businesses together.
We've met with the finance department
people, and I'm familiar
with the MacKay report. One of the things the federal
government was interested in creating was more
competition. We feel that the real alternative
to the big banks in this country is the credit union
system, and not because of its growth and potential and
services but because it's the only alternative vehicle in the
country that has a distribution network. There's no
other organization in this country that has the
distribution network across the country that credit unions do.
That's why we want to make sure this distribution
system is effective and can be merged with other
distribution systems and with the credit unions across the
country under the Canadian central banner. That's why
we want to talk to you about some of the issues in Bill
C-8 that we feel are inhibiting us from basically merging, moving
from the local level to the national level.
Mr. Bill Knight (President and CEO, Credit Union
Central of Canada): Thank you, Wayne.
Mr. Chairman, I'm going to give you a brief summary
and get right to the amendment that is, in our view, of
significance in terms of Bill C-8.
We've been working with you as members of Parliament
as well as with the department and the task force on financial
services a better part of four years.
As Wayne has pointed out, we're very supportive of the
legislative reform package. We believe that if you
take Bill C-8, or the old Bill C-38, you'll find within
it a number of moves that substantively enhance our
capacity to act provincially, such as we have in the
province of British Columbia, and to broaden those
services on a national basis.
The establishment of federal associations to create
national financial retail associations, which are
unprecedented, is a significant move to assist us in
our business. Within the bill you've enhanced our
business powers both for existing centrals and Credit
Union Central of Canada, allowing us to provide more
support to our retail credit union operations.
Within the bill you've given us the potential to
restructure our system in what is the fastest-changing
marketplace I can think of in terms of financial
services so that we can take advantage of economies of
scale and work together in tangible ways.
When we spoke to this committee last year on Bill C-38 as
it was before Parliament, there were some outstanding
issues. We were hopeful that, number one, we would
be seeing some changes and amendments to meet those
substantive issues. We're very much in support of a
number of key issues that I've just referred to.
I'll just go quickly through this. There are improvements
we'll be seeing, and we hope to have your
support on changes to regulations related to small and
medium-sized business and commercial lending. We have
some commitments from the department that we would very much
like to see in the finance committee's report as further
endorsement of assisting us in those areas in terms of
amendments on that. But the issue we need to raise
today is not operational but a governance issue
related to the cooperative system.
Last fall, as you'll recall, when we were before this
committee, we raised with you, and we were assuming
there was to be, a technical amendment to allow us to
continue to function in our cooperative structures.
These are not always related directly to the 10/50
control rule but are related to us negotiating amongst
ourselves in terms of how we structure control of our
entities from the point of view of a cooperative
We did get, and I should be clear, some changes related
to this particular problem, related to governance and
control. We have a proposal for you under proposed
subsection 390(4). We have proposals for you
for another amendment that would bring
clarity to our cooperative principles in terms of this
I want to say that we have had meetings with the finance
department and the government. We have been able to get
assurances that they would seek to get changes within
the regulatory changes that will come out of this bill.
But let me make some comments from my experience both
as a former member of this committee and from being around
this town a long time.
One, when we had need for changes in the
regulatory side in the 1992 financial services
legislation, because of the unique structures of credit
unions we're still working on them, and that's eight
or nine years later. However, if there's clarity in the
legislation, we can progress in terms of truly meeting
that market need for us to be more national in scope.
That's the first comment.
The second comment is that, in this unique round, we have an
omnibus bill where we have over 900 to 1,000 pages of
significant work. My view is that when we get to
the regulatory regimes, the amount of work around
regulations is going to be even doubled.
So we've had some assurances from the finance
department that they would look
significantly at our problem in terms of
trying to answer it in a regulatory manner, but
you'll see in my
notes here this morning why we believe one simple addition
of an amendment, of which we've got
a copy there for you, will significantly
allow us to function on the governance side as
What we're doing is proposing to
the committee, to the department, and to you as members of
Parliament that if we're really going to work
nationally as cooperatives, this amendment will
enhance that. I'll jump
right to it, proposed subsection 390(4) within Bill
C-8. There are two aspects to this section—I don't need
to read them to you—but we would add
a third section that would say:
(iii) the entity is an
association and the investment is not restricted by
the regulations under paragraph 396(d)
What's our point, simply boiled down? We have
cooperative structures where we do an inordinate amount
of negotiation in order to get them to work together
under legislation. When we do that, often an
association will not seek to have total control but
will reserve control. If we start off the negotiation
by saying you have to have control, which we did not
have under the bill in 1992, it impedes getting them
together to work this out. If we have legislative
backup, as we're proposing with this amendment, it
allows us to begin, without the enforcement of the
control factor that's in other aspects of this omnibus
bill, the negotiations amongst ourselves, across
provincial jurisdiction or whatever, in order to put
new entities together under our association
This is very important to Canadian Central and it's
very important to a number of our operating companies,
which I'll give you an example of shortly. We have,
for the department and the government, put in that
amendment, a hammer such that under a particular
association, if it were strictly in, say, commercial
lending or whatever, they can step in, in a regulatory
manner, and say, “No, under this one there must be one
association agent of control.”
We've just said to turn it on its head. Let the
cooperative principles stand, but move to give yourself
a hammer in certain instances as a compromise. Put it
in the bill, and don't get entangled in the regulatory
quagmire we're about to enter into by May and June,
when we get this passed. So the amendment does that.
Now, what am I talking about? We built quickly, for
service to our members, to provide full security, full
wealth management services. We have a credential
group. This has evolved over a long period of time.
The credential group is in three areas of business:
securities company, with all of the regulatory aspects;
asset management, which is third party funds; and a
proprietary mutual fund. As each has grown and matured
and the rules and regulations have changed, the
business client has changed. We've grown that to over
$3.5 billion, but each enterprise is owned differently.
The opportunity to build in participation across the
country best comes through the association provisions
with Bill C-38 or Bill C-8, but if we flip to one of
the associations having to have immediate control
because of the bill and the law, it impedes the
negotiations to get everybody to play. But if we have
a provision that allows us to negotiate to get all of
these people to play under national legislation.... It
sounds rather bizarre, I know, for other financial
institutions, but in cooperatives you get the buy-in
and then the defining of the controls, which keeps OSFI
and everybody comfortable. So that's the purpose of
the amendment in one case.
The other case—and my colleague is here—is that we
have very significant moves to bring their treasury
together with Ontario Central, which will give 60% of
the assets, in terms of treasury, within one
association, under this bill. That's to grow us
nationally and to really, in my view, give us
inordinate muscle to grow the markets in Ontario.
So we don't need the impediment of the way in which
that particular amendment is defined within the bill.
If we get an agreed-upon change there—and it's a very
simple, very direct amendment—I think we all win. All
the controls are in there. You'll see in my remarks I
didn't go into all the other controls there are, which
we support, around financial cooperatives, but in this
case this would enhance our ability to do it by that
type of change.
I'm sorry to be a little at length there, Mr. Chair.
I'll leave it at that.
The Chair: Thank you very much, Mr. Knight.
We will now hear from the chairman and chief executive
officer of Sun Life Financial, Mr. Donald Stewart.
Mr. Donald A. Stewart (Chairman and Chief Executive
Officer, Sun Life Financial Services of Canada Inc.):
Mr. Chairman, honourable members, good morning. On
behalf of Sun Life Financial, I'm delighted to appear
before you today regarding Bill C-8. I very much
appreciate the opportunity to comment on key aspects of
this important legislation.
First of all, I would like to congratulate the
government for the successful retabling of the bill on
February 7. For the most part, our company's future is
not heavily dependent on the passage of the proposed
reforms. However, the bill contemplates a number of
elements that will facilitate progress in the
marketplace. At this juncture, we believe that
establishing certainty is the most important
consideration. Proceeding in a timely manner will
Aside from the issue of timing, I will comment on five
of the specific issues that appear in our written
submission: the Financial Consumer Agency, the
financial sector ombudsman, public accountability,
residency requirements, and the ownership regime.
An ongoing challenge for the Financial Consumer Agency
will be the inevitable difficulties arising from the
concurrent operation of federal and provincial
legislative competence. Every effort should be made to
establish a clear and consistent approach to consumer
The government should instruct
the Financial Consumer Agency to give full
consideration to existing consumer-related requirements
in the performance of its activities, with a particular
emphasis on the policies applicable to those
institutions whose businesses do not fall within the
exclusive jurisdiction of the federal government.
We support the concept of a single-window ombudsman
that is independent of both industry and government.
Many customers have commercial relationships with more
than one financial institution. Proposals that attempt
to mirror existing classes of institutions would
generate a great deal of confusion and perhaps
undermine the intended purpose of a simple,
cost-effective complaints body. A consistent approach
will help organizations learn from resolved
disputes and thus make any necessary internal
We also recognize provincial jurisdiction in relation
to market conduct issues and the fact that some
provinces have established regimes. Therefore, we
encourage all efforts to work to a solution that will
benefit consumers and further enhance the quality of
Canada's financial services sector.
There's a legitimate place for corporations to assume
an active role in the community through a variety of
ways, including philanthropic activities. Our
contributions to the economy and society can vary in
both scope and nature, providing a difficult
challenge. To summarize in a short statement, our
commitments to various programs, initiatives, and other
contributions underscore Sun Life Financial's
recognition that there is a role for a corporation to
play in the community beyond the quality of its
products and the value of its stock.
We are prepared to describe this in more specific
terms within the purview of subsection 489.1(1)
of the Insurance Companies Act. We recommend that the
government allow financial institutions the opportunity
to determine how—that is to say, form and
substance—rather than issue regulations under subsection
Coming to residency, our company operates
internationally, with more than two-thirds of its net
income earned outside Canada. Our board of directors
currently totals 16, 14 of whom are resident Canadians.
There's been a continuing increase in recent years as
to what is expected from directors by the many
stakeholders that boards must concern themselves with.
The combined impact of deregulation and convergence in
financial services has served to increase the
complexities of a wide range of issues that are
complicated further by geography and the related
differences of regulatory environments.
We believe that improving the depth and breadth of the
board's overall composition through representational
diversity can only improve the readiness of any
international enterprise to seize opportunities for
We support the proposed amendment that would bring the
existing residency restrictions for directors down to
two-thirds from three-quarters of the number of board
members. We believe the government should allow for
the possibility of further easing the restriction in
respect of any Canadian financial institution
operating internationally in order to allow the
composition of the board to adequately reflect the
markets in which business is conducted.
Flexibility may be required in the context of the
institution's international growth strategy. Once the
bill is proclaimed, the potential flexibility required
to permit legitimate transactions would not be
available without an amendment allowing for a lower
restriction under appropriate circumstances.
We urge this committee to
consider our proposed amendment, as set out in our
We appreciate that one of the most challenging aspects
of the policy framework is the establishment of an
appropriate ownership regime that promotes the needs of
consumers, strengthens a vital industry, and underpins
its continued contribution to the economy, all in the
context of a multiplicity of interests. We acknowledge
the government's desire to foster a dynamic sector for
consumers, which necessarily calls for the preservation
In this regard, choice, as the key element of
competition and innovation, should be broadly defined.
The probable number of remaining financial institutions
in the marketplace following the next round of domestic
consolidation is not the only benchmark. Choice must
also contemplate the variety of market participants,
and we believe that large diversified financial
institutions organized under the legal entity of an
insurance corporation have a great deal to offer to the
marketplace and to the Canadian economy.
We support the government's clearly stated policy,
which sets out that large converted companies will
continue to be widely held following the transition
period. We also take note of the minister's power to
revoke that rule in respect of either of the two large
converted insurance companies at any time following the
The implications connected to the making of such an
order are significant, as it relates to the control and
direction of major financial institutions. It would
follow that, as a matter of process, the minister
should first be given an early opportunity to hear the
perspectives of interested parties, with particular
emphasis on the company that would be made subject to
an order. The specific outcome and timing of any
short-term consolidation activity should be given due
consideration among the relevant factors.
Overall, we agree with the direction that the bill
contemplates for the Canadian financial services
sector. At this juncture we encourage efforts to bring
this important legislation through Parliament in short
On behalf of Sun Life Financial, I thank the Standing
Committee on Finance for the opportunity to provide
input on Bill C-8. Thank you.
The Chair: Thank you very much, Mr. Stewart.
will now hear from CS CO-OP, the president and chief
executive officer, Gary M. Seveny, the vice-president
and chief financial officer, José Gallant, and the
manager of corporate growth, Madeleine Brillant.
Mr. Gary M. Seveny (President and Chief Executive
Officer, CS CO-OP (Community Financial Services)):
Thank you, Mr. Chairman, and thank you to committee
members. I will
make the presentation. My colleagues will assist me on
I want to thank you for providing me
with the opportunity to appear before you today to
discuss Bill C-8.
As you may recall, I appeared before this committee on
October 16 last year to emphasize that Bill C-38 was
missing a key measure—namely, provisions that would
allow for cooperative ownership of banks. These are
still missing in Bill C-8.
I have attached to my
remarks on the handouts my presentation from last
October, together with our testimony in response to
your questions. But the purpose of my appearance here
today is, first, to update you on the understanding of
the current situation respecting cooperative bank
legislation, and second, to ask the committee to
signal its strong endorsement of the government's
commitment to introduce cooperative bank legislation as
soon as possible.
When we met in October, I provided you with a little
background relating to the issue of cooperative
ownership of banks. I highlighted that the MacKay task
force had made the following recommendation in its
report released September 1998. I quote:
Federal legislation should permit cooperative
banks and other financial institutions to be chartered
as new institutions, with ownership and governance to be
based on cooperative principles.
In December 1998 both this committee and the Senate
banking committee strongly endorsed the MacKay task
force recommendations for legislation to allow for
cooperatively owned banks. In October I then presented
to the committee some of the primary reasons behind the
task force's recommendations that led to the strong
endorsement for cooperative banks from this committee.
Cooperatively owned banks will provide a second tier of
financial institutions that will increase the
competition and help meet the needs of small businesses
and consumers better;
create an important alternative to
the major banks, with strong ties to local communities;
empower consumers by giving them a greater voice in how
their banks are run; permit cooperative banks to better
serve their members on a national basis, with no
provincial borders restricting their activities; and
take over branches closed by larger banks, thereby
ensuring ongoing service to rural and remote
communities throughout the country.
I would now like to update the committee on recent
developments that encourage us to believe that
cooperative ownership of banks will be a reality in
the near future.
CS CO-OP has received assurances from Secretary of
State Jim Peterson and Department of Finance officials
that the government remains fully committed to the
concept of strengthening our financial sector through
the introduction of legislation that would allow for
cooperative banks. Although provisions to allow for
cooperative ownership of banks are not included in Bill
C-8, we are very encouraged by Mr. Peterson's statement
concerning cooperative banks when he discussed Bill C-8
following its second reading in the House of Commons.
We have been working with the credit union movement to
find out exactly what type of cooperative bank
legislation should be brought forward.
Then he went on further:
We have continued to study it, and we will continue to
study it, running on a parallel basis to Bill C-8.
When the model is in place we will issue it....
We understand from our discussions with Mr. Peterson
and Department of Finance officials that the government
intends to consult with interested parties, likely
through a consultation paper, on the model and
requirements of cooperative banks. CS CO-OP has
clearly indicated it is ready to work and committed to
working with the government to move this project
forward as expeditiously as possible.
This consultative process must be focused on
developing the legislation needed to create cooperative
banks within as short a timeframe as possible because
of its importance to our future. As you know, things
are already changing rapidly in the financial services
sector, and Bill C-8 will accelerate that pace of change
even more. We simply cannot afford to be left behind
because of further delays in creating the legislation
needed for cooperative banks.
The purpose of my appearance here today is therefore
to share with you our understanding of the current
status of this important initiative and to emphasize the
need for quick action to see its implementation. We
remain convinced that this option is essential to
strengthening the second-tier financial institutions,
to providing credit unions with an all-important
additional avenue to better serve their members, and to
providing Canadians with more choice. We want to ensure
that it remains a key government policy and priority.
For this reason, I ask the committee for its continued
support. We would appreciate it if the committee, in
tabling its report to the House of Commons, would also
provide a statement supporting the plans of the
government to introduce legislation to allow for
cooperative ownership of banks and urging it to move
ahead quickly in tabling that legislation.
Mr. Chairman, that concludes my presentation before
the committee, and I would be happy to answer questions
in due course.
The Chair: Thank you very much, Mr. Seveny.
We'll now hear from a representative of City Lumber
Corporation, the president, Mr. Robert Rosen. Welcome.
Mr. Robert Rosen (President, City Lumber
Corporation): Thank you. I appreciate the opportunity
to be before you today. I apologize for the fact that
my submission is not available in French. I hope
you will take our limitations into consideration.
The presentation I would like to make today, unlike
what you've heard from these other ladies and
gentlemen, reflects more of what I would call a user's
experience in dealing with both banks and credit
My parents started this company in 1949, when we moved
from Flin Flon, Manitoba, to Edmonton. During those 52
years, even at the worst of times in Alberta, we never
missed a payment to any of our financial institutions
or to any other of our creditors. I might point out to
you that, until four years ago, we had utilized
of dollars' worth of resources yet the actions of
financial institutions were not a major issue.
Unfortunately, we hit a very unusual wall.
I'd like to make it clear that my comments are not
anti-bank comments. Rather, I feel that there is a
very major anomaly in the system.
As well, we are in a global
marketplace today. We use new technology. Banks
in business today are very different from what they
were 25 years ago,
although I think
credit unions have something to offer in this area.
Now, 25 years ago, if you had a difficulty with a
bank, you could sit down and speak to your lender.
That does not happen today, I can assure you. What
we dealt with, I think, is a very important case study
for this particular group. What happened was the bank
decided that we would no longer be their client.
I made a similar submission in 1998, and I've
given you some of the comments that I shared with the
Kirby commission at that point. What simply
happened at that point, without getting specific, was we
went through four years of misery, including being
forced into receivership. But if you actually went
through the audit of our books, there was no need for
At that point in 1996-97, the ombudsman was there in
name but not in fact. We were in touch.... To be
specific, the bank gave us roughly two weeks' notice
that they no longer wanted our business and asked us to
close our operations. We said, no, we would not do
that. We were out of margin; however, the company had
over $1 million in assets, and at no time did we not
have sufficient—just going to the auditing
point—receivables and inventory to offset that. I
don't want to get caught at that issue. So we then got
dragged into a process with the bank where they put in
Prior to that, though we had done business with
this bank for 25 years, I personally—if you look at
my resume, my family has been a very active part
of our community in every way—would be taken to
meetings with bank people, and I was abused. It was made
clear to me they no longer wanted my business, and they
made it clear they were going to do everything they
could to put us out of business. I was quite
astonished, because at that time I had large sums of
money outstanding to other banks and to credit unions,
none of whom moved against us during this exceptionally
But the process that I think is important here is at
no time did the bank make any effort to make us aware
that there was an ombudsman process or offer
arbitration or sit down and talk about how they could
ease us out of their operations by lowering our lines
of credit so that we would not be caught in what is a
very complex issue with Canadian banks. If one bank
chooses not to do business with you—in our case it was
strange because we were out of margin and we had done
business there for 25 years—other banks are very
reluctant to touch you. So you're caught in a
no man's land. It's very hard to get credit from
Anyway, they put in a monitor, and we had no say as to
the monitor or the expenses of that monitor.
That monitor was in place for one year, and they put in
senior auditors from a major accounting firm, who made
it clear to us they had zero interest in saving the
company or in the impact on the creditors. During that
year they also hired their own lawyers—and they could
do this under boilerplate legislation—who, in turn,
also, along with the auditors, cost my company, as we
were trying to work our way through this, roughly
$5,000 to $6,000 a month.
The auditor and this
particular bank made it very
clear to us that the monitor could
become the receiver. So I said to the senior partner
of a very large national firm, “This is not a reasonable
process.” He said, “Mr. Rosen, we're here for one
reason only—for the bank. What happens to you, what
happens to your accounts, is none of our business.
All we want to do is collect the bank's money.”
Ultimately, the bank did push us into receivership for
roughly three days. During that time we had a meeting
with the auditors or the monitor and our own people,
and what they said
to us was, “Mr. Rosen, we suggest you shut your
company, pay 20¢ on the dollar to your creditors, and
start again under another name.” We told them we
would not do that, and instead we then finally paid the
bank out. But we were pushed into receivership for
three days by a bank manager, their monitor, and their
Now, we were made aware of the ombudsman halfway
through the process. That was the bank's own
ombudsman. The ombudsman was a member of the bank, a
polite person, but showed very little interest in our
issue, other than saying, “The bank is doing what it
has to do.”
We ultimately found out, and I can share this with
you, that if
you walked into a bank branch today and found
information on the ombudsman you'd be very fortunate.
You have to ask for it.
We eventually did get
hold of the ombudsman, a Mr. Lauber, a
very nice gentleman, and this was 1997. He said,
“You know, Mr. Rosen, at this point I have so few
staff I really can do nothing for you; I am sorry.”
He did not bother to ask us after the receivership what
happened or what didn't happen.
Being a fairly strong company, we came out of the
process, and we then pursued action against the
monitor. If you look at your legislation, you'll see
that one cannot pursue a monitor legally. He
or she does not exist. So I think we could certainly
use some help in that area.
We then pursued the lawyers, and we eventually sued
them through a taxation process that took a year.
When we were struggling for money.... When
you're put into receivership,
the bank and the monitor take your receivables and
your inventory, and you are left helpless. At that
point we were able to survive by begging and borrowing
money through other assets. Ultimately, when the
receivership period was over—and this is a very important
point—the bank did not want to release
our money or our position, even though we had money in
place from another bank, until we would sign a release.
These releases are just the most damning things. I
think many of you do not get a chance to hear from
people, whether it's in St. John's, Newfoundland,
Vernon, B.C., or St. Hubert, Quebec. When you
sign a release to a bank, you lose your ability to
pursue them to challenge what they've done to you.
This is a terrible thing.
I've spoken to senior insolvency auditors, and
they do not believe this is necessary. So I
think these releases are a curse on the Canadian
people. I really think this is a major issue.
In addition, what happens to the professionals who
work for these banks? They are given a free hand to
charge whatever they feel during that period. You have
no right under a monitorship to challenge the amount
the bank or their professionals charge.
I might add, the bank charged us fees on top of the fees
during this time. Again, we ended up paying it all
out. It cost us roughly $400,000.
Now, to pursue the lawyer, as I shared with you, we did
take him to a taxation process. They overcharged us on a
bill of $40,000. This is all documented. I might add,
this is just a folder we had in pursuing the auditor.
It took us a year.
Anyway, with the lawyers, they
returned $20,000, or the taxation officer did. The bank
in turn appealed this. And remember, I am the person
who has just gone through a receivership. I'm trying to
get my funds back in place. My 52-year-old company,
started by my parents, is tainted by this receivership.
We're caught, because no bank wants to touch you when
you're in a receivership, and the best or normal process
is to walk away, let the company die, and your
creditors get maybe 20¢ on the dollar.
I paid the price of four years of loss of social
activities and relationships with my family in order to
prove a point that the system at that time was not
The bank appealed the compensation given to us.
It cost us another $10,000 to pursue the appeal.
Eventually the court threw out the bank's appeal. It
cost us $30,000 to get back $20,000, but it's on the
We then pursued the auditors. You cannot tax an
auditor in this country as you can a lawyer. You have
to go through self-monitored processes. I believe
the commitment my family has had in the
province in turn had influence in eventually getting us through
this process. We lost the first trial because they
said we had
insufficient information to show that the auditor had
acted improperly, which again cost me about $20,000. We
then got a second trial hearing, where it was found
yes, the auditor acted within his rights but at the
same time could have acted in a different way. That
auditor has since left Alberta, I might add, because
their reputation has been questioned for the actions
I'd like to come to the ombudsman. The ombudsman
arrived in my office roughly two years later through an
appeal. He took about six months to do a review. In
the end his report said everybody acted just fine, and
this was the law. But he did mention that maybe the
auditor could have acted differently—this is in his
official report—had he chosen to, but the
monitor has no responsibility to you.
I'm going to give you another example, but
before I do, I'd like to say that
the report put out by the members
of Parliament, called A Balance of Interests,
an excellent report. I think many of the issues you
analysed have been exceptionally well done.
I don't want to waste your time but I do want to go to
this ombudsman process, because it is the only link
today, I think, between an average Canadian and....
I'm going to give you an example that I think is
relevant, because the ombudsman really functions out of
Ottawa. I understand the proposal is that there will
be several floors of employees working for the
ombudsman here, paid for by the banks, and that the
issues will be dealt with here. I think this would be
I might add that today we have no lawsuits against anybody.
I'm here because I want to share this with you, because
I think it's important for the people of this country.
I believe the monitors, the banks, should have
absolutely nothing to do with ombudsmen. I think
that's tainting the process and intimidating an average
I'll give you a very interesting case study. Let's
are a separated person, man or woman, living a distance
from Ottawa, you have a $100,000 business, you have two
young children, and for some reason one of your
children gets ill, and you're unable to meet a cash
demand from a bank. This is an average person. Are
you expected then to fly to Ottawa in the middle of
this crisis to be heard by an ombudsman? You're taking
care of your children, you're trying to keep your
I believe an ombudsman is required in each province,
the Government of Canada should pay for these people, and
they should be independent. Those who are ombudsmen
should be people who are clear of any sense of being
tainted from any involvement with any banking
institution—and I believe the gentleman from Sun Life
made that point.
In today's process, with banks being inaccessible,
everything is done through technology. It is a very
difficult process to interact with banks. I do want to
leave these thoughts with you. I did a presentation,
but I don't think I have the time to walk you through
it. I think it outlines clearly the difficulty that an
average Canadian would have dealing with the process.
I would like to say that I think the normal person
working in a bank is a good person and is community
oriented—and I believe the banks and all financial
institutions are here to be part of the community. But
if you hit a dispute process—and I think you've all
dealt with it—where somebody down the line has chosen
to be less than cooperative, an average Canadian today
has no way to defend themselves. And if they sign one
of these bloody releases, they lose everything, and
they lose their democratic right to come to their
member of Parliament or to do anything to pursue an
So in dealing with the Bank Act, I would hope you'd
look at how it impacts the people across this country,
not those closest to Ottawa. Clearly I believe a fund
is required to help people who have a dispute with a
bank, so they are not left helpless. To attempt to
pursue any financial institution as an average company
is an overwhelming and almost impossible position. So
the role of the ombudsman, I think, is critical to the
people of this country.
The way we deal with monitors is critical to these
people, so that professionals do not get kidnapped by
banks. I've talked to many senior insolvency partners
of major firms. They've been told by the banks that
if they don't do as they're told, they'll get other
people to do their work. Therefore you kidnap lawyers
and auditors, and in turn they are given an open hand
to charge you whatever they like. The bank, in my
case, took the money right out of our account. During
the end of this process as we were trying to find
middle ground, the bank gave us a one-week period for
$10,000, to see whether we couldn't work our way
through it. They took the $10,000 out of our account.
Within a week we couldn't meet what they wanted; they
kept the $10,000. This is all documented.
So I think the critical part is that we need, for the
sake of Canadians, impartial ombudsmen, independent
from banks entirely. We need penalties for banks,
because if you do win against a bank, all they pay is a
fee. You do not get the lost cost to your business and
to your family. We need something to deal with
auditors, monitors, and lawyers who choose to forget
their responsibility as professionals.
In the case of a lawyer who we found had overcharged
us by 100%, all that happened to him was that he was
embarrassed and had to return our $20,000. Nothing else
happened. I think
these are unsettling examples of the way this country
I sit here today, and I am fortunate. City Lumber is 52
years old—and I know my time has run out.
The Chair: It ran out a long time ago.
Mr. Robert Rosen: I apologize. My interest today
is to simply say there is a better way for Canadians.
The Chair: Thank you. Perhaps in the
question and answer session we could also get a sense
of what your feelings on Bill C-8 are vis-à-vis other
We'll move on now to the question and answer session.
We'll begin with Mr. Harris. It's going to be a
Mr. Richard Harris (Prince George—Bulkley Valley,
Canadian Alliance): Thank you, Mr. Chairman, and thank
you, ladies and gentlemen, for attending the hearings
today. We appreciate your input.
Mr. Rosen, I want to thank you for your submission. I
have as a member of Parliament dealt with a few cases
that are similar to yours, and they are frustrating at
best. As a former small businessman and having
survived the recession of the early eighties out west,
I can sympathize with you in many respects.
I have just a couple of questions, maybe
one for Mr. Knight and Mr. Nygren.
With respect to the
10/50 control rule, could you give us a brief
explanation perhaps of the government's rationale when
they put that in? I know you've explained how it
conflicts with your suggested amendment now, but why is
that in place in the first place?
Mr. Bill Knight: I think, Mr. Chairman, that each
time we do an omnibus piece of legislation, we try
legitimately to have as many of the common rules affect
each of the financial institutions. So I'm going to
take a little different angle on this.
We always start with almost each bill having the same
clauses, and then we have to go through each industry,
whether it's insurance, trust, or credit unions, to
reflect on the issue of control. You need to know that
in Bill C-8, in the credit union area, credit unions
can be in an association without control. Since Bill
C-38 we've amended it so centrals can be in the
association. It gets complex, and I'm sorry. Then the
difficulty is that if two or more of our centrals
within a group create an association, the association
within the next association is to have control. What we
have here as we work through this is, in my view, a
regulatory glitch more than a substantive policy.
So we've gotten right up to getting it almost fixed,
and in my view the issue is whether, in order to get
the bill through, we are going to hurry it through and
hope we can fix it in terms of regulation or whether we
can just fix it quickly with an amendment and get on
with it. I think the amendment takes 30 seconds,
Wayne can comment on the 10/50, but I think the 10/50
rule has always applied in terms of financial
institutions. It's a precautionary rule to ensure that
downstream there's effective control. Our structures
have controls built in, but when we come at it from the
other direction, what the amendment does is allow
flexibility. For a particular association, the
government can just say, no, in this one we're going to
have a regulatory provision that one of you has to have
control. Otherwise, nine out of ten times you can just
move forward because it's all in the bylaws.
Mr. Richard Harris: Thank you very much.
I have a
question for Mr. Seveny. It's my understanding that
when Bill C-38 was being discussed on the Hill here and
even prior to that, a cooperative bank model was
presented but that for some reason or other the
original proposers of that model did not stay together
on the model. For example, there is a cooperative bank
model in Holland, the Rabobank.
Mr. Gary Seveny: Correct.
Mr. Richard Harris: Is that a model similar to
what was being proposed last year, for example, when you
were discussing this?
Mr. Gary Seveny: In response to your question,
there were a couple of models that we had proposed to
the federal government. The more recent model was
more akin the Rabobank model from
the Netherlands. The difficulty at the time was
resolving a lot of governance issues in that model that
were unique for the Canadian culture to accept. Our
partners in that model, as you inferred, had lost their
interest to pursue—at the expense that we were
incurring—any further development of the model and
requested that those parties who were truly interested
in spearheading a cooperative banking solution would
lead it. The CS CO-OP has stepped in to do that.
Along the way, we've looked at it on the basis
obviously of enabling legislation, because our partners
around the table would want to leverage the value of
that future legislation, not just legislation for our
needs. So the proposal that we've taken forward is to
create a cooperative bank that essentially would start
from an embryonic stage—the CS CO-OP creating a
cooperative bank—and then populate that sort of
philosophy for anyone else who wanted to become part of
it or start their own cooperative bank.
As part of that process, we offered to show proof to
the federal government that we were very serious to
push this ahead. On October 2, we received a charter
to create our schedule II bank, CS Alterna Bank,
which has been up and running since October 2.
It's in our interest to convert that schedule II bank
to a cooperative bank when cooperative legislation is
Our members of the CS CO-OP have informed us that, in
order for us to carry out the transition from CS
CO-OP, a cooperative organization, to the bank in its
totality, cooperative ownership is a necessity. They
own CS CO-OP. The bank is owned by CS CO-OP, but as
individuals with the bank, they require cooperative
ownership to be truly in the governance model of a
cooperative. I think Bill Knight and myself are
talking of the same difficulties, the governance.
These are very important issues to our members. If
we're going to be an alternative, second-tier financial
institution in Canada, this is very important to us.
Mr. Richard Harris: Thank you.
The Chair: Mr. Epp.
Mr. Ken Epp (Elk Island, Canadian Alliance): Thank
First of all, I'd like to address Mr. Nygren. It's
good to see a guy whose roots are in Saskatchewan as
well and involved here.
I have a question with respect to your amendment. You
kept talking about it, I kept looking in it, you say
you need it, but I didn't see specifically what you
want in your amendment to proposed section 390 with respect to
the ownership rule or the regulation there.
Mr. Wayne Nygren: Let me just give you some of the
practical implications and we can take it from there
and maybe you'll understand the issue a bit better.
For example, credit unions right now are provincially
regulated, and the deposit insurance is run by the
provincial government—for the most part.
The central, the umbrella,
organization, like the Caisse centrale
from Quebec, is both federally regulated and
provincially regulated. But the deposits and everything
are insured by the provincial regulatory body.
We are now looking at merging our central
organizations, ourselves and Ontario. In other words,
we're taking all the business sides of our operations
and merging them together into one business. And we're
keeping the trade associations, the politics... We're
splitting the business and the politics. So what we're
doing is putting the business into a federal
The problem we have now is that the provincial
government insures all our deposits and regulates
credit unions. But now this new organization will be,
with the mergers of the
federally regulated organization. All the liquidity, all the
business powers will be federal.
So we're working
something out with the provinces.
Since they do insure
the deposits, they have to be comfortable when we get a
federally regulated company to do all the business
operations for the credit unions—because we're looking
at this as a national organization—preferably a
business delivery vehicle for all the credit unions in
this country that will be federally regulated. We
have to build a bridge between the provincial
regulators and the federal regulators.
The problem is, if we merge the two centrals
together we have in excess of 60% of the business of
the country. That means our umbrella organization,
ourselves, Canadian Central, either we own less than
10% of that organization or we own more than 50%. If we
have to own more than 50% of the national organization,
it creates a problem for us in getting all the other
provinces to come in knowing that one organization
already has control of this whole organization. And we
don't want 50%, frankly. So that creates a real
problem for us.
As well, we manage the national liquidity out of British
Columbia for all the provinces in Canada, and they do
that because we're all equal at the table. But
if we come to the point where one organization has to
control the national organization because of the
associational rules, that means right now the provincial
governments have said, “We're fine with British
Columbia, under contract from Canadian Central, managing
all the liquidity for Canada for all the provinces.”
But if we get to a position where we actually control
that association, it's going to be very difficult for
the Province of Ontario, the Province of Alberta, the
Province of Manitoba, saying, “We're not prepared to
have our legislative environment being in British
Columbia, controlled by one province.”
it makes more sense for us, in regard to the association, that
you can basically own or control a portion of an
association. It doesn't have to be the majority.
So it's a really practical problem
to deal with this.
Mr. Ken Epp: My time is up?
The Chair: Yes, your time is up.
Mr. Ken Epp: One question?
The Chair: We'll have to go to Mr. McCallum,
followed by Mr. Cullen, and then we'll go to Mr.
Mr. John McCallum (Markham, Lib.): Thank you, Mr.
It's the first time I've been on this side of the
table at one of these meetings rather than that side.
It is a pleasure to be here.
One thing I might say, thinking of what Mr. Rosen
said, is that I am perhaps tainted by having once
worked for a big bank, but I'm not here to defend
banks, nor to attack them.
I'd like to start with two general principles and
then ask two questions. I think one of the
good things about this bill, and a central objective, is
to increase competition in financial services in this
country—to let a thousand flowers bloom. We
could certainly do with more competition, and I
certainly believe the credit unions are a major
part of that focus. I think it's extremely
important to increase the flexibility of the credit
unions so they can have alliances, economies of scale,
and all of those good things that will help them be
more effective competitors against the banks.
So one principle is to maximize competition. A second
principle, I would say, is to maximize flexibility.
We need flexibility both because situations differ so much
across the sectors and also, looking forward,
because things change so fast and none of us are smart
enough to tell what the future will bring, we want
flexibility to deal with unknown contingencies down the
road. But neither of those objectives can be absolute.
They have to be subject to, first of all, safety and
soundness. There must be more competition, more flexibility, but
subject to safety and soundness.
I think we in Canada have had two bank failures since
1923 versus something like 10,000 in the U.S. So it's
hardly the usual 10:1 rule, but we want to preserve
that. Second, this is subject to wanting to have, broadly
speaking, Canadian control over most of the industry.
My two questions, then, relate to those “subject
to” issues, one being safety and soundness on the
credit union side and the other Canadian control on the
I was extremely sympathetic to your arguments about
flexibility and ownership, but if I understand it
correctly, the counter-argument to your view, what
Finance Canada might argue—and I'm not sure they have—would
be that if you don't have definite control, if
something then gets into trouble and there's no clear locus
of control, that's a problem. So it could be a safety
and soundness issue that is the counter-argument to
your otherwise very nice argument.
Is that a fair
comment? That's my question.
Mr. Wayne Nygren: I think if you look in the
past—and I'm not sure this is in most jurisdictions, but I know
this is in
ours—there hasn't been a credit union
failure where anybody's lost any money, or not that I'm aware
The reason for this is that when there's a problem, even
though you're not part of the problem.... For example,
in our organization, it's mandatory membership. In
other words, you have to belong to the central and you
have to deal with them. Prior to that, it wasn't mandatory
and credit unions could do their own things and be part
of their own associations. What happened is that even when
they got into trouble, even though they weren't part of
it, the system had to come in.
So regardless of who
or who doesn't have control,
in the financial industry the bottom line is
credibility. If you don't have credibility, you really
don't have anything. There has to be trust that you're
going to pay back the deposits that you've taken from
your members or your customers.
The issues that we've had in the past, the fact that
nobody has been in control, means everybody has
stepped to the plate and worked as a cooperative to
solve the problem. That's why we have really solved
our problems as a system. Because of the structure, you
as an organization may have
only 20% of the business, but yet under the 10/50 rule,
you're either going to have to take less than 10% or
take control. But if you take
control, you don't have the resources to solve the
problem anyway. Everybody has to come and help you.
So the fact that you're all in this as a team, as a
player, as a cooperative environment, that means
everybody pitches in to try to solve the problem.
That's why we've been so successful as a credit union
system. We don't look at it as our problem, we
look at everybody's problem because we're serving an
industry and our membership.
Mr. Brian Topp (Senior Vice-President, Credit Union
Central of Canada): Mr. Chairman, perhaps I can just add a
little technical point on this.
This is a very important question you're raising—that
is, does the amendment we're raising with the
committee raise prudential issues? I think we
need to squarely face that.
Let's just remember something about the credit union
system that's not true about banks. The part of the
credit union system that deals with the public is
already provincially regulated. The control issue,
the prudential control on the dealing with the public,
is done by this network of provincial regulators,
provincial deposit insurance. When we're talking about
this federal act, we're talking about the credit union
system's back office. We're talking about entities
that serve credit unions that then deal with the
public. So the prudential issues are slightly
different from dealing with the bank where the federal
regulator is directly concerned with deposit taking
with the public.
What we're pointing out here is, in effect, a catch-22
that's been written for us in Bill C-8. The catch-22 is
that when we take up the act, it attacks the
cooperative nature of our system, in
dealing with in effect back office structures. What
we're basically pointing out is that under the status
quo, if Canadian Central, which is the national trade
association and liquidity utility for the system, is
controlled by credit unions or controlled by section 16
centrals, this issue of control is not a concern to the
The current status as
set up under the legislation in 1992 does not require
10/50 control. But as soon as we set up the new
tools that Bill C-8 gives us—for example, in the case
of an Ontario-B.C. merger—a
fundamental step forward as far
as what the government has asked us to do, which is
please get your act together, be less fragmented, use
federal legislation to do a better job.... As soon as we
do that, then because of a drafting issue, which up
until weeks ago was identified as a drafting error,
suddenly a 10/50 rule written for bank regulation is
triggered and the new association has to control our
liquidity fund and then you have a fundamental
governance problem in a cooperative.
Basically you are out of one member, one vote, and into
“he who has the biggest bucks has the control”.
The people who don't have the biggest bucks go, and
this isn't a co-op any more.
That's basically the
issue we're raising with you. We're asking you
to carry the logic that is a long-standing principle of
your own legislation, because your current legislation
says credit unions don't have to have control.
Centrals don't have to control. We're asking you, let
us take up the new tools you're giving us without
attacking our governance system. Does the federal
government have enough tools to ensure that we don't
foolishly use this to make terrible mistakes, like the
two banks that you referred to, only two since 1923?
just read that act. You read that act.
The government has so many hammers you can't
even count them. The government doesn't need
the control rule to
keep us out of trouble. We're going to be closely
regulated. We're just saying don't allow what I
believe is a drafting error to attack the governance of
the system. At the end of the day, it's a tweak
to carry through what you already have into the new
structures that you're adding.
The Chair: Any further questions, Mr. McCallum?
Mr. John McCallum: One quick one?
The Chair: Yes, sure.
Mr. John McCallum: The second point I wanted to
make was about Canadian control, and if there's a
counter-argument to the Sun Life proposal, it's
probably that. I don't really think your proposal
threatens Canadian control, so far as I can see. I
don't know quite how to measure Canadian control in the
first place. So my question to you is, what would have
to happen that you should wake up one day and say Sun
Life is no longer Canadian controlled? How do you
Mr. Donald Stewart: We see it, for these purposes,
being measured primarily through the board of
directors, which is why we're seeking to maintain a
majority of the board of directors as Canadian
If I might sketch it out, the primary issue here is
the degree to which the bill was supporting
international financial institutions. In several of
the financial institutions under the insurance
umbrella, including ourselves, about 80% of the
business is outside the country. The prosperity of
these institutions, we think, is important to the
economy. If you measured it by business, you would say
that already these institutions are perhaps not solely
Canadian institutions. For purposes of control, I
believe the board measure works, plus the fact that the
primary regulator remains the Office of the
Superintendent of Financial Institutions. These two in
combination ensure Canadian control, both in concept
and in practice.
The Chair: Thank you, Mr. McCallum.
you have one question, then we'll have to move to Mr.
Nystrom and Mr. Brison.
Mr. Roy Cullen (Etobicoke North, Lib.): I have one
The Chair: Yes. You may have more than one, but you can
ask only one.
Mr. Roy Cullen: So this is part of the seven
minute rule, is it?
The Chair: Yes, absolutely.
Mr. Roy Cullen: Given that I have one question,
maybe I'll direct it to the matter of the credit
Mr. Seveny, I was glad to hear your
commentary. I think you're absolutely right in your
assessment. The government is committed to creating
more opportunities for credit unions to be full players
and provide more consumer choice, and I think you've
got the undertaking of Mr. Peterson and others to see
that to fruition.
With respect to Mr. Nygren and Mr. Knight, Bill C-8
creates more flexibility, it opens things up. In doing
that, it creates, as I think you'd agree, a little more
risk, and I think Canadians would expect the government
to manage that risk.
Under the rules, of course, the bank and the credit
union movement could set up a holding company. If a
bank, for example the Royal Bank, wanted to set up a
holding company, Royal Bank Financial Group, any of the
deposit-taking subsidiaries within it and others would
have to be controlled—those are the provisions of the
act. They'd have to be controlled in regard to the
issues that Mr. McCallum raised, prudential issues, so
that if something starts to go awry, the controlling
holding company can move in and provide whatever is
needed to make it whole.
On your argument—and Mr. Topp, Mr. Knight, and Mr.
Nygren—is it because of the very nature of the credit
union movement that those rules don't apply or
The department, as I understand it, has offered full
cooperation to work with you on this merger with the
Ontario Central, the B.C. Central, to provide the
regulatory solutions that would make that work. And
certainly you'd have my undertaking, in whatever
capacity. I know Sue Barnes is a member of the
scrutiny of regulations committee as well.
If I may be the devil's advocate, because these are
deposit-taking institutions, why wouldn't we want to
err on the side of prudence, and say that if there are
exceptions, those can be dealt with on a one-by-one,
case-by-case basis through the regulatory regime? Given
our government's objectives, to create and foster and
this kind of a consumer choice, why wouldn't that be a
suitable solution for you?
Mr. Bill Knight: Well, I think it
always goes back to a fundamental: Do you want
cooperatives in the market?
Secondly, I need to point out to you that when you're
dealing with the federal act, you're dealing with a
considerable amount of the back office, wholesale
operations. This is not a risk issue. I want to be
very clear. If we thought you were putting any of our
operations at risk, we wouldn't be playing, because
we've spent a better part of 50 years building a very
successful system and internal controls, very
effective, highly regulated. Our most successful
players, like B.C., are in highly regulated
environments. So we support very highly regulated
The issue concerning this amendment is neither
prudence nor risk. To be very clear, if you look at
the amendment, it puts in a clause allowing the
department to step in where that is seen as
OSFI accepts us, in one of the principles around all of
this, as widely held. I think it's very important, when
you're looking at that amendment, not to go down the
road of creating more risk with these changes,
because we're not going to function in that
environment. We have 50 years of experience and 50
years of being self-directed in terms of cleaning up
where we've seen a problem.
It is true that a credit union in difficulty has
either been cleaned up by us and our agencies or has been
merged with its neighbour, so I think that's our
response. That's why the amendment would be very good,
because you're going to go into a massive and
substantive regulatory regime in the next six to
eight months, and the amendment would really alleviate
getting into all that and getting on with the rest of
Mr. Wayne Nygren: The bottom line is the deposits
are insured by the provincial government, so there's no
risk federally, and there is not a risk change.
As part of our deal with Ontario, for example, we've
gone to Canadian Bond Rating, Dominion Bond Rating,
and Standard and Poor's. They've effectively said, “Let's
see the deal; we'll keep your rating.” Our rating is
the same as the big banks', an R1-mid and A1+.
If that rating doesn't stay, then obviously the deal
doesn't get done.
This is really a governance issue. What it does is it
takes the characteristics of our principles and our
culture away from us. In other words, either you're a
small part of the player or you control, and that's not
really our culture. Our challenge, really, is this: How do
we keep our uniqueness, which has made us strong, especially
in the Saskatchewans and the B.C.s and the Quebecs? How
do we keep that uniqueness of a member-owned, locally
controlled organization, and yet how do we ratchet the business to
gain more synergies, make ourselves more efficient, keep our values
and our culture?
This is more of a governance issue for us, and that's
what it does. It forces us to move into a business
realm in terms of a governance issue, and that's what
creates our problems for us. We're not prepared to
control, and yet we're not prepared to take less than
10%. That's what this does, and with a minor amendment
it effectively lets us negotiate the control that we
feel appropriate in terms of our size, our volumes,
our influence, and things like that.
Mr. Brian Topp: But let's just take your point.
Let's say that, in lieu of what
we're talking about here, which is sort of the credit
union way, incrementally taking up the new tools, you
have taken us to try to build up our back office.
If the day arrives when, under what you propose in Bill C-8,
suddenly we're setting up a deposit-taking institution,
that would be an interesting leap because we'd be
going into competition with our own shareholders. But
let's say we have got to that date. In that scenario,
you probably would be looking at a control, and the
amendments that you have before you wouldn't permit the
government to do that.
So basically what we're getting at is...and we're with you
on the prudential issue that you're raising, but now
look at it from our perspective. Meanwhile, you're
setting up a regime in which it's very tough for us to
take up the act at all, or tougher, anyway.
The Chair: Thank you.
Mr. Lorne Nystrom: Thank you, Mr. Chair.
I welcome all the witnesses here
this morning, and I'd like to ask
a couple of questions, if I may, to
Mr. Knight and to Mr. Stewart.
First of all, I think you're right when you talk about
it being a governance culture. The credit union is unique
and different. It's one member, one vote. It's the
ordinary guy who might have a butcher shop in Estevan
who is a member of the credit union—is one member, one
vote—and somebody in Halifax has a vote and so on. So
I think it's really a change of that culture that's
I just wonder if you had any response yet from the finance
department or from the minister himself that might be positive in
terms of being of use to our committee here, Mr. Chair.
The second question I have for Mr. Knight or Mr. Topp,
or indeed Mr. Nygren, is I understand that if
there is a retail association formed under the new
legislation, there is a 5% limit on commercial
lending that would apply to this new retail
association that doesn't, of course, apply to the
chartered banks. Could you elaborate on that as
Mr. Bill Knight: Quickly, I'd like to
say two things on the commercial limit. Because
it's an operational
issue, there is room for a regulatory fix down the
road, and we accept that one because it's not related to the
governance kind of issue. I think we are working very
well with the department on all of those. Like many of
the financial institutions here, I think all of us
would say the cooperation has been very good.
On the second one, we felt had an understanding of the
regulatory issue that was around in the fall, and we
felt the legislative package would fix that in the
spring. I do believe there's a general sense, a
broadly based sense of concern about holding up the
bill with amendments. I'm going right to the core of
this, because I think this amendment takes 30 seconds
and does not need to hold up the legislation either in
the House or in the other place.
Therefore, in our case, we have put this before the
officials. They know where we're coming from. I think
there's some concern about timing related to getting
this through. There's hope of trying to negotiate a
fix around regulations. I've told you the problem
that's there in terms of the time and effort that comes
with the regs. I've been through it since 1992, so I
told you we're still wrestling with a number of issues
in the area of minority investments.
We think the fix should come within the bill. But
certainly, getting a sense from the committee—this
being a major issue—we'll certainly probably shortly
just update the Minister of Finance around the issue as
Mr. Lorne Nystrom: I assume the Caisses populaires
would have the same concern as the Credit Union
Central, the B.C. Central, and so on.
Mr. Bill Knight: I think a lot
of their legislation is very extensive and takes into
account the cooperative principles within their
legislation under the Province of Quebec. But
generally, we've had significant support from
Desjardins in terms of the changes the government
is making within this bill and the financial services
Mr. Lorne Nystrom: Mr. Stewart, I'm interested in
your comments about the residency clause for directors.
Can you give us any comparisons of other jurisdictions
around the world in terms of their residency
restrictions? I understand ours are perhaps a bit more
stringent than some other jurisdictions. That might be
useful for us to have in terms of our record.
Mr. Donald Stewart: Yes, indeed, and thank you.
We've looked at the United States, the United Kingdom,
the Netherlands, and Australia, and generally there are
no such precise requirements as there are in Canada
with the current three-quarters residency. It's
left more to the specifics of the
situation. These jurisdictions in particular—and, as
far as we can tell, in general—have a more flexible
approach to their residency requirement.
Mr. Lorne Nystrom: I have one last question, if I
could, Mr. Chair.
One thing Mr. Stewart is recommending is kind of
interesting, that there be an ombudsman who is not just
there for the banks, but for all financial
institutions. Would the credit union centrals agree
with that? Should we have one financial services
ombudsman for insurance companies, banks, credit
unions, trust companies and so on?
I think that's one of the proposals you're making, and
it seems to make a lot of sense, at least on the
surface of it. Is that something you can support as
Mr. Wayne Nygren: Our position is that we
would not support that, and it's mainly because our
culture is so much different in terms of the way we
operate our business. For example, we have nine
ombudsmen on every board of directors. Effectively
it's a board of directors to which a member can go
directly if he or she has a problem. There are annual
meetings members can attend in their communities. They
can go to the annual meetings and express all their
concerns—which they do.
We've tried to track this. I've talked to Michael on
a number of occasions about wanting the credit unions
to come in with the bank ombudsman. We've tracked our
complaints down, and there are very few. They're
almost nil in terms of the ones that can't be resolved.
If a member has a problem, they either go to the local
branch manager of the credit union, they go to the
board of directors—they can phone them personally,
because they're all listed in the phone book—they go
right to the board meeting and say what the problem is,
or they go right to the annual meeting.
So we feel we have a far more effective process in
place, and the fact that we have very few complaints
that we haven't been able to resolve would bear that
out. We didn't want to get tied up in this, because we
feel the members have a lot more access right to the
leaders of our system rather than going through an
So at this point, we would not support that.
Mr. Lorne Nystrom: Mr. Stewart, do you any
Mr. Donald Stewart: The position that we have is
an important, forward-looking one. As you look at the
convergence of financial services going forward, you
see that the different entities and the different
pillars that used to exist are all ultimately
transacting similar kinds of business. If you look at
other jurisdictions, I think it's because of this
convergence of financial services. Where an
organization historically has had a particular
specialty, it is now in all branches of financial
Therefore, having that consistency
across the full range of financial services is an
important driver. Our proposal is more forward looking
than what is taking place today.
The Chair: Thank you, Mr. Nystrom.
Mr. Scott Brison (Kings—Hants, PC): Thank you,
Mr. Chairman, and thank you to all the presenters
It's that convergence of previously separate
activities and the devolution or the elimination of
these pillars that I'd like to focus on, Mr. Stewart.
One part of this legislation that I have some
difficulty with is the part prohibiting cross-pillar
acquisitions—and it applies very directly to Sun Life
as well as to Manulife. If you look at the
global trend, and if you look at the response in the
U.S. to the proposed merger of Citibank and
Travelers, it seems counterintuitive and
anachronistic to have that kind of prohibition in this
legislation. I'd like your feedback on it, because I
haven't yet heard an argument I'm comfortable with or
one that convinces me in this regard.
Mr. Donald Stewart: When I talked about the
convergence, I was, importantly, looking at Sun Life from an
individual customer's point of view. From a consumer's
point of view, the consumer can go to a number of
different kinds of financial institutions to get the
full range of financial services. As far as the end
customer is concerned, there is convergence already
today. We talked about colleagues in mutual funds and
similar things, and we ourselves will offer deposit
taking and certain kinds of banking services and so on.
If you look at it from the regulation perspective,
there is no question the practicalities of regulation
by entity have an importance that's hard to deny. The
fact that prudential supervision of an institution is
more manageable on a legal-entity basis does lead you
to some form of continuation of the past legal entities
and the past pillars.
If you looked at other jurisdictions—and you
mentioned the United States and Citigroup, but you
could also look at what's happening in the United
Kingdom—you would see more convergence. But there are
also important failed transactions. I would cite
NatWest Bank and Legal and General as examples of
where mergers of pillars didn't work.
Mr. Scott Brison: But I still don't hear a strong
argument for a prohibition of cross-pillar.... You
just said that life insurance companies are effectively
able to provide much of what banks can provide, and
banks can provide much of what insurance companies can
provide, etc. So if in fact the pillars don't really
exist any more from an operational perspective, why the
prohibition on cross-pillar acquisition?
Mr. Donald Stewart: I think the prohibition is
more situational than philosophical. If you look at a
major bank and a major insurance company in Canada
today, the major bank will have an enormous Canadian
presence. The major insurance company will be
substantially at the longer-term end of financial
services and will be mostly outside the country. There
isn't a great deal of merit in bringing these two
institutions together, because, although they both may
look like large Canadian institutions, one is
significantly domestic and one is significantly
international. Their combination doesn't have anything
like the same resonance as what took place in Citigroup.
Mr. Scott Brison: But if there were a market
argument against specific mergers, that would perhaps
make sense. I would think there would be reasons why a
strong domestic institution would want to have a strong
international presence from a diversification
But the market arguments aren't what we're speaking of
here. Why would there be a government prohibition
against...? From a business case perspective, if a
particular merger didn't make sense, that would be one
thing. But it's another thing when a government
actually has an arbitrary rule against such activity.
That's what I'm getting at. We're not here to argue
the business case or merits of an individual
transaction, but why the government has, as a public
policy imperative, an opposition to, in this case,
Mr. Donald Stewart: We see that the separation
of financial institutions into those with a capital
below $5 billion and those above does in fact address
the possibility of consolidation of the smaller
members. In fact, the bill as currently structured
seems to us to recognize the market reality in Canada
where you have specific classes of institutions that
are below the $5 billion mark where no such prohibition
exists, and those that are above, which have a very
different pattern of business where amalgamation
wouldn't make, in our view, either industry or business
sense at this juncture.
Mr. Scott Brison: But again, it's a business
sense. I'm trying to figure out from a public policy
perspective why this is good for Canadians.
Mr. Donald Stewart: We believe the prosperity
of these large international institutions is good for
Canadians indirectly by creating jobs in headquarters.
It's only indirectly good for Canadians in the sense
that they don't live outside the country. I think it
is that prosperity of these organizations
internationally that's important because it creates
headquarters jobs in Canada that ultimately are
important to the economy.
Mr. Scott Brison: Again, you're addressing, from a
business perspective, why they may or may not make
sense. But I still don't see from a prudential
perspective or from a Canadian public perspective the
case for that prohibition.
On the issue of directors and residency of directors,
the proposed amendment, while achieving the end you
would like to see, does concentrate an awful lot of
power, further power, with the minister. That's one of
the criticisms of this legislation, the level of
concentration of power with the minister.
Instead of simply the
minister having arbitrary power in this case, would you
have considered the notion that perhaps the House of
Commons finance committee...or
perhaps some type of quantitative methodology,
depending on the business activities of the firm, might
be able to
actually find a formula to come up
number of foreign versus domestic? Or why not just get
rid of the residency requirement completely, which is
probably anachronistic anyway?
Mr. Donald Stewart: In terms of
evolution, I think taking the residency requirement from the
current three-quarters to two-thirds—or, as we propose,
a majority, 50% + 1 or whatever—is a logical evolution
from where we've been to where we should head.
In terms of our degree of support for the present
ministerial discretion, we believe the processes
and structure that have surrounded Canada's financial
services activities have led to a very high standard
of conduct. The standards, for example, around the
demutualization of the life insurance companies in
Canada were among the best in the world, if not the
best. We don't have concerns about the amount of
discretion in the legislation at this juncture.
The Chair: Thanks, Mr. Brison.
I want to, on behalf of the committee, thank you very
much. As you know, we're trying to increase
competition in the financial services sector. We're
trying to provide an environment where the demographic,
technological, and globalization challenges you face
are addressed, and where consumer
choice and protection are also provided.
Your observations and the amendments you have forwarded
to us will be reviewed to see if in fact
they can achieve the ends as I outlined them.
Once again, thank you very much for your contribution.
The meeting's adjourned.