Comparison of Amendments set out in Bill C-8 to Financial Institution and other Laws  vs. CCRC Recommendations  (February 2001)

Set out below is a brief summary of the main amendments of interest to the Canadian Community Reinvestment Coalition (CCRC) contained in Bill C-8, An Act to establish the Financial Consumer Agency of Canada and to Amend certain Acts in Relation to Financial Institutions. Bill C-8 was introduced in Parliament on February 7, 2001 and will likely be passed into law by June 2001.

The summary is divided into three sections:
I. Community Reinvestment and Financial Institution Accountability;
II. Consumer Protection; and
III. Mergers, Takeovers and Other Ownership and Control Issues.

Where it is not too complicated to do so, and in areas of primary interest to the CCRC, the section numbers from Bill C-8 are set out after the summary of each amendment. After each amendment that does not match the CCRC's recommendations, under the heading "Changes Needed to Close the Gaps in Bill C-8" and marked by ******* the gaps between the Bill C-8 amendment and the CCRC's recommendations are set out in brief.

The CCRC's recommendations are set out in detail in the CCRC's nine Position Papers and two reports published since September 1997. Links to all the Position Papers and reports can be found on the CCRC homepage.

I. Community Reinvestment and Financial Institution Accountability

(a) Public Accountability Statements
Bill C-8 requires banks and other financial institutions with equity (shares) of $1 billion or more to publish an annual statement describing the contributions of the bank and its affiliate companies to the Canadian economy and society. The contents of the statement, which of a bank's affiliates will have to have a report in the statement, and how and when the statement will be disclosed to the public will all be defined by regulations (section 119, 409).

(b) Business financing
The government has publicly committed to setting up a comprehensive Statistics Canada program of data collection and analysis about small- and medium-sized businesses (SMEs) debt and equity financing. The details of what data will be collected will be determined in consultation with data providers and potential users. The government has also publicly committed to creating a dedicated SME Finance Group at Industry Canada to analyze data and conduct surveys and undertake other research. The government has also publicly committed to encouraging, but not requiring, financial institutions to reduce turnover of account managers, decentralize credit granting processes, make credit available to higher-risk borrowers with appropriate pricing and innovative financing packages. The government has also publicly committed to establishing a working group with financial institutions and First Nations to lower the barriers to financing Aboriginal businesses (e.g. the fact that on-reserve property cannot be seized by banks, and so cannot be used as collateral for financing).

(c) Micro-credit financing
The government has publicly committed to encouraging financial institutions to explore partnerships and other means of increasing micro-credit programs.

II. Consumer Protection

(a) Access to banking services
Bill C-8 requires certain types of bank branches to open a personal account for any individual who meets certain requirements, and prohibits these branches from requiring an initial minimum deposit or that a minimum balance be kept in the account (sections 97, 107 to 111). Bill C-8 proposes requiring certain types of bank branches to open a type of low-fee retail deposit account for any individual who meets certain requirements (sections 107 to 111). The definitions of branches and accounts that will be covered by these requirements, and the definition of individuals who will be eligible to open such accounts, will be defined in regulations. The federal government has publicly committed to monitor federal deposit-taking institutions efforts to make all branches wheelchair accessible, and to work with trust companies to establish voluntary codes on access and low-cost accounts.

(b) Cashing cheques and holds on cheques
Bill C-8 requires bank branches that have tellers to cash a government cheque of up to a certain amount if the cheque is presented by an individual who does not have to have an account with the bank, but must fulfill other specific requirements (section 117). The Bill also requires banks to disclose their hold policies for other types of cheques to customers in writing (section 110). The amount and circumstances under which a government cheque will have to be cashed will be defined by regulation. The Canadian Payments Association is working on standards for clearing other types cheques, and the government claims its regulations and these standards will effectively limit holds on cheques.

(c) Branch closures
Bill C-8 requires those bank, trust company and other deposit-taking financial institution branches that have tellers that open personal accounts and give cash to customers to give notice if it withdraws those services or if it is going to close. How far in advance the notice must be given, and how and to whom it must be given, and under what conditions the bank will be required to hold a consultation meeting with customers of the branch and others will be defined in regulations (sections 119, 526) The government has publicly committed to requiring federal deposit-taking institutions to provide 4 months notice of branch closures to customers by contacting local authorities and newspapers and by posting a notice in the branch (6 months notice will be required where there is no other financial institution branch within 10 kilometres of the branch being closed). The government has also publicly committed that the Financial Consumer Agency of Canada will order banks to convene a consultation meeting if the bank is not consulting customers adequately.

(d) Privacy protection
The government passed Bill C-54 allowing financial institutions (and other federally regulated businesses) to share private customer information with others if the customer consents explicitly or implicitly.

(e) Coercive tied selling
Bill C-8 prohibits a bank from practising "tied selling" through which the bank will only offer a product or service to a customer if the customer also buys another product or service from the bank. The Bill also requires that banks disclose the prohibition on tied selling in a clear statement displayed and available to customers at every branch. (sections 118, 148)

(f) Transparency and disclosure
Bill C-8 gives Cabinet the power to make regulations concerning disclosure of information of any product, service, policy, procedure or practice of a bank or other federally-regulated financial institution, or any consumer protection measure (section 119, 149, 155, 409, 519, ). The government has publicly committed to working with the provinces and the financial services industry to develop model, voluntary, plain-language contracts that fully disclose relevant information to customers.

(g) Government-run Financial Consumer Agency
Bill C-8 creates a new Financial Consumer Agency of Canada (FCAC) made up of a Commissioner and staff with full powers: to review financial institutions compliance with the consumer protection measures in the new law; to fine violators of such measures (maximum $100,000 fine for each violation); to promote such measures; to educate consumers and others about such measures; and to publish an annual report about violations of such measures. The FCAC will be funded by the federal government and also through financial assessments of financial institutions, in part based upon the number of complaints received about each institution (sections 3-34, 114, 116, 119, 147, 173, 325, 449, 545) The Office of the Superintendent of Financial Institutions will remain responsible for safety and soundness, and will be given new powers to remove directors or officers for misconduct, impose fines on institutions and individuals that fail to comply with Superintendent orders. (sections 155 to 173, 451 to 462). The Canadian Deposit Insurance Corporation (CDIC) will continue to collect premiums for deposit insurance and to promote safety and soundness (sections 195-208).

(i) Financial Services Ombudsman
Bill C-8 gives the Minister of Finance the power to create a new Canadian Financial Services Ombudsman (CFSO) structured as a non-profit corporation that will handle complaints from consumers about banks only. The Bill gives the Minister the power to appoint the majority of the CFSO's directors, who will each be independent of the government and the banks (section 115). The Bill also requires other federally regulated financial institutions to be members of a third-party complaint resolution system, and they can join the CFSO if they want (sections 408, 524). According to the government's public commitments, the CFSO will be structured and will operate as follows: Board of Directors of the CFSO will have eight independent directors and four directors appointed by financial institutions, all serving three-year terms; the Board will appoint Ombudsman and approve the annual budget; the Minister of Finance will approve the incorporation of the CFSO, and appoint the first eight independent directors; subsequent appointments of independent directors will be made by Minister of Finance and sitting independent directors; CFSO rulings will not be binding, but CFSO will be allowed to publicize the name of the financial institution if it does not comply with CFSO ruling.

(j) Canadian Payments Association
Bill C-8 proposes that the Canadian Payments Association (CPA - which operates the cheque clearing system) be expanded, its mandate changed to require it to advance the public interest, its board expanded to include non-bank and independent directors, and the existing Stakeholder Advisory Council set out in law. Minister of Finance will have power to review and approve/reject all CPA rule changes, and to regulate other payments systems (sections 214 to 239).

III. Mergers, Takeovers and Other Ownership and Control Issues

(a) Share ownership levels for large banks
Bill C-8 proposes allowing an investor to hold up to 20% of any type of voting shares and up to 30% of any type of non-voting shares of a bank with more than $5 billion in equity, subject to a review testing the investorÕs past record as a business person, the soundness of their business, and the reasons they want to get into the banking business, to determine if they have the necessary integrity and fitness of character for the business (sections 36-42, 65). The Bill also contains new measures to ensure that one shareholder, or shareholders acting together, do not directly or indirectly control any bank. (section 93)

(b) Holding companies
Bill C-8 proposes allowing widely held financial institutions to incorporate a regulated holding company whose only permitted operations will be to own or control as subsidiaries federal financial institutions, other financial-sector related companies, and a few non-related companies. Holding company structures will allow financial institutions to enter into partnerships and raise capital without merging or taking over institutions. Banks, and insurance, trust and investment companies will be fully regulated subsidiaries, but other subsidiaries will be subject to less regulation. If a widely held bank sets up a holding company, the holding company will have to be widely held, but the holding company will be allowed to own more than 50% of the bank (although no single shareholder or shareholders acting together will be allowed to exceed the share ownership limits of 20% and 30% set out above for the holding company or the bank) (section 93). The Bill also proposes allowing closely held insurance and trust companies to set up unregulated holding companies, although demutualized insurance companies will only be allowed to set up a regulated holding company (section 173).

(c) Share ownership levels for medium-sized and small banks
Bill C-8 proposes allowing a few shareholders or even one shareholder to own more than 50% of the stock of a bank with equity (value of all shares) of $1 billion to $5 billion, although 35% of the voting shares must be held by shareholders unrelated to the majority shareholder(s). The Bill also proposes allowing a few shareholders or even one shareholder to own 100% of a bank with equity of less than $1 billion. If a bank grows and crosses a threshold in size of its equity, it will have three years to make the transition to the different ownership rule (section 93). Government also proposes changing ownership rules for insurance and trust companies. Government also proposes that the minimum capital required for starting a new bank, trust or insurance company be lowered from $10 million to $5 million, and that any applicants be reviewed to ensure that the plan to start the new financial institution is sound and in the public interest, and the individuals and companies involved are of good character and integrity (section 81).

(d) Foreign banks
The government has passed legislation allowing foreign banks to set up two type of branches directly in Canada: a full-service branch that may only take deposits of more than $150,000; or a lending branch that is not allowed to take deposits. Since lending branches do not take deposits, they are not as fully regulated. Foreign banks can still set up a Canadian subsidiary rather than opening branches directly. Bill C-8 allows foreign banks to engage in permitted investments and business powers in similar ways to the provisions in Bill C-8 concerning domestic banks.

(e) Credit unions
Bill C-8 gives the Minister of Finance the power to allow credit unions to eliminate provincial networks and have one national network. Government also proposes facilitating credit unions that are trying to form a national co-op bank.

(f) Bank mergers
The government has publicly committed, by releasing Merger Review Guidelines, to a Merger Review Process for proposed mergers between banks (and, if any are created, bank holding companies) with equity (shares) more than $5 billion. The Process will assess proposed mergers and approve them only if the merger does not unduly concentrate economic power, does not significantly reduce competition, and does not reduce the flexibility of the government to address prudential concerns. Banks that propose to merge will have to prepare a Public Interest Impact Assessment (PIIA) that sets out the costs and benefits of the merger on lending to consumers and small businesses, on branch locations and overall service, on international competitiveness, on employment, and on technology. The House of Commons Standing Committee on Finance will review the PIIA and will hold public hearings on any merger proposal. The Competition Bureau and the Office of the Superintendent of Financial Institutions will continue to review proposed mergers for impacts on market competition and safety and soundness. The Minister of Finance will continue to have the power to approve or reject a merger proposal. The Minister will also have new powers to enforce any undertaking made by the banks as a condition of the merger, and to penalize violations of undertakings (sections 80, 82, 93).