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Future of the Canadian Financial Services Sector – Presentation

Presentation to the Standing Committee on Finance

Comment on the Report of the Task Force on the Future of the Canadian Financial Services Sector

The Public Interest Advocacy Centre is a non-profit organization with a national board of directors and both organizational and individual membership. We specialize in representing the consumer interest in the delivery of important public services, particularly regulated industries such as telecom and energy, and have a particular concern for the vulnerable customers of these industries. We have attempted to apply some of our knowledge from these other utilities to the banking sector.

We commend the Task Force for producing an intelligent, fair and balanced report. The Task Force recommendations provide a blueprint for how the financial services sector should evolve over the next decade. Also, the Task Force provided an important service by commissioning research that is now part of the public domain.

As Harold MacKay said before this committee, the Task Force recommendations are a package. The Task Force made many recommendations that go further than ever before in dismantling the pillars of the financial services sector. The recommendations aim at increasing competition in the sector, but do not guarantee that banks will not grow even bigger, or that concentration will not increase in retail banking. As consumer representatives, these possibilities are worrisome. However, the Task Force report is acceptable to us because of the recognition that strong consumer protection measures need to be part of the framework for the financial service sector.

The Task Force’s vision is that, through a combination of legislated consumer protection measures, codes of practice, and on-going dialogue between the industry and consumer representatives, ordinary Canadian consumers can be well served by the financial services sector. While the Task Force’s approach to consumer concerns is “common sense,” it is in fact revolutionary for this sector. Over many decades, the financial industry has lobbied stenously, and for the most part sucessfully, to avoid consumer protection measures, and consumer involvement in decision-making.

The Task Force recommends an entirely new way of treating consumer issues. New ways of doing things can be threatening. This committee needs to be aware that many parties will want to water down the Task Force’s recommendations on consumer protection issues. We strongly recommend that the government not tamper with the balance that the Task Force acheived – that the government recognize that the consumer protection measures must accompany the implementation of the other recommendations.

The government will be pressured to move quickly to implement the changes recommended by the Task Force, and to limit the time it take to make a decision about the bank mergers. The need for speedy deliberations needs to be balanced by the need to ensure full and fair public participation. The type and extent of public involvement that the Task Force recommends is new to this sector. The need to involve consumers and consumer representatives in upcoming deliberations needs to be carefully thought out. We feel that the Task Force is on the right track, and have some comments to make in support of the Task Force’s recommendations. We have choosen three key issues to bring to your attention today.

Our first recommendation is that the government develop an implementation plan for the Task Force recommendations, in consultation with consumer organizations and other interested parties. The implementation plan would be a vehicle for an open, orderly process to proceed with Task Force’s recommendations, recognizing that many of the recommendations involve consultations and multiparty involvement in various iniatives. The Task Force report notes that consumer organizations need to be strengthened. The implementation plan would form the basis for the discussions on consumer organizations’ future role, and what measures may be needed to ensure adequate resources.

Our second recommendations is that the government insure that we get the institutional arrangements right in the implementation of the Task Force recommendations. The Auditor General’s 1995 report stated the responsibilities of OSFI, CDIC and Departments of Finance for implementing public policy objectives were unclear. As far as we can tell, this is still the case. The implementation of the Task Force recommendations will be confusing unless the government players’ roles are clarified.

In the context of these unclear roles, we are quite concerned about the proposal to make OSFI responsible for the proposed consumer protection measures. It’s principle mandate is to supervise financial institutions for financial soundness, and it is not clear how consumer protection measures would fit into this mandate. Also, despite many consumer concerns with the banking industry, no measures to address consumer concerns have ever originated from OSFI. We suggest that consumer protection measures should be implemented by a body with an appropriate mandate, that has some experience with and commitment to consumer issues.

Another institutional issue is the proposed changes to the Banking Ombudsman system. We support the Task Force recommendations, and would like to emphasize the need for the ombudsman framework to be open and accountable. Consumer representatives should be involved in developing the new framework.

Finally, we have some recommendations about the review of the mergers. We are very encouraged by the government’s commitment to implement the public interest review process as suggested by the Task Force. We have a number of procedural recommendations about the process, which are given in an Appendix to this brief. I want to bring one recommendation to your attention today, which is that participant funding be provided for the public interest review process for the mergers. It is important that all interested parties have the resources to participate meaningfully in the public interest review process. The Taskforce noted that consumer organizations are short of resources, and struggling to meet their current commitments. Without participant funding, non-industry parties will not have the resources to devote to reviewing documentation, assembling expertise and preparing for hearings. Participant funding would ensure that there is a strong public interest presence at the public interest review process. This strong public interest presence is crucial for the process to be legitimate in the eyes of the Canadian public.

We do not have time to discuss the Task Force’s recommendations in any detail today. We may submit further recommendations to the committee before hearings on the Task Force report end. Today, we would like to table a report we have recently completed on tied selling. The report discusses the Task Force’s recommendations on improving section 459.1 of the Bank Act. I would be happy to discuss this report further today or at another time.

Appendix A

Recommendations on Public Interest Review of the Mergers

  • There should be a a public comment period on the guidelines for the public interest impact statements, so that all public concerns about the mergers are included in the guidelines.
  • Participant funding should be provided for the public interest review process. Without participant funding, non-industry organizations will not be able to participate meaningfully in the process. A fair process needs to be developed to award the funding.
  • The hearings should be informal and non-judicial.
  • The process must be structured to that it is fair and legitimate. There should be an independent panel to conduct the hearings.
  • The results of the process should be made public at the same time as they are submitted to the Finance Minister.
  • The federal environmental assessement review process is a good model to follow for the public interest review process.
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