CONTENTS
Thursday 2 June 1994
Financial Services Statute Law Reform Amendment Act, 1993, Bill 134, Mr Laughren / Loi de 1993
portant réforme de diverses lois relatives aux services financiers, projet de loi 134, M. Laughren
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
*Chair / Président: Johnson, Paul R. (Prince Edward-Lennox-South Hastings/
Prince Edward-Lennox-Hastings-Sud ND)
*Vice-Chair / Vice-Président: Wiseman, Jim (Durham West/-Ouest ND)
Caplan, Elinor (Oriole L)
*Carr, Gary (Oakville South/-Sud PC)
*Haslam, Karen (Perth ND)
*Jamison, Norm (Norfolk ND)
*Johnson, David (Don Mills PC)
*Kwinter, Monte (Wilson Heights L)
*Lessard, Wayne (Windsor-Walkerville ND)
Mathyssen, Irene (Middlesex ND)
*Phillips, Gerry (Scarborough-Agincourt L)
*Sutherland, Kimble (Oxford ND)
*In attendance / présents
Substitutions present / Membres remplaçants présents:
Elston, Murray J. (Bruce L) for Mrs Caplan
Owens, Stephen (Scarborough Centre ND) for Mrs Mathyssen
Also taking part / Autres participants et participantes:
Ministry of Finance:
Imants Abols, legal counsel
Glower, Harvey, manager, financial and business standards, credit unions and cooperatives branch
Owens, Stephen, parliamentary assistant to the minister
Clerk / Greffière: Mellor, Lynn
Staff / Personnel: Yurkow, Russell, legislative counsel
The committee met at 1012 in committee room 1.
FINANCIAL SERVICES STATUTE LAW REFORM AMENDMENT ACT, 1993 / LOI DE 1993 PORTANT RÉFORME DE DIVERSES LOIS RELATIVES AUX SERVICES FINANCIERS
Consideration of Bill 134, An Act to revise the Credit Unions and Caisses Populaires Act and to amend certain other Acts relating to financial services / Projet de loi 134, Loi révisant la Loi sur les caisses populaires et les crédit unions et modifiant d'autres lois relatives aux services financiers.
The Chair (Mr Paul R. Johnson): Today we are dealing with clause-by-clause consideration of Bill 134. I thank the Progressive Conservatives and Liberals for giving their amendments to the committee this morning. The clerk has advised me that there will be an integrated copy of the amendments available this afternoon.
We start with government amendments to section 1.
Mr Stephen Owens (Scarborough Centre): I move that the definition of "corporation" in section 1 of the bill be struck out and the following substituted:
"`Corporation' means the Deposit Insurance Corporation of Ontario; (`Sociéte')"
The reason for the amendment is for a clarification for easier translation into French.
Mr Monte Kwinter (Wilson Heights): I just want to get a point of clarification. Does this mean that OSDIC as we know it no longer will exist? Is this a replacement to OSDIC?
Mr Imants Abols: No, this is just a change of name. The corporation, as it exists now, will continue under the new act. This is just a change of name.
Mr Kwinter: I just mean will the OSDIC name be changed to this? Instead of the Ontario Share and Deposit Insurance Corp, it will be this name?
Mr Abols: That's correct.
Mr Murray J. Elston (Bruce): When we had a presentation from the coalition of caisses populaires, I think they also had a suggestion. There were three alternative names that could be used. I'm just sitting down now and I can't find my notes, but does this translate closely to what they had suggested be a single name?
Mr Harvey Glower: This is certainly one of the options.
The Chair: Any further comment on this amendment?
All those in favour? Opposed? Carried.
Mr Owens: I move that the definition of "deposit insurer" in section 1 of the bill be struck out and the following substituted:
"`deposit insurer' means the Deposit Insurance Corporation of Ontario; (`organisme d'assurance-dépôts')"
The reason is the same as with the previous amendment with respect to ease of translation.
The Chair: Any comment on this amendment? All those in favour of the amendment? Opposed? Carried.
Mr Owens: I move that the definition of "security" in section 1 of the bill be amended by striking out "or credit union" in the third and fourth lines.
The reference to "credit union" is deleted because "financial institution" is already defined in the bill to include a credit union.
The Chair: Any further comments? Does the amendment carry? All in favour? Opposed? Carried.
We have come to the point where we have all the amendments for section 1. Shall section 1 of the bill, as amended, carry? Agreed.
Are there any comments on section 2? Seeing none, shall section 2 of the bill carry? All those in favour? Opposed? Carried.
Any comments on section 3? Shall section 3 of the bill carry? All those in favour? Opposed? Carried.
Section 4 of the bill: Any comments? Shall section 4 of the bill carry? All those in favour? Opposed? Carried.
Section 5: We have two amendments, one from Mr Owens.
Mr Elston: Steve, before you begin, can I just ask for some direction? We didn't get a chance to get back to each other on how many amendments might be accepted on areas other than those you had filed. It's our desire in the Liberal caucus to move fairly quickly through this material, not to hold up the passage of the bill unnecessarily, although there are some general issues about which we would like to speak; for instance, the issue of "cooperative affiliate," which is going to be raised in a minute by our friends from the Conservative caucus and which was on their list to speak about as an issue.
Is there going to be a willingness on the part of the government to reasonably consider some of these amendments, or are we going to be into a long debate with very little prospect of changing further on these? If that is the case, is there some time frame for implementing some of these other changes when you further consider financial institutions in the province; for instance, a cooperative affiliate of a credit union?
Mr Owens: The quick answer is that in terms of how I would like to proceed, there is an opportunity for some reasonable consideration. I'm not sure I quite understand your point with respect to implementation.
Mr Elston: Is it worthwhile filing all our amendments and actually arguing them, or are we just going to be filling in a lot of time? Basically, I want to know whether it's worth putting the amendments, that's all.
Mr Owens: If you're asking me to be arrogant --
Mr Elston: No, no, I'm not. I just want to be practical, because I can move a few more amendments but I just don't want to get into a protracted debate on something that has been considered. Maybe we could sit down, for instance, after today's clause-by-clause and actually pick out some that might be accepted. I just think it would save us a lot of time, because we really want this legislation to go and to get passed.
Mr Owens: That may not be a bad suggestion. If you have some ideas you would like to share, I'm prepared and I'm sure Imants and Harvey Glower are prepared to work with you.
1020
The Chair: Thank you. Mr Owens, with regard to section 5 of the bill and your amendment.
Mr Owens: I move that section 5 of the bill be amended by adding the following subsection:
"Affiliate by order
"(2) On application in writing by a credit union, the director may, by order and on the terms specified in the order, deem a corporate body named in the order to be an affiliate for the purposes of this act or for the purpose of specific provisions of this act.
"Revocation of order
"(3) The director may revoke the order if he or she believes that the credit union has failed to comply with a term set out in the order or that it is no longer appropriate to deem the corporate body in respect of which the order is made to be an affiliate."
This is an amendment that was requested by the credit union movement. I'll ask Mr Glower or Imants for something further.
Mr Abols: Essentially, the concern is that because of the nature of relationships between cooperatives, they don't fit the traditional model of a subsidiary-parent relationship. You can't have effective control of a cooperative because of the principle of one member, one vote.
Credit unions in this province, along with other cooperatives in other provinces, have interests in different corporate bodies, which may be organized along cooperative principles. There's no way to deal with their interests in those cooperative bodies.
What this amendment allows is for the director, on a case-by-case basis, to look at each situation and determine whether it's appropriate, in that particular case, to deem their interest in a particular corporate affiliate to be equivalent to an interest in a normal affiliate and therefore subject to the same sort of regulatory regime we provide for other affiliates.
Mr David Johnson (Don Mills): A question to the parliamentary assistant, or perhaps it's to you, Mr Chair. As you know, we have an amendment coming up. If the government's amendment is carried, which I would say is somewhat likely, what would be the status of my amendment? How would the ruling be on that? Would you be prepared to accept that as well or would you then be ruling that out of order?
The Chair: We'll have to wait until your amendment is moved, Mr Johnson, and deal with it at that time.
Mr David Johnson: I was hoping for a somewhat more friendly response.
The Chair: I know that doesn't directly answer your question.
Mr David Johnson: It's fairly predictable.
Mr Elston: In fairness, Mr Chair, he can move that as an amendment to this particular motion. Subsection 2 could be amended by striking it out and adding his, if he wants to deal with it in that way. I guess the necessary question is, are the government amendment and Mr Johnson's suggested wording compatible, and does it make sure we accomplish what I think is a good idea?
The Chair: We don't know if this amendment is going to pass, to be fair.
Mr Gary Carr (Oakville South): Let's assume for a moment that it will.
The Chair: We can't.
Mr Elston: Move your amendment.
Mr David Johnson: Mr Chair, would you accept an amendment to the government's amendment at this point?
The Chair: Yes.
Mr David Johnson: Then I would move an amendment to the government's amendment.
I move that section 5 of the bill be amended, and the government's amendment be amended, by replacing subsection (2) of the government amendment with the following:
"Corporate affiliate
"(2) An entity is a cooperative affiliate of a credit union if such entity is operated and organized as on cooperative principles and is owned and controlled by:
"(a) such credit union and at least one other credit union or league;
"(b) such credit union's league; or
"(c) such credit union's league in association with other leagues or associations incorporated under the laws of Canada or any province thereof."
This is a suggestion or recommendation that's been brought forward by the Coalition of Credit Unions and Caisses Populaires of Ontario. They have expressed a concern that the definition of "affiliate" used in the bill, which I understand is a classic corporate law definition used in connection with corporations governed by the Business Corporations Act, in conjunction with the definition of "subsidiary," does not accommodate the majority of companies related to credit unions by virtue of cooperative ownership structures.
This is important because credit unions do rely on networking and strategic alliances with cooperative affiliates to provide members with a full range of financial services. The bill as it was originally printed did not specifically give cooperative affiliates equal status with subsidiaries and affiliates, and that's why we're proposing this definition.
Now, as I understand the government's amendment, it would allow the director to deem a corporate body to be an affiliate for the purpose of the act, but the credit unions would much prefer to have the matter dealt with in the statute as opposed to being left to the discretion of the director. This would specify exactly what the situation would be.
I think it's an approach that certainly would be much more favoured by the credit union movement. Consequently, I think it's a step beyond what the government's motion is proposing, and I would hope the government would look upon that in a friendly fashion and be able to support it.
Mr Owens: Thank you, Mr Johnson. Unfortunately, I can't accommodate your request. It's our view that this amendment is too broad and that it would perhaps allow, or enshrine in perpetuity in legislation, entities that we or the movement may or may not want enshrined as affiliates. I'll ask Mr Abols to comment.
Mr Abols: Our view is that the government motion accomplishes what the credit union movement wants in terms of accommodating and recognizing their interests in other cooperative affiliates. The problem is that the way your motion is drafted, though, it would basically, as Mr Owens suggested, enshrine for all time this one understanding of what a cooperative affiliate is. It may capture certain cooperative affiliates which, when we look at the operations of a particular cooperative affiliate, may not be appropriate; or with the nature of the interests of a credit union in a particular cooperative affiliate, it may not be appropriate to treat them as you would treat a subsidiary. The view is that the government motion provides a mechanism which is much more flexible and it can be dealt with on a case-by-case basis.
On the issue of networking, because you touched on that in the rationale as well, if you look at the section we have on the networking provision, we have again a mechanism whereby by regulation we can expand the scope of entities a credit union can network with. Again that part of the equation is also covered elsewhere in the act.
Mr David Johnson: The motion the government's put forward says "the director may" -- the word is "may" -- "by order and on the terms specified in the order, deem a corporate body named in the order to be an affiliate for the purposes of this act." Could you give us some direction about under what circumstances the director would do that? What sort of criteria would be used, so the credit union movement may have some understanding of how the director would act?
Mr Abols: I can only speak very hypothetically here, but, for example, if you do have an interest in a cooperative affiliate where the credit union's interest, notwithstanding the fact that it's a cooperative affiliate, effectively amounts to 50% or effective control of it, that would be very much analogous to a situation where the affiliate was a stockholding company and it had effective control through voting shares. You may have certain cooperative affiliates where there are essentially just two members or shareholders and they each have one vote, but one vote effectively represents 50% control of that entity. So that's one criterion. There may be others where the threshold is lower than 50%, but because of the shared interest among several credit unions within Ontario, it would be appropriate to deem that cooperative affiliate effectively a subsidiary of each of those credit unions, notwithstanding that it wouldn't meet the traditional 50% voting control test.
1030
We want to see that kind of level of participation. If it's a cooperative affiliate which is essentially controlled by cooperative affiliates outside the province, I think we would have some concern about that because it's not a cooperative affiliate that comes within our jurisdiction, and we wouldn't be able to impose the prudential safeguards that we might want to because it's essentially a cooperative affiliate that operates outside the jurisdiction.
Mr David Johnson: I don't wish to hold up the proceedings here today either, because I do understand that there's a great deal of support for having this bill proceed, but again it gets back to the fact that many groups have expressed the desire to have the ground rules specifically written in the legislation so they understand what's happening. That's what we're attempting to do.
I know there was one deputation that said that we don't get the opportunity to revise the statutes very often, so perhaps we should leave them more flexible. But I think the majority opinion was that where possible, we should be as specific as we can. I think this is one area where the credit union movement feels that it could be more specific, that it could be written into the statutes. I guess I would simply ask the government to take a second look at it and see if there isn't something that could be accommodated through more specifics such as I proposed.
The Chair: Legislative counsel, Mr Yurkow, would like to make a comment.
Mr Russell Yurkow: I didn't really have any comment to make, other than to say that the two motions are not inconsistent with each other, the possibility of which I think was raised earlier.
Mrs Karen Haslam (Perth): I wasn't going to comment, except that I think I have to comment because I was here, and it was very clear that they felt there should be more flexibility in the legislation than being so precise.
The reason I remember it so clearly is because it was a question that I had raised. I had been on another committee where they were saying that they didn't want to see so much in regulations; they wanted to see it all in legislation. Then I came into this committee and the group was saying: "No, we don't agree with that; we think it should be more flexible in legislation and there should be more in regulations because it's easier then to address changes in the community and changes in the industry through changes in regulations, rather than waiting another 100 years to change the legislation."
I don't know where you felt that information came from, because I remember very clearly; I even remember being in the room downstairs when we had that first meeting and that was the information they had passed on.
Mr Kwinter: I think there's sort of a contradiction in the original section and the amendments that are proposed. If in fact it is meant that this legislation should be flexible, then it would seem to me that section 5 should be eliminated and the proposed amendment should be the section. It should say, "On application in writing by a credit union, the director may, by order and on the terms specified in the order, deem a corporate body named in the order to be an affiliate for the purposes of this act or for the purpose of specific provisions of this act," which gives you the flexibility that you say you want.
The minute you have what you do have, where you actually spell out that if one of them is a subsidiary of the other or if both are subsidiaries of the same body corporate or each of them is controlled by the same person, you are being very specific. What it leaves is that by adding the amendments you have, it's really open-ended and it's at the discretion of the director. Someone who refers to the act to see whether or not he or she is eligible to be considered by the provisions in this act is really at the whim of the director of the day and what he feels or what the common practice has been, but that could change.
It would seem to me that if you're going to spell out some of the provisions, then surely the recommendations that have been made by the PC motion, where they add three more provisions, shouldn't be that constraining, because you're still going to add, I assume, your particular amendments, which still give the discretion to the director. But it would seem to me that you can't really have it both ways. If you want to have this flexibility, then I say take out the provisions that you have provided and put in the fact that it'll really be at the discretion of the director. If you want to see whether or not you qualify or whether you're a cooperative that qualifies, you write to us and we'll give you an order and then you follow the terms of the order. But by spelling out just what really turns out to be three possibilities and not others, I think you're really doing some of these other entities a disservice. I would certainly appreciate the comments of either the parliamentary assistant or the solicitor.
Mr Owens: I guess I fundamentally disagree with the premise that the director is going to operate on a whim and things may change from year to year or director to director. Again, this work is premised on a balance that's been achieved between the credit unions and caisses populaires movement. In terms of allowing the flexibility that has been requested by the credit union and caisses populaires movement, it's our view that this covers it off quite nicely. If one wants to imagine all the hypothetical situations that may come up in subsequent years, maybe we should just do this whole thing by regulation and try to capture the hypotheticals as they come along. Mr Abols, did you have any comments?
Mr Abols: My one observation on the suggestion that we go with the motion as the government has tabled it instead of having what we have in the bill is that the bill is the standard, traditional corporate definition of what an affiliate is, and I think we have to be mindful of the fact that credit unions will still have interests in traditional corporations -- that is, stockholding corporations, corporations under the Ontario Business Corporations Act or whatever corporate statute, the Canada Corporations Act -- and those interests will be accommodated by that definition. So it's an automatic affiliate if they have a controlling interest.
There are really two situations; you're right in identifying that. One is the traditional stockholding and one is the cooperative entity. We're saying, with respect to the cooperative entity, the mechanism we see as working best is one where it's an administrative decision on whether a particular cooperative entity should be treated as an affiliate, because with certain cooperative affiliates, depending on the nature of their business and the nature of a particular credit union's interest, it may not be appropriate to treat them as affiliates, as you would an OBCA corporation. But this definition, though, if you accepted your motion, would constrain that, and we may let things in that we may regret later on.
The whole concept of how you account for cooperative affiliates is a fairly new one, and that's why we feel that it's necessary to take a somewhat more prudential approach to it and allow the regulator some flexibility.
The Chair: Any further debate? Seeing none, shall the amendment to the amendment carry? All in favour? Opposed? It's lost.
Is there further debate on the government amendment? Shall the amendment carry? All in favour? Carried.
Shall section 5, as amended, carry? Carried.
Shall section 6 carry? All in favour? Carried.
Shall section 7 carry? All in favour? Opposed? Carried.
Shall section 8 carry? All in favour? Opposed? Carried.
Section 9 of the bill has an amendment. Mr Johnson.
1040
Mr David Johnson: I move that the bill be amended by adding the following new section:
"Appeal of decision
"9.1 An appeal of any decision made by the director under this act shall be to an arbitration panel consisting of three persons; one of whom is appointed by the credit union; one of whom is appointed by the ministry and one of whom is appointed by agreement of the aforementioned appointees."
This again is a suggestion brought forward by --
Mr Elston: Excuse me. On a point of order, Mr Chair: This is a new section, which will follow section 9, so shouldn't we deal with section 9 first? This is not dealing with an amendment to 9. He doesn't want to replace 9. This is an addition after 9. So I think we should deal with 9 first and then come back to Mr Johnson.
The Chair: I believe that is in order, Mr Elston. So, Mr Johnson, if you will just hold that thought and we'll come back to your amendment.
Shall section 9 carry? All those in favour? Opposed? Carried.
Now, Mr Johnson, I don't believe it's necessary that you re-read what you've already read. However, this would be a new section of the bill, section 9.1
Mr David Johnson: In terms of the rationale, we were discussing just previously the role of the director, so perhaps this flows quite naturally from that discussion. I guess, as Mr Kwinter has pointed out, although Mr Owens has disagreed, there's a possibility of directors changing attitudes or approaches or whatever over a period of time, and it raises the possibility of someone who disagrees with a decision perhaps of the director.
The Coalition of Credit Unions and Caisses Populaires of Ontario has put forward this particular suggestion, that there be an appeal mechanism, and that's what I've outlined in the motion. The act does give the director very broad and discretionary powers but as it is currently worded does not provide for any mechanism for an appeal. That's what I'm proposing, to establish that sort of mechanism, which I think is something that probably, hopefully, the government could support, and that this panel of three would render a final and binding decision.
Mr Owens: I'm afraid, Mr Johnson, that we are unable to support the amendment. I think there have been some fairly intensive discussions with ministry staff and the coalition of credit unions and caisses populaires, and it's our view that in terms of the appeal mechanism in fact there may be situations that fall under the rubric of good prudential management that would be obviated by language like this if you allow appeals to take place with no end in sight. It's our concern that in terms of the stability of a credit union and depositor security, this would not be helpful in that sense.
Mr Elston: I think I would like to have some indication if this is a normal addition to the public service. I was just trying to run through my mind the various places where administrative decisions are made, not just in this area, but we have superintendents of insurance, we have registrars of vehicles. Arbitration is not generally the route. Sometimes there's an appeal to the Commercial Registration Appeals Tribunal, for instance, if there's a refusal of a registration, things like that. The arbitration process for me would be kind of a new adventure, and I wonder if there is a sense that arbitration is wrong, or is it just the sense that you would far sooner leave the director, as has been the case to this point, as being the final authority on items like this?
Mr Owens: I'll go to ministry staff.
Mr Abols: I think the position, though, has been a little bit overstated. The director isn't the final authority with respect to a lot of issues. On the face of this, if this were to be passed, you'd have to really make numerous consequential amendments, because indeed if you look through the act, there are a number of places where the director's power is circumscribed by way of an appeal to either another senior official, the superintendent of deposit institutions or to the court.
In any case, any administrative decision in terms of administrative fairness, as most members would probably know, is appealable to the courts since they have that responsibility to review any unfair exercise of discretion by a person with a statutory power of authority.
There are already appeal mechanisms with respect to certain orders throughout the act. They'd either be to the superintendent of deposit institutions or to the courts. There's always the general oversight by the courts of any administrative discretion exercised by a statutory official. There are certain instances where there is no appeal mechanism and those cases are deliberate choices where the view is that these are fundamental operational decisions where you have to make the decision quickly and, in a sense, the buck stops right there. It has to stop there; otherwise other bucks will --
Mr Elston: Is it fair to say that the menu of appeal mechanisms, at least as now in the legislation, is not too often successful, nor can it be successfully used, and that's why the expression by the coalition, for instance, of an attempt to get another venue?
Mr Abols: I can only speak from my own personal experience working in the ministry. That hasn't been the case, simply because actually there haven't been that many appeals from certain specific statutory decisions. I think generally the branches I observed the ministry operate do so in an attempt, first of all, to achieve a certain end through moral suasion and through negotiation and so on.
I can only also observe that the regulatory regime we've set out is comparable to one found in other legislation governing financial institutions. What we have here is no more or less draconian than any other.
Mr Elston: This would take the credit union and caisses populaires organizations into an area that would be similar for stock companies or other financial service providers federally?
Mr Abols: Other financial service providers, yes.
The Chair: Any further debate on the amendment, new section 9.1? Seeing none, shall section 9.1 of the bill carry? All in favour? Opposed? That's defeated.
Shall section 10 of the bill carry? All those in favour? Opposed? Carried.
Shall section 11 of the bill carry? All those in favour? Opposed? Carried.
Shall section 12 of the bill carry? All those in favour? Opposed? Carried.
Shall section 13 of the bill carry? All those in favour? Opposed? Carried.
Shall section 14 of the bill carry? All those in favour? Opposed? Carried.
There's an amendment to section 15.
Mr Owens: I move that subsection 15(2) of the bill be amended by striking out "issuing" in the fifth line and substituting "the minister issues."
This is a clarification or a tightening up of the language with respect to only the minister is able to issue a certificate of incorporation.
The Chair: Shall the amendment carry? All those in favour? Carried.
Shall section 15, as amended, carry? Carried.
Shall section 16 of the bill carry? All those in favour? Opposed? Carried.
Shall section 17 of the bill carry? All those in favour? Opposed? Carried.
Shall section 18 of the bill carry? All those in favour? Opposed? Carried.
An amendment to section 19.
Mr Owens: I move that subsection 19(2) of the bill be amended by striking out "subsection (3)" in the first line and substituting "subsections (3) and (5)."
Subsection 19(2) is amended to ensure that it is subject to the grandparenting provision in subsection 19(5). Subsection 19(5) permits credits incorporated before the bill comes in force to use the name under which they were incorporated, notwithstanding that it may violate the requirements in section 19.
1050
The Chair: Any debate on this amendment?
Mr Elston: An item of information as opposed to debate: Are there going to be many that will be offside? One or two?
Mr Owens: In terms of name?
Mr Elston: Yes, name. This is just sort of precautionary, is it? I don't mind making the amendment as long as it's necessary, but if there aren't any in existence, why would we do it?
Mr Glower: I think there are two or three that may find themselves at some point in time being a credit union as opposed to a caisse populaire, therefore carrying the name of caisse populaire, and it's certainly the view of the caisse populaire that this should not be so, given the new definition of a caisse populaire. So we support the coalition's request.
The Chair: Shall government amendment to subsection 19(2) carry? Carried. Further amendments to 19?
Mr Owens: I move that subsection 19(5) of the bill be amended by striking out "A" at the beginning and substituting "subject to subsection (3), a."
This is a limiting clause. In terms of the use of the phrase "caisse populaire," unless these financial institutions that are currently using the name fall under the conditions set out in subsection 19(3), they will not be allowed to use the name "caisse populaire."
The Chair: Any comments? Seeing none, shall the amendment carry? Carried.
Shall section 19, as amended, carry? All those in favour? Opposed? Carried.
An amendment to section 20.
Mr Owens: I move that subsection 20(2) of the bill be amended by striking out "leagues" and substituting "the prescribed persons or entities."
The explanation is that federally incorporated cooperative associations may operate in Ontario and use "Credit Union" or "Caisse populaire" in their name. I guess by way of example, Credit Union Central of Canada is a federally incorporated entity. However, this amendment will allow an exemption for entities such as Credit Union Central to continue to use that name.
The Chair: Comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 20 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 21 of the bill carry? All those in favour? Opposed? Carried.
Shall section 22 of the bill carry? All those in favour? Opposed? Carried.
Shall section 23 of the bill carry? All those in favour? Opposed? Carried.
Shall section 24 of the bill carry? All those in favour? Opposed? Carried.
Shall section 25 of the bill carry? All those in favour? Opposed? Carried.
Shall section 26 of the bill carry? All those in favour? Opposed? Carried.
Shall section 27 of the bill carry? All those in favour? Opposed? Carried.
Shall section 28 of the bill carry? All those in favour? Opposed? Carried.
An amendment to section 29.
Mr Owens: I move that subsection 29(3) of the bill be amended by striking out "officer" in the fourth line and substituting "employee."
This was an issue that was raised by the credit union movement and caisse populaire movement. It was the view that it would be far too onerous for officers of a credit union to be issuing approvals on membership applications.
The Chair: Any comments? Seeing none, shall the amendment carry? Those in favour? Opposed? Carried.
Shall section 29 of the bill, as amended, carry? All those in favour? Opposed? Carried.
An amendment to section 30.
Mr Owens: I move that subsection 30(2) of the bill be amended by striking out "a person, related persons" in the first and second lines and substituting "persons."
In the aim of brevity of language, this simply removes superfluous language.
Mr Kwinter: On a point of order, Mr Chair: I apologize. I'm at subsection 29(3) and have a little concern. I wonder if we could go back to that for a minute.
The Chair: Is there unanimous consent to revisit section 29 of the bill? There is. Mr Kwinter.
Mr Kwinter: Let me tell you the concern that I have. There is a general feeling when we talk about credit unions that they're all fairly substantial organizations and are of some substance with a whole hierarchy of people, and the feeling that it might be inconvenient to have an officer approve these things and that it should just be an employee.
My concern is that there are some very small credits unions or even some medium-sized ones where because of the nature of the credit union, because it is a special relationship where everybody knows everybody else, there could be someone who is technically an employee who can give an approval even though he or she is not an employee who has any relationship whatsoever to the functioning of the banking side of the credit union.
It would seem to me that there should be something a little bit more specific, something like a "responsible" employee or an "empowered" employee. I just feel, if you put in "an employee," that, without trying to put a worst-case scenario, a brother and a brother-in-law get together and he says: "Look, I'm an employee of the credit union. I may just be the maintenance guy, but I'm an employee under the act and I approved it."
I have no problem with the fact that an officer may not be available, but it would seem to me it should certainly give some specific guideline that it's got to be an employee who at least understands what is going on in the credit union and is making this decision based on some reasonable experience in what he or she is doing. I'd like to get your comments on that.
Mr Owens: I think, Mr Kwinter, if you look at the bill as printed, the language contained in subsection 29(3) addresses your concern:
"(3) Subject to subsection (1), no person shall become a member of a credit union until the person's application for membership has been approved by the board or an officer authorized by the board and the applicant has complied fully with the bylaws governing the admission of members."
It's our view that this language addresses the very issue of the brothers-in-law working in the same plant and one being an employee of the credit union as well, in that the person accepting memberships would have to be designated by the board as being the person empowered to accept those applications.
Mr Kwinter: Thank you.
The Chair: Continuing with section 30, Mr Owens has read the explanation. Any comment? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 30, as amended, carry? All those in favour? Opposed? Carried.
An amendment to section 31.
Mr Owens: I move that paragraph 2 of subsection 31(1) of the bill be amendment by striking out "and ratified" --
The Chair: Mr Owens, I just want to interrupt you. We have four amendments to subsection 31(1). I believe you may be beyond the first one, but I'm not sure. My apologies. You're right on line, and please continue.
Mr Owens: Thank you for allowing me to take a breath, though.
I move that paragraph 2 of subsection 31(1) of the bill be amended by striking out "and ratified by at least two thirds of the votes cast at a meeting of members called for that purpose" in the last three lines.
This is a consequential amendment. The requirement that admission of persons who fall outside the bond of association be ratified by members is omitted.
The Chair: Any comments on that amendment? All those in favour of the amendment? All those opposed? Carried. The next amendment, Mr Owens.
1100
Mr Owens: I move that subsection 31(1) of the bill be amended by adding at the beginning "If the credit union's bylaws permit it to do so."
Subsection 31(1) has been amended to delete the requirement that the admission of persons who fall outside the bond of association be ratified by the members. The credit union's bylaws, however, must still authorize the board to admit such persons.
The Chair: Comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Mr Owens: I move that subsection 31(2) of the bill be amended by striking out "Subject to subsection (4)" at the beginning.
Again, this is a consequential amendment that arises from the deletion of subsections 31(3) and (4).
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Mr Owens: I move that subsections 31(3) and (4) of the bill be struck out.
Again a consequential amendment, in that once a person is admitted by the board, he or she would enjoy all rights of membership, including the right to vote at members' meetings.
The Chair: Any comment? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 31, as amended, carry? All those in favour? Opposed? Carried.
Shall 32 of the bill carry? All those in favour? Opposed? Carried.
An amendment to section 33.
Mr Owens: I move that subsection 33(1) of the bill be amended by adding after "person" in the first line and in the sixth line "or entity."
It's hard to believe, but with the excellent work of Mr Glower and Mr Abols there is a technical oversight in that this inclusion of the word "entity" ensures that not only can legal persons and natural persons join a credit union, but an unincorporated organization may also do so; and the other word, "entity," is defined in the bill.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 33 of the bill, as amended, carry? All those in favour? Opposed? Carried.
An amendment to section 34.
Mr Owens: I move that subsection 34(2) of the bill be struck out.
Subsection 34(2) has been deleted because, unlike previous sections of the bill which permit persons who subsequently fall outside the bond of association to retain membership, it would not be susceptible to the interpretation that admission of corporate and partnership members must come within the 3% basket established under section 31 of the bill. Persons admitted under section 34 will also have come within the bond of association as well as meeting certain prescribed terms. I think I'll ask Mr Abols to translate that great paragraph.
Mr Abols: Essentially, what 34(2) does now is say that if you're a person who joins a credit union as an unincorporated association or the queen or what have you, you're not counted as a person who falls outside the bond of association and thereby eats up the 3% grace that a credit union has for admitting persons outside that bond. There's no need to say what we say in subsection (2), that these persons, if admitted to membership, do not form part of that 3% group, because the terms of membership would allow entities like this to join and they would effectively be within the bond of association.
The Chair: Thank you. Comments? Shall the amendment carry? All in favour? Opposed? Carried.
Shall section 34 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 35 of the bill carry? All those in favour? Opposed? Carried.
Section 36.
Mr Owens: I move that subsection 36(1) of the bill be amended by inserting after "ballot" in the fourth line "ballot in each branch."
It's the view of the government and the credit union-caisse populaire movement that we want to enable maximum participation in the credit unions. This will allow balloting at different branches of a credit union but not necessarily by the same person at the same time.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Mr Owens: This is not the vote early, vote often clause.
The Chair: Section 36, another amendment?
Mr Owens: I move that section 36 of the bill be amended by adding the following subsection:
"Regulations
"(3) The Lieutenant Governor in Council may make regulations governing mail balloting, balloting in each branch and balloting by electronic means."
Section 36 is further amended by providing an enabling authority, through regulations, to govern mail balloting and the kinds of balloting that will go on in credit unions. With the technology that is currently coming on stream, we want to be able to address new and improved methods of balloting with respect to that technology.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 36 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 37 of the bill carry? All those in favour? Opposed? Carried.
Shall section 38 of the bill carry? All those in favour? Opposed? Carried.
Shall section 39 of the bill carry? All those in favour?
Mr Elston: One moment, before we take the vote on 39. I was just actually trying to take a quick peek through a couple of items that were filed, in this case by the Ukrainian Credit Union, which had noted under 39 that they thought perhaps we should be careful to ensure that a named beneficiary of a trust not also be included in the 3% leeway of people outside the bond.
I wonder if we could have an opinion as to whether or not that step should be taken to make it clear in that case that we don't have a problem. I was just quickly going through this and passed it. I hadn't had time myself to go deeply into this because it has just been raised by the new material file.
Mr Abols: I don't think it is necessary in this case, because, again, the beneficiary is indeed a member and would be somebody who would have to fall within the bond of association. What 39 says is that if you're going to exercise your rights as a member through a trustee, you can't exercise them twice.
In other words, a trustee presumably will receive notices of meetings and will vote at those meetings as your representative. But essentially the member who is participating is the named beneficiary, who would have to fall within the bond of association. It's not a way of sort of allowing people, just by virtue of a trust arrangement, to join a credit union and not comply with the bond requirements.
Mr Elston: So the provision of operation of trusts in the credit unions means that if I, as a member, wanted to set up a trust for my grandchild --
Mr Abols: No, it says, "in the member's own name." It's in the member's own name. The member himself would be the named beneficiary here.
Mr Elston: The member himself. So you can't have a trust account operated for the beneficiary, who is outside the bond of the credit union.
Mr Abols: In that case you could, but then they would definitely fall within the 3% basket.
Mr Elston: But isn't that the case? I think what's happening or what might be suggested here is that if I am, for instance, holding an amount of money on deposit as the trustee, I've set up a settlement for a child somewhere other than in my own area, perhaps overseas, for education or for whatever, there could be, by virtue of inadvertence, a violation of the 3% because the object of the trust resides outside the country. Isn't that the problem they're getting at?
Mr Abols: I think they've identified a problem, but if you say inadvertence, that could be said of any section of the act, that they inadvertently don't comply with it. In that situation, if the named beneficiary does not fall within the bond of association, they could only be admitted, whether directly or through a trust, as the named beneficiary under the 3%. So indeed we would want the 3% rule to apply. The proposed change by the Ukrainians, which is to say that this is not going to be caught by the 3% rule, is the opposite of what we want.
1110
Mr Elston: So this effectively will restrict the operation of trust services by credit unions to a maximum of 3% membership of people outside their bond. You can have as many trust situations internally -- I can operate for anyone inside. That's not going to be a problem, but I assume, for instance, if I operate as one of the originals of a broad trust or a group of individuals outside the bond, I could fill up the whole 3% and everybody else who is a member is thereby estopped from operating a trust account as a trustee, an account for a beneficiary outside the bond area. This is a more serious problem perhaps than you may think, because it really restricts to 3% the operation of this trust activity, doesn't it?
Mr Abols: No, it doesn't. It restricts people who do not fall within the bond of association, whether they join in their own personal capacity without the intervention of a trust or whether they do so through a trust. The issue is not whether there's a trust involved; the issue is whether they fall within the bond of association. If they don't fall within the bond of association, then you admit them under the 3%, and if you're at the maximum in your 3%, then indeed they're out of it, they can't join. It really has nothing to do with the fact that they're either going to directly participate or that they're going to participate through a trustee who's been interposed. That has nothing to do with it. That really, I think, misses the point.
Mr Elston: I'm a little thick this morning, I think, but let me go back to the beginning. If there is a trust account operated by me as a member, the beneficiary of the trust actually has to be admitted before the trust account is acceptable for operation. It's not me who makes it acceptable; it's the beneficiary.
Mr Abols: That's right.
Mr Elston: If a person is beyond the 3% capping, if, for instance, there's now 3% and I apply to add my grandchild or my son, or whomever it might be, by way of a trust, or if, as executor, I operate a trust account for beneficiaries under the estate outside the bond of affiliation and thereby above the 3%, that trust account cannot be operated in the credit union as a result. In fact, I would have to take the estate work other places.
Mr Abols: Not necessarily, because when you look later on in the bill in terms of the fiduciary powers and services that they can provide -- also we talked about taking deposits from certain prescribed persons and entities. It's not in the bill right now but it could be addressed in the regulation that we could make an exception for those sorts of situations.
On the face of the way you interpret this, the way this would operate on its face, yes, that's true.
Mr Elston: But you're saying there are going be ameliorative amendments or regulations which will allow regular operation of trust activity by executors or just by the benefactor?
Mr Abols: Trust accounts; that's right.
Mr Elston: People who are outside the area?
Mr Abols: That's right. A good example, and we mentioned this in the committee hearings, is lawyers' trust accounts. Lawyers will have trust accounts with credit unions. It doesn't mean to say that all their clients who deposit money with a lawyer or give the lawyer money, and then the lawyer, in turn, puts the money in his trust account, would have to be members of the credit union.
Mr Elston: I can accept that as a business exemption, but I just know how people might set up a settlement trust for the purposes of managing their own estates, perhaps even freezing estates for tax planning or whatever else the credit unions are going to be getting involved in and that 3% rule.
As long as you're telling me that there are going to be other ways that a person can carry on normal trust activity without being limited to the number of beneficiaries they settle upon as a result of the 3% rule, I'm happy to pass it by. But as I was going through this presentation with the Ukrainian Credit Union, I thought it was wise to stop and shake that down in my own mind.
Mr Abols: Right.
Mr Elston: As long as I and they are given the clear indication that they will be able to do this, I'm happy.
The Chair: Further comments? Shall section 39 carry? All those in favour? Opposed? Carried.
Shall section 40 of the bill carry? All those in favour? Opposed? Carried.
Section 41 amendment, Mr Owens.
Mr Owens: I move that subsection 41(4) of the bill be struck out and the following substituted:
"Right to borrow
"(4) Subject to the bylaws, a member under the age of 18 years does not have the right to borrow any amount in excess of his or her deposits in the credit union unless,
"(a) a joint and several obligation is signed by the member and by a person 18 years of age or over; or
"(b) the loan is guaranteed by the government of Canada or a provincial or municipal government."
This is simply an enabling clause to allow individuals under the age of 18 to borrow beyond the funds in their own account.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
A further amendment to section 41, Mr Owens.
Mr Owens: I move that subsection 41(5) of the bill be amended by inserted after "to" in the fourth line "or to the order of."
Subsection 41(5) has been amended to make it clear that a member may withdraw funds by cheque.
The Chair: Comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 41 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 42, Mr Owens.
Mr Owens: I move that subsection 42(2) of the bill be amended by striking out "board" in the third line and substituting "credit union."
By substituting the words "credit union" for "board," the section simply identifies the actual party with the obligation to pay.
The Chair: Comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 42 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 43 of the bill carry? All those in favour? Opposed? Carried.
Section 44, Mr Owens.
Mr Owens: I move that section 44 of the bill be struck out and the following substituted:
"Lien for liability
"44. A credit union has a lien on the deposits and membership shares of a member for any liability to it by the member, and may set off any sum standing to the credit of the member on the books of the credit union towards the payment of the liability."
Mr Abols: Essentially, it restores the credit union's right to a statutory lien on membership shares which they currently have under the act. The bill was originally drafted with a view that all capital, whether it's in the form of membership share, investment share, should be treated the same way as risk capital normally is in any other corporate organization, and you don't have, generally, a statutory lien against, for example, the shares in the TD Bank or the shares in National Trust. These entities may have a statutory lien on the deposits with that institution.
It was pointed out that membership shares, though, are also appropriately subject to a lien because if you're a member, and a member in good standing, you should be honouring your obligations to the credit union, and if you don't, that should be a source of funds for the credit union to draw on.
The Chair: Any comments? Shall section 44, as amended, carry? All those in favour? Opposed? Carried.
Section 45 of the bill, an amendment, Mr Owens.
Mr Owens: I move that section 45 of the bill be amended by adding the following subsection:
"Repeal
"(5) If the Unclaimed Intangible Property Act is in force on the day this section comes into force, this section is repealed on that day; otherwise this section is repealed on the day the Unclaimed Intangible Property Act comes into force."
This motion ensures that the Unclaimed Intangible Property Act will govern the custody of unclaimed credits once it's proclaimed. It's essentially a way of dealing with unclaimed deposits and ensuring that the Treasurer or the Minister of Finance is a recipient of those said unclaimed credits.
The Chair: Comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 45 of the bill, as amended, carry?
All those in favour? Opposed? Carried.
Shall section 46 of the bill carry? All those in favour? Opposed? Carried.
Shall section 47 of the bill carry? All those in favour? Opposed? Carried.
Shall section 48 of the bill carry? All those in favour? Opposed? Carried.
Shall section 49 of the bill carry? All those in favour? Opposed? Carried.
Shall section 50 of the bill carry? All those in favour? Opposed? Carried.
Section 51 of the bill, an amendment, Mr Owens.
Mr Owens: I move that section 51 of the bill be amended by adding the following subsection:
"Transition
"(1.1) The articles of every credit union in existence on the day before this subsection comes into force shall be deemed to provide for a class of shares known as membership shares."
1120
This is an issue that was raised, again, by the credit union and caisse populaire movement, and what it simply does is that it deems that each and every credit union, on the day before the subsection coming into force, will have a class of shares known as membership shares if they are currently absent from their articles of incorporation.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Amendment to section 51, Mr Owens.
Mr Owens: I move that section 51 of the bill be amended by adding the following subsections:
"Insurability
"(10) A share held as a condition of membership in a credit union that the board has not converted to another class of share is not insured until it is deemed to be a deposit.
"Not insurable
"(11) Shares are not insurable by the corporation."
I'll ask Mr Abols or Mr Glower to explain that.
Mr Abols: This essentially establishes the principle that all share capital in a corporation, whether it takes the form of investment shares held by members or non-members or membership shares themselves, are risk capital, and therefore the role of the deposit insurer should be the traditional role a deposit insurer has vis-à-vis all financial institutions; that is, to insure deposits, not to insure the equity you have in the credit union.
This also sort of deals with the transitional issue, because the way we've structured 51 there are some shares that credit unions have out there which aren't strictly a condition of membership and the credit unions have been given an option either to preserve these shares as a form of capital but convert them into another class of share, or otherwise have them deemed as deposits. That doesn't kick in for a year. There's a provision which says that for one year that transitional provision doesn't kick in, so the issue is, well, what's the status of these other shares in the meantime? Are they deposits or are they just shares and are they insured or not insured? The decision here reflects the view that they are shares until they become deposits and they are not insured.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 51 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 52, amendment, Mr Owens.
Mr Owens: I move that subsection 52(5) of the bill be amended by striking out "articles" in the first line and substituting "bylaws."
This simply allows credit unions to determine within their bylaws whether a membership share certificate needs to be provided to the member.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 52, as amended, carry? All those in favour? Opposed? Carried.
Shall section 53 carry? All those in favour? Opposed? Carried.
Shall section 54 carry? All those in favour? Opposed? Carried.
Section 55 of the bill, amendment, Mr Owens.
Mr Owens: I move that section 55 of the bill be amended by adding the following subsection:
"Same
"(2) For the purposes of subsection (1), any reference in part VIII of the Business Corporations Act to `offering corporation' shall be deemed to be a reference to the `credit union' and if the credit union is not an `offering corporation' as defined in section 1 of that act, any reference in part VIII of that act to the `commission' shall be deemed to be a reference to the `director.'"
I'll ask Mr Abols to translate that.
Mr Abols: I can simply say it's a change to ensure that the terminology we incorporate by incorporating parts of the Business Corporations Act fit the credit unions act. The reference to offering corporation means a corporation that has offered securities by way of a prospectus. If that's the case, then credit unions will be offered that option under the bill and they will be deemed to be offering corporations under the Business Corporations Act and then the necessary reporting requirement there will be to the securities commission as opposed to the director. If they're not an offering corporation, that is, they've either never issued securities to the general public or to their members other than membership shares or have issued them by way of an offering statement under our act, then they remain subject to the director's regulatory oversight. So it's a change in terminology just to rationalize the terminology that results by incorporating a section from another statute.
Mr Kwinter: Is the Business Corporations Act going to be similarly modified to include this?
Mr Abols: No, what this does is that part VIII of the Business Corporations Act deals with proxies and information circulars that have to be submitted with proxies. They have regulations detailing in significant detail what you have to have and what you don't have to have, and rather than simply reproducing all of that in our bill, we thought the simple way would be to incorporate what they have by reference. So there's no need to amend their act, because we're simply drawing these provisions from their act into our act. So this amendment says, when you read it for purposes of our act, "These are what these terms mean."
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 55, as amended, carry? All those in favour? Opposed? Carried.
Shall section 56 carry? All those in favour? Opposed? Carried.
Shall section 57 carry? All those in favour? Opposed? Carried.
Shall section 58 carry? All those in favour? Opposed? Carried.
Section 59, an amendment, Mr Owens.
Mr Owens: I move that section 59 of the bill be amended by adding the following subsection:
"Same
"(3) No person described in clauses 76(a) or (b) shall charge or accept payment of a commission on the purchase or sale of a security of a credit union."
It's simply a prohibition, that directors, officers or employees of a credit union or a league cannot receive any kind of benefit or commission in the form of shares or membership as a result of the sale of securities by the same.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 59 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 60 of the bill carry? All those in favour? Opposed? Carried.
Section 61 of the bill, amendment, Mr Owens.
Mr Owens: I move that section 61 of the bill be amended by adding the following subsection:
"Exception
"(5) Section 28 of the Business Corporations Act does not apply to prevent a subsidiary of a credit union from holding membership shares in a credit union that is its holding body corporate."
Essentially, section 28 is a prohibition against a subsidiary having any equity in its parent. What we envision under the credit unions act is that credit unions will be able to own subsidiaries and they should be able to have some say in the running of the credit union as a member of that organization. In order to become a member of the credit union, they have to hold membership shares. This prevents them from running afoul of the Business Corporations Act, because these subsidiaries will be governed by the Business Corporations Act.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 61 of the bill, as amended, carry? All those in favour? Opposed? Carried.
With the indulgence of committee members, if there are no comments on sections 62 to 77, inclusive, I would like to move them concurrently. Are there any comments? Is there agreement? Agreed.
Mr Kimble Sutherland (Oxford): Our ever-efficient Chair is becoming even more efficient.
The Chair: Shall sections 62 to 77, inclusive, carry? All those in favour? Opposed? Carried. Thank you ever so much.
Section 78, Mr Owens.
Mr Owens: I move that the French version of paragraph 2 of subsection 78 of the bill be amended by striking out "surveillance" in the first line and substituting "supervision."
Again, this is in terms of cleaning up language with respect to translation.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 78, as amended, carry? All those in favour? Opposed? Carried.
Shall section 79 of the bill carry? All those in favour? Opposed? Carried.
Shall section 80 of the bill carry? All those in favour? Opposed? Carried.
Shall section 81 of the bill carry? All those in favour? Opposed? Carried.
Section 82, Mr Owens.
Mr Owens: I move that the French version of paragraph 2 of subsection 82(5) of the bill be amended by striking out "l'état ou" in the last line and substituting "la note ou."
Again, this is a correction of terminology in the French version.
1130
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 82 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 83 has an amendment. Mr Owens.
Mr Owens: I move that subsection 83(1) of the bill be amended by striking out "section 75" in the first and second lines and substituting "clause 75(1)(a)."
Mr Abols: This is simply to restrict the application of the rules governing transfers of securities to those securities that have been issued pursuant to an offering statement. Securities issued pursuant to a prospectus would of course be governed by the rules under the Securities Act.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 83 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 84 has a Liberal amendment. Mr Kwinter.
Mr Kwinter: I move that section 84 of the bill be amended by adding the following subsection:
"When prohibited from carrying on business
"(3) A credit union that is not maintaining the required adequate capital shall not carry on business except under the supervision of a stabilization authority or the administration of the corporation."
The reason for that addition to this particular section is that I'm sure you know that, historically, there are those credit unions which did not maintain the required amount of capital and as a result have fallen into problems where stabilization funds have been put into effect. It is our feeling that when there is a problem there should be a provision that when the stabilization fund literally comes to the rescue of the credit union, there should be some supervision to make sure that the problems that got the credit union into the position where it required stabilization funds should in fact be under some sort of supervision, to make sure that the problem isn't just compounded and that you're really throwing good money after bad. That is the basic premise behind this amendment.
Mr Abols: We recognize this amendment as one that was advanced by the deposit insurer, because the deposit insurer, as you know, under the bill would have the principal role for stabilization, at least initially until other leads or credit unions take over. I think the amendment, though, emerges from something of a misreading of the act, because as we understood the deposit insurer's concern, it was initially that the variation provisions that are in the bill which allow credit unions to operate notwithstanding that they don't meet capital, seemed like an automatic right to a variation. We have introduced amendments which make that clearly a discretionary right.
Secondly, there are situations where a credit union will be operating without adequate capital, but the act again envisions a mechanism whereby, for example, in terms of administration, that process is totally within the control of the deposit insurer. If the deposit insurer feels that having a particular credit union offside the capital requirements poses a real, fundamental danger to their members or depositors, it can on its own initiative issue an administration order and take over the credit union.
Similarly on supervision, the deposit insurer, also as a stabilization authority, can apply to the director, and whenever the application comes from a stabilization authority -- that is, the stabilization authority says, "I want this credit union under my supervision" -- the director has no discretion but to put them under supervision.
The view is that the result that this is designed to achieve is achieved in the act but in a different way, and this is much too restrictive in that there may be situations where -- and maybe Mr Glower can speak to this -- you may have credit unions operating offside but they don't warrant being placed under administration and the level of supervision is not also necessary, at least to the extent of having them come under a supervision order.
But this concern about credit unions offside and operating without any kind of regulatory constraints is not the case. The bill is designed in such a way that there several trigger points, and the deposit insurer has control of some of these trigger points and so at any point in the process can bring to bear the necessary regulatory oversight that's required.
Mr Glower: I would just add that I think, in addition to what Imants said, there is an operational problem with this type of amendment to the extent that there are a lot of credit unions which have engaged in mergers with other credit unions, and the credit union which was on side may go offside by taking over a weaker unit. This type of motion could discourage that type of activity from taking place because they would then not be able to carry on business unless they went under supervision or administration.
A credit union may look to itself and say: "Well, I'm on side today. I don't have to do anything with OSDIC; they're happy with my operations. But if I try and help out a weaker unit, which may put me below certain requirements, I automatically default under OSDIC's administration." That's just not operationally feasible for credit unions, nor would it necessarily be for the good of the movement if they really wanted to just be there to help out. So as Imants explained, there are other operational ways of achieving this for those areas and for those credit unions which should be under supervision or administration, but we don't want to prevent other things from occurring.
Mr Kwinter: I don't think that being under a stabilization or administration precludes one credit union from taking over a weaker credit union. They have to get permission to do that in any case, and that would be the kind of thing that either the stabilization fund or the corporation could determine.
I just feel that when you have this problem, there should be a provision in the act to put greater teeth in the fact that if you are in a capital shortfall, then there is the right for either the stabilization fund or the director to take a hand in the operation of that credit union.
Mr David Johnson: I'm going to ask a question here. I probably should know the answer, but are the requirements for the very small credit unions for capital the same as for the large credit unions, or is there some variance?
Mr Abols: Today they're the same. But there is a process, the capital advisory committee, which is an ad hoc committee set under the aegis of the deposit insurer with participation of the credit union movement, which reviews the capital situation of credit unions on a case-by-case basis, and they may be in effect granted -- I won't say "a variation," because there's no mechanism under the current act for that -- but a certain grace period in which to come up to the prescribed minimum capital requirements.
There are a lot of credit unions that are offside the capital requirements today, but there's a schedule of compliance that they are required to follow and a graduated approach to achieving compliance.
Mr David Johnson: Would a higher proportion of those which are offside be smaller credit unions?
Mr Abols: Maybe Harvey can answer that question.
Mr Glower: I'm just double-checking, but the answer should be no. In fact, it is the smaller credit unions which today hold a higher level of surplus in capital than the larger ones. Units ranging from $500,000 to about $2 million hold surplus in capital between 4.87% and 6.83%, whereas the larger units are hovering around 3.7%.
Mr David Johnson: I'm just dredging back into my memory and I thought I recalled -- and I must be incorrect in this -- that when the small credit unions -- and I have their deputation here and I can't find any comments on it, so perhaps I'm wrong -- but I thought that they had indicated, because of the nature of the small credit unions and because they know the people whom they're lending to, they work with them or share some common bond, perhaps the capital requirements for them wouldn't need to be quite as strict. Traditionally, because of their closeness, they've been able to operate in a somewhat different fashion than maybe the larger credit unions.
1140
Mr Glower: What's going to happen under the proposed BIS, the Bank for International Settlements, rules which we'll be adopting as the model for credit unions, the statistics we did when we ran our own testing was that for units under $5 million in assets, which I guess one could consider to be small units, the majority of the credit unions that today may not be complying with the requirements will in fact comply under the new requirements, because the nature of their assets would be towards a lower-risk weighting whereas today everything is risk-weighted, if you will, at 100%. In other words, they have to have 5%, and everything is therefore risk-weighted at 100%. So in fact they will benefit under the new system, and while the requirements are the same, the calculation results in a net reduced effect. So it's easier for them to comply.
Mr David Johnson: What I was trying to assess in my mind would be the impact of this amendment on them if they were offside. It says that they "shall not carry on business except under the supervision of a stabilization authority" etc. I have this impression that some of the organizations that did make a presentation to us felt that some of the requirements were perhaps too stiff already, although, as you pointed out, more will be on side, I guess --
Mr Glower: Yes, that's right.
Mr David Johnson: -- and that this may cause some concern to them. But I don't know if anybody's talked to the small credit unions about this sort of amendment.
Mr Glower: I think, as Mr Abols pointed out, there are certainly other mechanisms. My recollection was around section 284, which basically said if a credit union is not meeting capital, it could come under supervision -- that would be one way it could come under supervision -- if the director initiated or if OSDIC initiated, but certainly they don't have to.
Mr Jim Wiseman (Durham West): Currently, the federal Liberals are undergoing a review of the banking policy and they have a committee out looking at the Bank Act. The Canadian banks are covered under the Bank for International Settlements agreement. American banks are not. The American banks have not signed on to that.
I'm just curious that if we were to go to a North American banking market, would we have to come back and address this section again to change it? If we were to drop out of the Bank for International Settlements agreements, as the Americans have, we would have to change this section again, wouldn't we?
Mr Glower: No, I don't think we'd have to change the section, because section 84 requires credit unions and caisses populaires to have adequate levels of capital and liquidity, and then the rules prescribing the measurement of capital would be under the regulations. So to the extent that BIS was no longer the flavour of the week, if you will, then we could easily migrate to a different system through regulations so long as we govern that to be the adequate level of capital. So the statute itself would not have to be changed.
Mr Wiseman: So then what the feds do with the banks, the Bank Act and everything, we're going to just tag along with that in this section.
Mr Glower: Our view is that the BIS, from a credit union's point of view, is a much better measurement because it really reflects the nature of their business and the risks in which they are engaging. I think the credit union movement in fact supports the BIS as a measurement for themselves.
Mr Wiseman: Small businessmen don't.
The Chair: Further discussion on the Liberal amendment? Seeing none, all those in favour of the amendment? All those opposed? The amendment is lost.
Shall section 84 of the bill carry? All those in favour? All those opposed? Carried.
Shall section 85 of the bill carry? All those in favour? All those opposed? Carried.
Section 86 has an amendment.
Mr Owens: I move that subsection 86(3) of the bill be amended by striking out "The director shall grant the variation" at the beginning and substituting "The director may grant the variation subject to any terms he or she considers appropriate."
It does two things. It simply indicates that a director's powers are discretionary and that he or she may impose terms and conditions with respect to granting a variation.
The Chair: Comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 86 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 87 has an amendment. Mr Owens.
Mr Owens: I move that subsection 87(2) of the bill be struck and the following substituted:
"No automatic stay on appeal
"(2) An appeal of the superintendent's decision does not stay the operation of the decision."
This is to ensure continuity with respect to the previous section, that once an order is granted, and I think Mr Abols explained it quite nicely, in terms of the necessity to set down an order, all efforts have been made to come to a voluntary settlement through moral suasion, and that when it gets to the point of the superintendent setting down an order, the situation is far too serious to let the credit union or caisse populaire go about its normal business activities.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 87 of the bill, as amended, carry? All those in favour? Opposed? Carried.
With the committee's indulgence and if there's no discussion, shall sections 88 to 91, inclusive, carry? All those in favour? Opposed? Carried.
Section 92 has amendments. Mr Owens.
Mr Owens: I move that subsection 92(2) of the bill be struck out and the following substituted:
"Exception
"(2) Despite paragraph 7 of subsection (1), an individual is not disqualified from becoming a director solely because,
"(a) he or she provides, without remuneration, services to the credit union that are ordinarily provided by an employee; or
"(b) he or she is the parent or child of an employee of the credit union and the employee is not an officer of the credit union.
"Transition
"(2.1) Paragraph 7 of subsection (1) comes into force on a day that is one year after the day subsection (1) comes into force."
The Chair: Mr Owens, if I could just interject: According to my agenda, we should be dealing with subsection 92(1), paragraph 7, at this point, and then paragraph 11.
Mr Owens: Sorry, my binder's out of order here.
The Chair: If we could just get back to that order.
Mr Owens: Or we could pass that first one.
The Chair: We could have, but --
Mr Owens: But we won't. Okay.
I move that paragraph 7 of subsection 92(1) of the bill be amended by inserting after "league" in the second line "in which the credit union is a member."
This amendment ensures that the disqualifications in paragraph 7, which were almost discussed earlier, would not prohibit an employee of a league from becoming a director of a credit union that was not a member of that person's league.
The Chair: Discussion? Seeing none, all those in favour of the amendment? Opposed? Carried.
Subsection 92(1), paragraph 11. Mr Owens.
Mr Owens: I move that the French version of paragraph 11 of subsection 92(1) of the bill be amended by striking out "n'ont pas terminé" in the first line and substituting "ne terminent pas."
It's a clarification with respect to French translation.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Now, Mr Owens, the amendment to subsection 92(2).
Mr Owens: Right, and as I've already read the section into the record, if it is the pleasure of the Chair, I'll ask Mr Abols to give that explanation.
The Chair: If there are no objections raised from the committee members, we'll do that.
Mr Abols: This amendment simply tempers the scope or the harshness of the prohibition or disqualification against parents or children of employees becoming directors of credit unions. It was pointed out by the credit union movement that this was really impractical in many smaller credit unions, so the amendment provides that if the employee is not an officer of the credit union, the parent or child may become a director, may run as a director.
The transitional provision just ensures that credit unions that are offside have a year in which to come on side, either by allowing the term of office to run its course, if it's going to end in that year, or to hold another election. This would accommodate smaller credit unions.
1150
Mr David Johnson: Most terms of office would be for a year, would they?
Mr Abols: I understand they are generally for three.
Mr David Johnson: Three? Then had you considered the transition period being when the term of office expired, as opposed to one year?
Mr Abols: The view is that you potentially could have this provision not kicking in for three years in the case of a director who's just been recently elected.
Mr David Johnson: On average it would be a year and a half: Some might come due the next day, some might be three years and probably the average would be around a year and a half.
Mr Abols: Picking numbers is a generally arbitrary choice, and one year was felt to be appropriate. It's the approach we take in terms of grandfathering most provisions. Maybe Harvey could speak to the experience out there. Would it make much of a difference if it was a year and a half or a year?
Mr Glower: The terms of office are generally straddled anyway, so it shouldn't be such that this provision would knock an entire board out of place, or in fact that there wouldn't still be a majority of members on the board by virtue of the turnover. So it should not be problematic.
Mr David Johnson: So if there were an individual who was in violation, a year and a day after, what would be the penalty? They'd be in violation of the act.
Mr Glower: They'd technically be in violation of the statute. I'm trying to recall -- Imants, help me out -- if there is an offence provision for being disqualified from sitting on the board. Actually, one of the provisions of that is that if they violated a disqualification from sitting on a board, they can in fact be disqualified from sitting on a credit union's board forever, because that would then be a violation of the credit union act. Section 92 lists a number of reasons one would be disqualified from sitting on the board of a credit union, and one of them would be a violation of the credit union act. So it could be severe.
Mr Abols: The other point I would mention is that in section 98, as soon as the person is offside the qualification requirements, they cease being a director. They may be sitting around the table, they're there, but they're not there in the capacity of a director any longer. Automatically, they would be deemed not to be eligible to be a director, or to function as a director.
Mr David Johnson: That deeming doesn't take place in this clause.
Mr Abols: No, it's in clause 98(1)(c).
The Chair: Further discussion? Shall the amendment carry? All in favour? Opposed? Carried.
There's an amendment to clause 92(3)(c).
Mr Owens: I move that clause 92(3)(c) of the bill be amended by striking out "this act" in the second line and substituting "this act, a predecessor of this act."
This is simply to capture those that may have been in violation of the legislation in the past, in order to ensure that they are not able to become directors at the point that this bill becomes law.
The Chair: Any comment? Shall the amendment carry? All in favour? Opposed? Carried.
Shall section 92, as amended, carry? All those in favour? Opposed? Carried.
Shall section 93 of the bill carry? All those in favour? Opposed? Carried.
Section 94 has some amendments.
Mr Owens: I move that subsection 94(2) of the bill be struck out and the following substituted:
"Election in rotation
"(2) The bylaws may provide for the election and retirement of directors in rotation."
It's our view that this section, with respect to the deletion with respect to the terms of office, is unnecessary in that we are in this section also providing for the credit union's bylaws to determine the terms of office of the directors.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
There's an amendment to subsection 94(3).
Mr Owens: I move that the French version of subsection 94(3) of the bill be amended by striking out "a un nombre de voix égal à celui des administrateurs" in the second and third lines and substituting "doit voter pour le nombre d'administrateurs."
Again, a clarification with respect to the French translation, and I say that with great respect to the francophone community. I apologize in advance for the rest of this clause-by-clause. If there's somebody else who can do this, they're welcome to come here and provide the entertainment.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 94, as amended, carry? All those in favour? Opposed? Carried.
If there's no objection, shall sections 95 to 99, inclusive, carry? All those in favour? Opposed? Carried.
Section 100 of the bill has an amendment.
Mr Owens: I move that subsection 100(4) of the bill be struck out and the following substituted:
"Right to make representations
"(4) At the meeting, the director is entitled to make representations about the resolution for his or her removal."
This is a deletion of superfluous language that goes "as a director thinks fit."
The Chair: Comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 100 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 101 of the bill.
Mr Owens: I move that subsection 101(2) of the bill be amended by striking out "fifteen" in the sixth line and substituting "twenty."
What this section addresses is that it extends the period of five days that the credit union has to comply with a director's request for information.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 101 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 102 has an amendment.
Mr Owens: I move that section 102 of the bill be amended by adding the following subsection:
"Same
"(2.1) In addition to a delivery permitted under section 334, a notice under this section may be delivered by publishing the notice in a newspaper that circulates in the community in which the head office of the credit union is located."
This is simply for cost-efficiency, particulary for large credit units, in terms of the provision of notices as required.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 102 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 103 has an amendment.
Mr Owens: I move that subsection 103(4) of the bill be amended by inserting after "statement" in the second line "under subsection (3)."
This is simply a technical amendment to clarify that the statement that a credit union must circulate is a statement provided by a director when resigning because of a disagreement with other directors.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Another amendment to section 103, Mr Owens.
Mr Owens: I move that section 103 of the bill be amended by adding the following subsection:
"Same
"(4.1) In addition to a delivery permitted under section 334, a notice under this section may be delivered by publishing the notice in a newspaper that circulates in the community in which the head office of the credit union is located."
That's for reasons similar to the former section we passed.
The Chair: Are there any comments? Shall the amendment carry? All in favour? Opposed? Carried.
Shall section 103 of the bill, as amended, carry? All those in favour? Opposed? Carried.
If there are no objections, shall sections 104 to 108, inclusive, carry? All those in favour? Opposed? Carried.
Mr Sutherland: May I suggest that we stop at this time? I believe the debate is just about wrapping up and we've got through a good chunk.
The Chair: Indeed my watch shows 12 o'clock. We will recess until immediately following routine proceedings this afternoon.
The committee recessed from 1200 to 1554.
The Chair: We continue this afternoon with our clause-by-clause of Bill 134. We are, at this point, at section 109, and we have an amendment.
Mr Owens: I move that subsection 109(1) of the bill be amended by adding at the end "or another subcommittee of the board."
The reason for this amendment is that it accomplishes two things: It allows boards to set up other committees along with the executive committee but also limits the scope and responsibilities that can be delegated to them. I think Mr Abols would like to say something.
Mr Abols: The motion has been changed and slightly redrafted. You've read an earlier version of it. This is the more current version, but it has the same effect.
The Chair: If you would, please, Mr Owens, read the motion as it's supposed to be and as the members of the committee have it before them.
Mr Owens: I move that subsection 109(1) of the bill be struck out and the following substituted:
"Executive committee
"109(1) The members of a credit union may, by special resolution, authorize the board to delegate any of its powers to an executive power or another subcommittee of the board."
My explanation, if it pleases the committee, remains the same with respect to delegation of authority but with limitations.
The Chair: Any comments? Shall the amendment carry? All in favour? Opposed? Carried.
Another amendment to section 109.
Mr Owens: I move that subsection 190(2) of the bill be amended by striking out the portion before paragraph 1 and substituting the following:
"Exception
"(2) Despite subsection (1), the following powers cannot be delegated to the executive committee or another subcommittee of the board:"
The amendments to this section will again enable the board to establish other committees besides the executive committee but with the limitation on power and scope of responsibilities. It's also found in other legislation governing financial institutions.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 109, as amended, carry? All those in favour? Opposed? Carried.
Section 110 has an amendment.
Mr Owens: I move that subsection 110(1) of the bill be struck out and the following substituted:
"Credit committee
"110(1) Except as made unnecessary by a bylaw referred to in subsection 123(4), a credit union shall establish a credit committee."
This is an amendment that clarifies that a credit committee is mandatory except when a loan officer has been appointed.
Mr Kwinter: I would like to get a further clarification from the parliamentary assistant or from legal counsel. In the original bill, it says a credit union "may" establish a credit committee and in the amendment it says it "shall" establish a credit committee. Is that intended, and could you explain the reason it has been made mandatory as opposed to permissive?
Mr Abols: In the current act, it is essentially mandatory except where a loans officer has been appointed, and we wanted to carry that forward. It was an inadvertent change when the bill was first tabled which allowed it to be discretionary. There has to be some kind of mechanism, some group or some person, responsible for reviewing the loan applications, and the way the bill is currently drafted you could conceivably have no one appointed, neither a loan officer nor a credit committee, and that wasn't the intention.
Mr Kwinter: So it's correcting an inadvertent wording of that particular section.
Mr Abols: That's correct.
The Chair: Any further comment? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 110 of the bill, as amended, carry? All in favour? Opposed? Carried.
Section 111 has an amendment.
Mr Owens: I move that the English version of subsection 111(3) of the bill be amended by striking out "president" in the third line and substituting "chair."
This is a consequential amendment that arises from an amendment that will be placed later to subsection 141(1), where the term "president" has been replaced with the term "chair." This change reflects the terminology that is used currently by a credit union to designate its chief executive officer.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 111 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 112 has an amendment.
1600
Mr Owens: I move that the French version of subsection 112(3) of the bill be amended by striking out -- if there's somebody on ministry staff, Harvey, who has a better grasp of the French language, please, if that's in order.
Mr Abols: I don't think Harvey has it, Mr Owens.
Mr Owens: Okay. I move that the French version of subsection 112(3) of the bill be amended by striking out "a un nombre de voix égal à celui des membres" in the third and fourth lines and substituting "doit voter pour le nombre de membres."
This is a cleaning up of the French-language translation. You wouldn't know it by the way I speak, but it is a clarification.
The Chair: Any comments on the amendment? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 112 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 113 of the bill carry? All those in favour? Opposed? Carried.
Section 114 has an amendment.
Mr Owens: I move that the English version of section 114 of the bill be amended by striking out "president" in the second line and substituting "chair."
Again this is consistent with the explanation with respect to the amendment that will follow in 141(1) that this is current terminology within the credit union movement. It means the chief executive officer.
The Chair: Any comments on the amendment? Seeing none, shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 114 of the bill, as amended, carry? All those in favour? Opposed? Carried.
If there are no objections, shall sections 115 to 117, inclusive, carry? All those in favour? Opposed? Carried.
There's an amendment to section 118.
Mr Owens: I move that subsection 118(4) of the bill be struck out and the following substituted:
"Right to make representations
"(4) At the meeting, the committee member is entitled to make representations about the resolution for his or her removal."
This is again a cleaning up of the language and removing superfluous language.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 118 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 119 of the bill carry? All those in favour? Opposed? Carried.
We have come to section 120 of the bill. Would Mr Owens like to make any comments?
Mr Owens: If I could take 60 seconds with counsel, I would appreciate it.
I move that section 120 be struck.
Clerk of the Committee (Ms Lynn Mellor): No, no. It's "Shall section 120 carry as part of the bill?" and they either just vote against it or vote for it.
The Chair: The Chair will call the question on section 120. Shall section 120 of the bill --
Mr David Johnson: Mr Chair, can I ask a question on it first? Could you tell us what you're voting against? Is it the fact that the director who would be attending the credit committee would not have the right to vote? Presumably it's that, is it?
Mr Abols: The concern raised by representatives of the credit union movement was that by having a director there present at a credit committee, which is ostensibly a body independent of the board of directors, it would in some way inhibit them from making impartial decisions. So there was a fear of undue influence by senior management if they were allowed to attend meetings of the credit committee.
Mr David Johnson: Then it's actually the first part of 120, that the director may attend.
Mr Abols: Well, it's the first part or the second part. If you don't have the first part, you don't need the second part.
Mr David Johnson: The second part is redundant.
Mr Kwinter: Mr Chair, on a point of order: This is quite bizarre. This is a government bill. You would think that if you wanted to remove a section you would introduce an amendment that this section be deleted. I don't understand why I hear that we're going to vote against this section. This isn't a bill that's being brought forward by a private member or the opposition and you're voting against it. This is your bill. If there's a section in here that you don't like, you should bring forward an amendment saying, "We're going to delete it."
Interjection: You can't.
Mr Kwinter: Sure you can. You've been doing it all along.
The Chair: The clerk has advised me that what you've suggested, Mr Kwinter, would be out of order. To delete a subsection is in order, but to strike out a full section by a motion is out of order. I always take the best advice of the clerk, as most Chairs do.
Mr Owens: But I do agree that it's bizarre.
Mr Kwinter: As long as you agree that it's bizarre.
The Chair: The Chair does apologize. By all means, we should have had an opportunity for members of the committee to speak to the section of the bill before we moved a decision on it.
Shall section 120 of the bill carry? All those in favour? All those opposed? Section 120 of the bill is lost.
Mr Kwinter: Mr Chair, on another point of order: Does that mean that every section from here on will be renumbered?
The Chair: Yes, that will require that there be a renumbering of the sections.
Mrs Haslam: But only when it's printed, not now.
The Chair: Yes, we will continue through the bill as it stands now and when it's reprinted there will be a renumbering of the sections.
Mr Owens: We'll try not to hide anything from you, Monte.
The Chair: Shall sections 121 to 126, inclusive, carry? All those in favour? Opposed? Carried.
There is an amendment to section 127.
Mr Owens: I move that subsection 127(3) of the bill be struck out and the following substituted:
"Ineligible officials
"(3) An officer or employee of the credit union or of a subsidiary of the credit union who is involved in the day-to-day operations of the credit union or subsidiary is not eligible to be a committee member."
What this effectively does is temper the language with respect to the broad prohibition which is currently found in subsection 123 against officers and employees of the credit union or its subsidiaries from becoming members of the audit committee. This will only exclude the officers and employees who are involved in the day-to-day operations of the credit union or its subsidiaries.
The Chair: Any comments? Shall the amendment carry? All in favour? Opposed? Carried.
Shall section 127 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Section 128 has an amendment.
Mr Owens: I move that the French version of subsection 128(3) of the bill be amended by striking out "a un nombre de voix égal à celui des membres" in the third and fourth lines and substituting "doit voter pour le nombre de membres."
Again it's a cleaning up of the French-language translation.
The Chair: Any comment? Shall the amendment carry? All those in favour? All those opposed? Carried.
Shall section 120 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Shall sections 129 through 133, inclusive, carry? All those in favour? Opposed? Carried.
1610
There is an amendment to section 134.
Mr Owens: I move that subsection 134(2) of the bill be struck out and the following substituted:
"Same
"(2) The auditor, a member of the audit committee or a director may call a meeting of the audit committee at any time."
What we're doing is simply requiring and giving the credit union's auditor, an individual member of the audit committee or the director the ability to convene a meeting of the audit committee. The provision will ensure that any problems within the credit union are quickly brought to the audit committee's attention.
Mr Kwinter: I have a bit of a problem with this amendment. I don't have a problem with the intent of the amendment, I just feel that the amendment as proposed really has nothing to do with the section it replaces. When you take a look at subsection 134(2), it says, "At its meetings, the committee shall examine the affairs of the credit union." It gives a direction to the audit committee that it should examine the affairs of the credit union. It doesn't say, "You've got to meet because it's a pro forma requirement, so let's have a cup of coffee and we've met; let the minutes show it," and away you go.
You're saying that "[t]he auditor, a member of the audit committee or a director may call a meeting of the audit committee at any time, which I have no problem with, but I think the direction about what that audit committee should be doing should stay in there. Let them call it at any time to examine the affairs of the credit union. I don't understand why one has replaced the other when they have nothing to do with each other. One says it should examine the affairs of the credit union, and the amendment says the auditor or a member of the audit committee can call a meeting any time he wants, but it doesn't address what that particular section addresses.
Mr Owens: I'll ask Mr Abols to address that.
Mr Abols: That's correct, but the amendment actually does two things. It deletes what is currently there, and it does that because the view is that it really is not necessary. If you look at section 138 of the bill, it envisions regulations which will in detail spell out the duties of the audit committee. Those duties, as statutory duties, of course are ones the audit committee has to address and fulfil, and they will include, of course, as one of its principal duties, examining the financial affairs of the credit union.
We've just used that section because it's there. It's opened up now that we've deleted an unnecessary section and introduced something that, you're right, is not related to it, is a different issue altogether. But the fact that an audit committee has responsibility to examine the affairs of a credit union is not being lost. It'll still be there, but it'll be there as one of the prescribed duties of the audit committee in regulation.
Mr Owens: If you look at the amendment to the next section, there's a follow-through with respect to the reporting of the results of the meeting. In terms of what Mr Abols has said, along with the second amendment, we'll address the kind of concern you have with respect to the directedness of the section.
Mr Kwinter: I accept the explanation. I just feel that if we had had that explanation originally of why this thing was being amended, it would have saved this discussion.
Mr Owens: Perhaps.
The Chair: Any further comment? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 134 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Section 135 has an amendment.
Mr Owens: I move that subsection 135(1) of the bill be struck out and the following substituted:
"Reports by committee
"(1) The audit committee shall report to the board within sixty days after each committee meeting or at the next board meeting, whichever is earlier, setting out the results of the meeting."
As I just explained to Mr Kwinter, this is the companion amendment which adds the missing process that the member was concerned about.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 135 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 136 carry? All those in favour? Opposed? Carried.
Section 137 has an amendment.
Mr Owens: I move that subsection 137(4) of the bill be struck out and the following substituted:
"Right to make representations
"(4) At the meeting, the committee member is entitled to make representations about the resolution for his or her removal."
This is consistent with other like amendments, to remove language that in the context of a section is superfluous.
The Chair: Any comments? Shall the amendment carry? All in favour? Opposed? Carried.
Shall section 137 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Shall section 138 of the bill carry? All those in favour? Opposed? Carried.
Section 139 has an amendment.
Mr Owens: I move that subsection 139(2) of the bill be struck out and the following substituted:
"Assistance
"(2) Subject to the board's approval, which shall not be unreasonably withheld, the committee may retain one or more auditors or may call upon the stabilization authority for the credit union, the league of which the credit union is a member or the deposit insurer to assist it in determining whether a misappropriation or misdirection has occurred."
This amendment is made in order to address concerns about the audit committee's unfettered discretion to hire professional staff. The amendment makes the decision subject to the board's approval. It's our view that this places some level of accountability. At the same time, it ensures that the audit committee's independence is not affected by the board's oversight function, and the amendment makes it clear that the board cannot withhold its approval unreasonably.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
There's a further amendment to section 139.
Mr Owens: I move that subsections 139(4) to (9) of the bill be struck out.
This is an amendment we are making in response to concerns that were made to us by representatives of the credit union and caisses populaires movement that the power to suspend directors, officers, committee members or employees is more appropriately resting or should rest with the board of directors, who are ultimately responsible for the management of the credit union.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 139, as amended, carry? All those in favour? All those opposed? Carried.
Shall section 140 of the bill carry? All those in favour? All those opposed? Carried.
Section 141 of the bill has an amendment.
Mr Owens: I move that the English version of subsection 141(1) of the bill be amended by striking out "president" in the second line and substituting "chair."
This is consistent with amendments that were approved earlier in terms of how the credit union movement terms its chief executive officer.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
There's a further amendment to section 141.
Mr Owens: I move that subsection 141(3) of the bill be struck out.
The deletion of the subsection is a consequential amendment that arises from the changes that we've made to subsection 141(1).
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 141 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Section 142 has an amendment.
Mr Owens: I move that section 142 of the bill be struck out and the following substituted:
"Duties of corporate secretary
"142. The corporate secretary shall ensure that the records of the bylaws of the credit union and the minutes of board meetings are kept up to date."
What this amendment does is to clarify that the corporate secretary's responsibility is not to personally produce or keep records up to date but to supervise the production and updating.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 142 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Section 143 has an amendment.
1620
Mr Owens: I move that the French version of subsection 143(1) of the bill be amended by striking out "une de ses filiales" in the sixth line and substituting "un membre du même groupe qu'elle."
Again this is the correction of terminology in the French version of subsection 143(1).
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
There's an additional amendment.
Mr Owens: I move that the French version of subsection 143(2) of the bill be amended by striking out "une de ses filiales" at the end and substituting "un membre du même groupe qu'elle."
Again we're correcting the terminology in the French version of subsection 143(2).
The Chair: Any comments on the amendment? Seeing none, all those in favour? Opposed? Carried.
Shall section 143 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall sections 144 through 153, inclusive, carry? All those in favour? Opposed? Carried.
Section 154 has an amendment.
Mr Owens: I move that the French version of subsection 154(2) of the bill be amended by striking out "versées" in the second line and substituting "en cause."
The Chair: And the explanation is a correction of the French translation?
Mr Owens: Again cleaning up the French-language version.
The Chair: Any comment? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 154 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 155 has an amendment.
Mr Owens: I move that the French version of subsection 155(1) of the bill be amended by adding at the end "en cause."
Mr Glower: The explanation is again just cleaning up the French translation and clarifying what it says in English in French.
Mr Owens: I was trying to clarify with Mr Glower my pronunciation.
The Chair: Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 155, as amended, carry? All those in favour? Opposed? Carried.
Section 156 has an amendment.
Mr Owens: I move that clause 156(b) of the bill be struck out and the following substituted:
"(b) a report of an accountant, lawyer or other professional person whose profession lends credibility to a statement made by the person."
What we're doing is deleting the reference to "notary," as a notary does not have the same professional standing as a member of the law society or an accountant.
Mr Kwinter: I have a bit of concern about this amendment. We talk about a report of an accountant, lawyer or other professional. Particularly because we're dealing with credit unions, which are groups that are en famille -- you know, it's not the same sort of thing where you go to a bank -- there could be wills that have been notarized, there could be bills of sale that have been notarized, there could be promissory notes that have been notarized, and I think in the legal description that would be considered a report. If someone comes to a credit committee or does whatever it does, and says, "I have a notarized copy of a will bequeathing this property to me; I have a notarized copy of" -- whatever it is -- "this bill of sale," it would seem to me that if that officer or employee of the credit union relies on that because it has been notarized, that should be an acceptable reason for not holding that employee liable.
It doesn't in any way detract from what is going on, but it would seem to me that a notary in that case would have as much standing as an accountant or a lawyer because he has satisfied himself as to the validity of that document and has notarized it. He's notarized the signature, that it took place, whatever it is, and I don't see why it shouldn't stay in there.
Mr Abols: First of all, by deleting "notary" we've achieved the same standard that you'd find in similar provisions in other financial legislation. If you look to some of the federal legislation, they refer to "notary," but it's really "notary" as you would use the term in Quebec where notaries are the equivalent of lawyers.
The intention here is that you can rely on reports of professionals who have to meet a much higher standard than a notary public does; namely, they are governed by a some disciplinary body, and there are certain recourses, if you're misled by a professional, that you can take against the professional.
I know from personal experience that to become a notary public all I had to do was submit $100 or something and I get a certificate that tells me to be a notary public. That's not a very high standard in terms of certifying even, let's say, the validity of a certain document.
In Ontario, as it turns out, I would say that the majority of notary public are lawyers in any event, because they simply take on that designation on their call to the bar as a matter of course when they're setting up practice. I'd say in the majority of circumstances it's not an issue, because the notary publics in Ontario and lawyers are often one and the same.
Mr Kwinter: Without really prolonging the debate, if all we were doing was applying the same standards of care and of procedure to credit unions as we do to financial institutions, we would not have to have a separate bill to deal with credit unions. Credit unions are unique. We keep talking about how unique they are and how we want to have different standards for small ones and different standards for big ones.
I'm trying to think of my experience as the minister responsible for administering credit unions. Because of the nature of the credit union, we're talking here not about who is going to appear and make -- it's a report, and we're talking about a provision that says a director, officer, member of a committee or an employee of a credit union is not liable under sections 145, 146 and 154 if the individual relies in good faith.
I can see where some legal case could revolve around the fact that a borrower of the credit union gave, in support of his loan or whatever the transaction was, a notarized statement by a notary and said, "Here's the proof; I had this notarized." It's quite common to say, "You get me a notarized statement and we'll accept it."
The employee makes a decision in part based on that notarized statement. I'm talking about the employee of the credit union who made the decision based on that. You're saying, "I'm sorry, but you are liable because the act does not provide for you to rely on a notary's affirmation or confirmation of what this person said."
I don't understand. I think it gives the employee that added bit of protection that I think is warranted, but it also allows the customer of the credit union to use a document that will be accepted by the employee because he knows that under the act he can use that as the basis to make a decision. I'm not convinced that any great purpose is served by eliminating the fact that a notary can participate.
I take your point about Quebec where a notary in many cases, especially in a real estate transaction, has greater standing than a lawyer. And I know that in Mexico it's absolutely essential, that you can't do anything without a notary. But we're not talking about Quebec. We're talking about Ontario and we're talking about documents going to bolster some sort of presentation at the credit union, and we're trying to give that employee of that credit union some protection in terms of what they base their decision on.
1630
Mr Abols: I'd just make two observations. Section 156 doesn't address the liability of employees; it addresses liability of directors, officers and members of committees, and these are people who have significant management functions of one sort or another. It's not the clerk who simply --
Mr Kwinter: No, no, no. Excuse me. It says, "A director, officer, member of a committee or an employee."
Mr Abols: I stand corrected, then. But the other observation I have to make is that when we talk about a report of a professional, though, it probably goes much beyond simply saying, "I attest to the fact that so-and-so signed a document on a certain day." I could look into this matter further, but I believe that in terms of a notary's ability and power to do that, that's probably governed by whatever act recognizes notaries public in this province. We're talking about a report that goes much further than that and provides some advice on the legality of a certain issue, and notaries public in Ontario, unlike those in Quebec, don't provide that kind of advice. When we talk about "report," I would suggest that's what it connotes. It doesn't connote how you establish the validity of a document. That's another issue, and that's probably governed by legislation that governs the activities of notaries public.
Mr Elston: I'm interested in "or other professional person whose profession lends credibility to a statement made by the person." I'm just trying to think of who that might be: I suppose a broker reporting on insurance, or the loan being insured with the rider going to the credit union as backup.
Mr Abols: Or, let's say, a structural engineer commenting on a particular investment in a house or a loan on a housing project.
Mr Elston: But the circumstance is that there has to be a professional recognition, as opposed to someone whose position could be seen to represent a position of knowledge? Let's say Murray Elston was involved with some financial affairs at a bank or something, and you needed a statement so I could move my assets into a credit union. Would a statement by the bank manager be seen to be a profession, for the purposes of this section, that could be relied on without problems for the director or officer or employee?
Mr Abols: It's a question of fact. We don't anywhere in this act, and you won't find this in any legislation we've looked at, have a definition of what it means to be a professional. What we'd rely on here is really the common law, because it's been recognized that the concept of "profession" and who is a professional has been an expanding one and has grown. I suppose, in the case of a bank manager, he would probably be regarded, in common parlance, as a professional. If the issue ever became litigated, I would suggest that a court probably would find a bank manager to be a professional.
But there's been a deliberate attempt not to define what a professional is because it's a concept that does grow with the times, and there is a whole body of case law that has suggested that you can't really pin down who a professional is just by virtue of a degree that they hang on their wall. In the past accountants weren't perhaps recognized as professionals at common law, but that certainly has changed.
Mr Elston: Are administrative members of the Ministry of Finance considered to be professionals?
Mr Abols: Well, people like myself are, because I'm a lawyer as well. And my colleague, Mr Glover, who's an accountant.
Mr Elston: Oh, so there's some personal involvement in the development of this section to explain notaries.
Mr Owens: That comes next.
Mr Elston: Usually you try to do is make it fairly inexpensive, or at least fairly reasonable, to move assets from one place to another, and obviously you don't necessarily want to have to get an accountant in to verify that you have these assets and that this statement of your mortgage or whatever -- unless there's going to be a loan going out. I'm just trying to make sure that we're not going to make it necessary for an individual to pay a professional fee if that's not really required. I just don't want people to be stuck with extra costs if that isn't required, or that the directors in the credit union don't have to set a policy that says, "The section says professionals, so we've got to find a professional or we're going to get ourselves into trouble," meaning a profession that's regulated through some kind of public body to which there is applied some obligation.
Mr Abols: No, it's not confined to people who are regulated.
The Chair: Any further comments? Shall the amendment carry? All in favour? Opposed? Carried.
Shall section 156, as amended, carry? All those in favour? Opposed? Carried.
Shall sections 157 through 160, inclusive, carry? All those in favour? Opposed? Carried.
Section 161 has an amendment.
Mr Owens: I move that subclause 161(1)(a)(i) of the bill be struck out and the following substituted:
"(i) is licensed under the Public Accountancy Act."
This is the Glower amendment that clarifies that the auditor must be an accountant licensed under the Public Accountancy Act. This is consistent with the definition of "auditor" in section 1 of Bill 134.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 161 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall sections 162 through 169, inclusive, carry? All those in favour? Opposed? Carried.
Section 170 of the bill has an amendment.
Mr Owens: I move that subsection 170(2) of the bill be amended by striking out "and shareholders" in the second line.
All this amendment does by deleting the reference to shareholders is confine the auditor's reporting obligation to members. This does not affect the right of shareholders to receive financial statements or to have the auditor answer questions whenever the auditor decides to attend a meeting of shareholders.
Mr Elston: I'm just interested in the effect of this, if we say just to members. Is there any obligation at all on the auditor, when an offering is to be made for the sale of shares, to respond to inquiries of a potential shareholder or buyer? For instance, if, once I've seen the statement of public disclosure, I say, "I want to talk to your auditor about that," does this mean he or she cannot respond to any inquiries that might be of interest?
Mr Abols: It doesn't mean they can't respond but I don't know whether they would want to respond, given the potential for liability and the terms of their retainer. Their client is the credit union; it isn't the general public. Nothing would stop you from asking the auditor these questions; whether they would answer you is another issue.
Mr Elston: But presumably the public disclosure would contain some information that would probably be validated by the auditor, and if you were doing the due diligence in terms of the inquiries, where would you go otherwise than to the auditor with respect to his or her reports?
Mr Abols: You're right, and this section doesn't in any way effect that kind of access, but again, I suppose the auditor's position may be: "You've got the offering statement there. You've got the report there. The report speaks for itself. I've certified the report."
If you're asking whether there's somewhere in the bill where you have a statutory right as a member of the public to question the auditor, no, there isn't.
The Chair: Any further comments? Shall the amendment carry? All in favour? Opposed? Carried.
Shall section 170 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 171 of the bill carry? All those in favour? Opposed? Carried.
Section 172 has a Liberal amendment.
Mr Elston: I move that section 172 of the bill be amended by adding the following subsections:
"Further extension of examination
"(7) The corporation may, by written direction, require the auditor to enlarge or extend the scope of an examination conducted under this section or the corporation may conduct its own examination as fully and to such extent as it considers appropriate.
"Report
"(8) An auditor who receives a direction under subsection (7) shall report the results of the examination to the director and to the corporation."
This is a suggestion that came from the corporation when it was in front of us. I've taken this as a suggestion they put forward basically so we could talk about it here and discuss the relevant merits of it. Generally speaking, we didn't have a lot of time when the presentations were made to go into some of these issues and the full nature of what they would do for the administration of the act, so I've offered these by way of amendment to elicit a response from parliamentary assistant and to get some kind of feel for whether the presentation by the corporation was actually seen to be going too far by the ministry or whether it is prepared to allow an increase in the ability to examine.
1640
Mr Owens: I'll ask Mr Glower to comment.
Mr Glower: First of all, this section really pertains to the director's power to conduct examinations and, when the auditor's in the process of doing his audit, to be asked by the director to expand it.
OSDIC, under certain circumstances, has the power to conduct its own examinations as well as the ability to rely on the report of the auditor. I think it was our review that if you do this sort of thing, you've now added a further layer as part of the normal scope of what the auditor would do. Credit unions today would argue that between the ministry examination and the requirement to have an audit it is more than adequate, in general terms.
In areas of risk, when a credit union is experiencing problems and is under the supervision of a stabilization authority, that's where we definitely believe that established authority, whether it's OSDIC or a delegate established authority, should have the right to conduct examinations for its purposes and that it has that power. We didn't want to add another layer in terms of a day-to-day requirement for an audit, but where there's an area of risk involved, that's where it's been added.
Mr Elston: So the position really is that it's not necessary. If that's the case, I withdraw my amendment.
The Vice-Chair (Mr Jim Wiseman): Shall section 172 carry? Carried.
We have an amendment to section 173(2).
Mr Owens: I move that subsection 173(2) of the bill be amended by striking out "regulatory capital" in the fourth line of clause (b) and substituting "total assets," by adding "or" at the end of clause (b), by striking out "or" at the end of clause (c) and by striking out (d).
I'll ask either Mr Abols or Mr Glower to respond.
Mr Glower: I'll respond. This is a model that has been put together by the Canadian Institute of Chartered Accountants and has been adopted by the federal regulators. What we in fact are replacing here is that by saying one half of 1% of capital, when you look at a credit union you would have a so-called materiality level of approximately $50,000, and it just doesn't work. "Total assets" would raise that materiality level to a proportional amount for a credit union as "regulatory capital" would be for a bank or a trust company.
In consultation with the Canadian Institute of Chartered Accountants, they agreed that "total assets" is the correct measure in credit union terminology just because of the size of the assets. The standard remains the same; we're just trying to get the dollars to be equivalent.
The Chair: Any comments? Shall the amendment carry? All in favour? Opposed? Carried.
Shall section 173, as amended, carry? All those in favour? Opposed? Carried.
Section 174 has an amendment.
Mr Owens: I move that section 174 of the bill be amended by inserting after "be" in the fifth line "authorized by this act or."
The amendment clarifies that there are other parts of the bill that will specifically deal with the business powers and activities of a credit union.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
There's an additional amendment to 174.
Mr Owens: I move that paragraph 6 of section 174 of the bill be struck out and the following substituted:
"6. Promote merchandise and services to its members or the holder of any payment, credit or charge card issued by the credit union, its subsidiaries or affiliates."
What this amendment does is limit the ability of a credit union to promote merchandise and services. They will only be able to do so to its members or persons holding charge or credit cards issued by the affiliates or subsidiaries. This brings the powers in line with comparable federally regulated financial institutions.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 174 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Section 175 of the bill has a PC motion.
Mr David Johnson: I move that subsection 175(4) of the bill be amended by adding after the word "subsidiary" and before the word "or" in the second line the words "financial institution or cooperative affiliate."
The difficulty now is that this builds on an amendment I placed earlier this morning with regard to section 5. That amendment, as we recall, was lost, so I suspect this amendment doesn't make any sense at this point.
The Chair: Would you like to withdraw your amendment?
Mr David Johnson: In that context, I don't think it makes sense to pose this without having section 5, and I'd be forced to withdraw.
Mr Owens: You're never forced, David.
The Chair: Mr Owens has an amendment.
Mr Owens: I move that the French version of subsection 175(4) of the bill be amended by striking out "recommander" in the fourth-last line and substituting "renvoyer".
Again this is a correction of the French-language terminology.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 175 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall sections 176 of the bill through 179, inclusive, carry? All those in favour? Opposed? Carried.
There is an amendment to section 180.
Mr Owens: I move that subsection 180(2) of the bill be struck out and the following substituted:
"Exception
"(2) Subsection (1) does not apply in the context of,
"(a) a voluntary dissolution of the credit union; or
"(b) a security interest given on behalf of a league or financial institution if the security interest represents security for the obligations of the league or financial institution to settle for payment items in accordance with the bylaws and rules of the Canadian Payments Association."
The reason we're putting this amendment forward is that we want to recognize a further exception to the prohibition against the credit union appointing a receiver. The credit union may appoint a receiver under a security agreement with a league or other financial institution for the purpose of allowing that league or financial institution to participate in the Canadian Payments Association clearance system on behalf of the credit union.
The Chair: I would like to call on Mr Johnson now. I understand his motion would be an amendment to the amendment that has been introduced by Mr Owens and would therefore ask him to read it into the record.
Mr David Johnson: To move that amendment to the amendment, I move that subsection 180(2) of the bill be amended by adding after the words "credit union" in line 3 the words "or in the context of a security interest granted to a financial institution in relation to the settlement of payment-related obligations on behalf of the credit union."
Clerk of the Committee: To move an amendment to the amendment, it would be amending the amendment by Mr Owens in clause (2)(a), after "credit union," I think.
1650
Mr David Johnson: Let's just have a look at this. I think it's probably in (2)(b). Now, whereabouts in (2)(b) is it?
Mr Elston: If I might volunteer some assistance, I really think, as is often the case in this Legislature, the Conservatives and the New Democrats are on the same wavelength.
Mr Owens: At least we have a wavelength.
Mr Elston: I think the two amendments, interestingly enough, are trying to get to the same thing, except I believe the government amendment is perhaps slightly more comprehensive in its wording. I think you're winning the same point.
Mr Kwinter: Just to clarify, I'm sure that the Conservative amendment was to amend the original subsection 180(2) and that it was to appear after the third line "credit union." It is not meant to amend the amendment. But what has happened is that, as my colleague has said, the amendment to the amendment I think captures the exact intent of what the PC amendment is and now makes the PC amendment redundant, because it is even more expansive in the government's amendment to the section.
The Chair: I understand exactly what you're saying, Mr Kwinter, as I'm sure most of the members do. I guess what we need now is a consensus from the members.
Mr David Johnson: Can we have an explanation from the staff of the government's amendment and how that covers the intent? I'm sure the staff has seen the amendment I proposed.
Mr Abols: Our view is that your proposed amendment has the same effect as the government's amendment. It's just that what we've done here is point out that the security obligation -- they call it settlement of payment related to obligations on behalf of the credit union. We note that the settlement is governed by the bylaws and rules of the Canadian Payments Association. Basically, it's a cheque-clearing service the Canadian Payments Association provides. The league, on behalf of its member credit unions, participates as a member of this cheque-clearing service. In order to that, it has to guarantee the indebtedness of other members of that institution. It can only do so if it in turn can rely on a financial commitment by its own members.
That's the effect of the government motion, and I suggest that's the effect of your motion as well. We've done it in a few more words. That's essentially what it amounts to.
The Chair: What may be required to happen now, Mr Johnson is that we can vote on it, most certainly, but if it's agreeable to you to withdraw your motion, understanding that the government motion will effectively do the same thing that your motion is intended to do, that would be appreciated, but it's certainly up to you.
Mr David Johnson: I'll accept that explanation and withdraw my amendment.
The Chair: Mr Owens, you've given your explanation. Is there a requirement for any further comments at this time on the government amendment?
Mr Owens: No, sir.
The Chair: Seeing none, shall the amendment carry? All those in favour? All those opposed? Carried.
Shall section 180 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Section 181 of the bill has a government amendment.
Mr Owens: I move that section 181 of the bill be amended by adding the following clauses:
"(a.1) a member acting as personal representative for any person;
"(a.2) a personal representative of a member;"
This amendment addresses an ambiguity about the ability of a member's personal representative to make deposits on behalf of the member.
Mr Kwinter: I understand the "personal representative of a member." I don't quite understand "a member acting as a personal representative for any person." It would seem to me that earlier today we talked about prohibitions against people who were not members of the credit union or who were not in some way captured in the broad definition of putting deposits or participating in a credit union. Now we have a provision that allows a member acting as a personal representative for any person to make a deposit. I don't understand that. I'm not objecting to it; I just don't understand it. I'd like to get an explanation of it.
Mr Abols: Perhaps the discussion earlier this morning was a little bit too narrowly focused, and I didn't recall this government motion that was going to be coming up, but effectively it would address some of the concerns raised earlier this morning about, for example, a member wanting to set up a trust account on behalf of somebody in their own capacity as a member; they're the trustee; can they do so?
If their trust function simply is confined to managing a deposit account of some sort, a trust account, this would allow them to do it. Whether they're right to act as a fiduciary beyond that and use the services of a credit union, administrative services and so on, is another issue. But in terms of opening up a banking account, they can do so.
The best example of this would be a lawyer. A lawyer is the member of a credit union. He would be setting up a trust account, perhaps, on behalf of some client and would be just using the banking facility. I'm not talking about the lawyer's own trust accounts; I'm talking about a trust account on behalf of one of his clients. This would facilitate something like that, or let's say a family situation where you have a member of a family who doesn't want to become a member or can't become a member but their parent, let's say, the parent of a child, is a member and wants to set up a trust account on behalf of the child. This would allow them to make deposits into that trust account.
In my earlier comments, I think I was a bit premature and forgetful of this provision, so I'd have to correct my earlier comments.
Mr Kwinter: Just for further clarification, I understand what you're saying, but my reading of this is that if I happen to meet someone who is not related to me and I say, "You know what? If you deposit your money in my credit union, you're going to get a better rate of interest than you get at the bank; give me your money and I will deposit it for you in your name," I read this as saying that when you take a look at section 181, it talks about "a credit union may accept deposits only from," and then it lists all the people it can only accept deposits from; now you're adding a provision that says "a member acting as personal representative for any person", not for trusts, not for family members, but for any person, which seems to imply that there's no restriction, that in fact anybody who wants to can have deposits made on their behalf without being a member, without being all the other things that are outlined in the rest of the provisions of 181. All I'm asking for is an explanation of that.
Mr Abols: Indeed that's correct. For example, Her Majesty, in right of Canada, can make deposits with a credit union but the federal government doesn't have to become a member with a particular credit union. We have expanded in this respect the deposit-taking capabilities of a credit union.
But getting back to the earlier concern, which I think is a genuine one, which is, somebody says to you, "Hey, I've got a load of money here and I don't want to particularly be responsible for depositing it or be on anybody's records as a depositor; why don't you deposit it for me?" that wouldn't be possible because the concept of personal representative is defined at the beginning of the act and it states "represents another person" as the circumstances require and includes people such as a trustee, executor, administrator, committee, guardian, tutor, curator or so on. You'd have to demonstrate that you are the personal representative as contemplated by the act, not just some person off the street and you're perhaps trying some kind of money-laundering scheme or something of that nature.
Mr Kwinter: That is exactly my point, and I would suggest that maybe, rather than saying "for any person" -- "any" is very, very broad; it's "any person" -- that there be some specificity as heretofore provided for as to who these people can be. That is the point I'm making. Right now you're saying, "This is all covered and they can do this, that and the other thing." But my reading of this says that it's the personal representative for any person, whether it's someone who wants to launder money -- exactly one of my concerns. I think there should be, as I say, more specificity as to who it is or what is the definition of the eligible people who can be in here. Otherwise, you don't need this provision, because it says you can accept deposits "only from" and it lists all these things, but in that "only from" it says "from anybody." So why do you have to say "only" from and then say "anybody"? It doesn't make any sense, unless you define who those people are whom a member can act as a personal representative of.
1700
Mr Abols: But it doesn't say, "from anybody." It says, "from the member." I suppose the safeguard we're looking to is the fact that the money is channelled through a member and then again, in theory, you know who the member is. The member fits within the bonds of association and that's one of the checks we have there.
Maybe this is open for discussion. We could instead substitute "or such other prescribed persons," and then we can deal with trying to create greater specificity in regulation, because I don't think we can do so in this kind of open forum. That might be a worthwhile amendment.
Mr Elston: I was interested in looking at the list, and while you say you can accept deposits from municipalities, you don't mention accepting deposits from, for instance, the 4-H club of Brussels, or something. Could the 4-H club, for instance, be a member, in which case an agent or a personal representative could act for that member, or can you only be an actual person to be a member?
Mr Abols: No, clearly it's contemplated that when we're talking about corporate members, they would be acting through their personal agents, of one sort. This in no way confines that. A member, whether a corporate or individual member, can make deposits. If a 4-H club is not a member, that's another issue and whether somebody on behalf of that 4-H club can do so, I think it has to be acknowledged that Mr Kwinter has a good point, that it may be too broad and we can perhaps --
Mr Owens: Stand it down and allow leg counsel to --
Mr Elston: While Monte was probably right and in some ways, it maybe is too broad, I just wanted to make sure that there was room for some of these unincorporated associations to actually participate in credit unions, because it's not uncommon to have local small organizations coming together; for instance, a credit union representing or holding out its office to assist in raising money for a charitable venture in a community to help out in the case of a fire or something like that. I just want to make sure we're not restricting them from getting into lines of work which are slightly off the normal for that.
Mr Abols: This wouldn't do it because the membership eligibility potentially could be individuals, unincorporated associations or corporate members. If there's a 4-H club, an unincorporated association, as a member it could in its own right make a deposit. There's no question about that.
Mr Elston: Is a municipality not able to be a member of a credit union?
Mr Abols: It can, but there may be situations where, like the federal government, it may not necessarily want to become a member of a particular credit union, for whatever reason, so this gives them the option that they can still park their money there but they don't have to participate in the credit union as a member.
Mr Elston: Let's stand down this section.
Mr Owens: Yes, my request was that we stand it down and allow for some time to draft it.
The Chair: All of section 181 then?
Mr Owens: I guess my question is with respect to the next amendment and whether or not it --
The Chair: We'd have to read it into the record.
Mr Elston: Actually, why don't we just stand the whole section down?
Mr Owens: I've been advised that maybe the easiest way to resolve this problem is to withdraw the section that we just spent a large number of minutes discussing, as the issue can be covered in regulation.
The Chair: Can you be more specific, Mr Owens?
Mr Abols: Actually, the motion we would have redrafted is the next motion which is essentially a motion that will allow the director to approve other persons or entities who can make deposits, so there's the director, the regulator, overseeing this. There's overlap here and by losing this, we lose nothing really.
Mr Kwinter: I was about to make the recommendation, but I turned the page and saw this next provision.
The Chair: So what are your wishes?
Mr Owens: I'm going to withdraw clauses 181(a.1) and (a.2).
The Chair: Okay. Now we will deal with the other amendment to section 181. Mr Owens.
Mr Owens: I move that section 181 of the bill be amended by striking out "or" at the end of clause (i), by adding "or" at the end of clause (j) and by adding the following clause:
"(k) other persons or entities approved by the director."
As we've had a large amount of discussion, I think this resolves the issue that was raised by Mr Kwinter with respect to the kinds of people who would be approved for the purposes of making deposits.
Mr Kwinter: I understand we spent a great deal of time on this, but unfortunately you've corrected one thing and you've compounded the problem.
I feel strongly that in your amendment of clauses 181(a.1) and (a.2), provision (a.2), "a personal representative of a member," is an important provision. Someone should be able to send somebody to make a deposit for them. To say that you're going to remove that I don't think is reasonable.
Mr Owens: I think, Mr Kwinter, that with respect to the amendment I just read, a director does or will, if this is approved, have the ability to approve that kind of personal representative for the purposes of making a deposit. So I think what it does is that it answers your question with respect to keeping fairly close control, but also answers Mr Elston's concern with respect to not narrowing the ability of others to make deposits or to become members.
Mr Kwinter: With respect, I happen to be a member of a credit union, and if I were to send my son who is not a member of the credit union to make a deposit for me, surely he doesn't have to get the approval of the director to make that deposit?
Mr Owens: No, but I don't think that's, quite frankly, the issue. In terms of the parameters that the director would set out, it would not be the responsibility of you or your son, at the time you would like to make a deposit, to have the director make that decision. What I'm saying is that in terms of looking at the kinds of persons or individuals -- I'm sure Mr Abols can jump in at any time -- there will be some forward thinking done by the director with respect to designating who can make deposits.
Mr Abols: If I may speak to the matter, the initial motion was really drafted to allay certain concerns which quite frankly, at the staff level, were never there. My view as legal counsel to the ministry is that a personal representative can do just as you suggest. You come to the credit union, indicate your authority for doing what you're doing, and if it's done in the name of the member, it is the member's deposit that is being made or the member is conducting some transaction. We all recognize the fact that members, like anybody else, may be incapacitated, may not be able to conduct their affairs. So the ability to appoint a power of attorney or to appoint somebody or designate somebody as representative is certainly there and it really goes without saying.
What that motion intended to do was to allay, in my view, misplaced concerns. From a legal perspective, I don't see that was ever a problem, and by introducing the motion, we've created more problems. Withdrawing it, I feel, doesn't prevent the situation you describe from happening.
Mr Elston: To make sure that we're not going to stick just to the personal representative in its formal circumstance, where I actually have a power of attorney or some other document --
Mr Owens: No, I don't think that's the intent.
Mr Elston: It can be an agency, which I really think is what Mr Kwinter was talking about, just a clear agency saying, "Listen, Murray, when you're down there, take my deposit in and make this deposit for me," or something, so an agent, as opposed to a personal representative in the formal sense, is going to be covered by this.
Mr Abols: The definition of "personal representative" includes an agent, so that concept is there.
1710
Mr Elston: So everybody will be covered without going back to this.
Mr Abols: Yes. For example, as you point out, with a corporate member or an unincorporated association, you can't physically have the corporation or the unincorporated association do it. They do it through an agent, who in effect is the personal representative of that member.
The Chair: Any further comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 181 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall sections 182 and 183 of the bill carry? All those in favour? Opposed? Carried.
Section 184 has an amendment.
Mr Owens: I move that the English version of subsection 184(2) of the bill be amended by striking out "money" in the first line.
The reason for this amendment, removing the term "money," is that it will allow the credit union to borrow generally, and by that I mean they'll be able to borrow securities for the purposes of a swap transaction.
Mr Kwinter: This is really a matter of syntax: I just think it's a silly statement to say, "A credit union may borrow if authorized to do so by its bylaws." It should say it "may have the power to borrow." It made sense when you said "borrow money," but you want to take out the "money." In terms of syntax, to say "to borrow" just doesn't sound right. Anyway, carry on.
The Chair: Thank you for those comments, Mr Kwinter. Any further comments? Shall the amendment carry? All those in favour? Opposed? Carried.
There's an additional amendment.
Mr Owens: I move that the English version of subsection 184(4) of the bill be amended by striking out "money" in the second line.
Again this term is deleted to allow the credit union to borrow generally.
The Chair: Comments on this amendment? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 184 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 185 of the bill carry? All those in favour? Opposed? Carried.
Section 186 has an amendment.
Mr Owens: I move that clause 186(1)(c) of the bill be amended by inserting after "act" in the fifth line "the deposit insurer."
The purpose of this amendment is to allow the credit union to borrow from the deposit insurer for the purposes of liquidity. We're trying to correct a technical oversight.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
An additional amendment.
Mr Owens: I move that subsection 186(5) of the bill be amended by inserting after "(4)" in the first line "and section 185".
We're addressing a technical oversight by including a cross-reference to section 185. The regulation exempting certain classes of personal property or transactions from the restriction on the pledging of assets is meant to be a total exemption.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 186 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Section 187 has an amendment.
Mr Owens: I move that subsection 187(4) of the bill be amended by striking out "may" in the second line and substituting "shall" and by striking out "a currency other than Canadian" at the end and substituting "Canadian currency."
The reason for the deletion of the phrase "a currency other than Canadian" reflects the fact that credit unions are community-based and we generally would have no reason to denominate any form of indebtedness in a currency other than Canadian currency.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 187 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Shall sections 188 and 189 of the bill carry? All those in favour? All those opposed? Carried.
Section 190 has an amendment.
Mr Owens: I move that section 190 of the bill be struck out and the following substituted:
"Monitoring by board
"190. The board of a credit union shall inform itself at each board meeting about the particulars of borrowings made since the last board meeting by the credit union."
This is an amendment that changes the requirement that the board monitor the borrowings of a credit union on a monthly basis to a period that corresponds to the time between board meetings. It's our view that it's not uncommon for a board to not meet monthly.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 190 of the bill, as amended carry? All those in favour? All those opposed? Carried.
Shall sections 191 to 194, inclusive, carry? All those in favour? All those opposed? Carried.
Section 195 has an amendment.
Mr Owens: I move that section 195 of the bill be amended by adding the following subsection:
"Exception
"(3) Subsection (2) does not apply to a loan less than a given amount if,
"(a) the bylaws provide that loans under the given amount need not be subject to the board's approval; and
"(b) the director has approved that provision in the bylaws."
The reason for this amendment is that it qualifies the restrictions as set out in subsection 195(2). The loans to an unincorporated association do not require the board's approval if a bylaw, which of course would have to be approved by the director, authorizes it to make certain loans without the board's approval. I firmly believe what we're doing here is trying to address the impracticality of having board meetings to deal with individual loans.
The Chair: Any comments? All in favour of the amendment? Opposed? Carried.
Shall section 195, as amended, carry? All those in favour? All those opposed? Carried.
Section 196 has an amendment.
Mr Owens: I move that subsection 196(2) of the bill be amended by striking out "for the time and on the conditions" in the second and third lines and substituting "on terms."
Simply, what we're doing is introducing more general terminology.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 196 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Section 197 has an amendment.
Mr Owens: I move that subsection 197(1) of the bill be amended by adding at the beginning "If its bylaws authorize it to do so."
This amendment clarifies that the credit union must seek its members' approval before applying for a particular lending licence. Again, this is consistent with the principle that a credit union is a cooperative financial institution and run by its members.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
There is an additional amendment.
Mr Owens: I move that section 197 of the bill be amended by adding the following subsection:
"Lower lending limits
"(3.1) The director may lower a credit union's lending limit if he or she believes on reasonable grounds that its current lending limits may adversely affect the interests of members, depositors or shareholders."
The reason for this amendment is that it's a clarification that the director's power to amend a lending licence under subsection 197(3) includes the ability to lower lending limits. Subsection 197(3.1) also introduces a criterion governing the exercise of that power.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Another amendment.
Mr Owens: I move that subsection 197(4) of the bill be struck out and the following substituted:
"Transition
"(4) A credit union that has a bylaw in effect on the day this subsection comes into force authorizing it to lend money with respect to specified classes of loans shall be deemed to hold a lending licence with respect to prescribed classes of loans that are comparable to the classes specified in the bylaw with a lending limit for each such class of loan as set out in the bylaw on the day this subsection comes into force."
Subsection 197(4) has been rewritten to ensure that both the lending limits and the classes of permitted lending under a credit union's bylaws, as those bylaws existed prior to Bill 134 coming into force, are grandparented.
1720
Mr Elston: If this allows grandfathering but the director believes the limits are too high, does this mean the bylaws are automatically grandfathered, or are they automatically lowered? It would seem to me (3.1) would have something to say about subsection (4); at least there may not be an automatic grandfathering in these clauses. Is that right?
Mr Abols: No. Subsection 197(3.1) is an intervention power. On the day this bill comes into force, everything that exists there now on the credit union's books is grandfathered. It's not to say that the director may not in an individual case say, "Something's gone awry here and I'm going to revisit your lending limits in your bylaws and lower them," or in what we call now a lending licence as opposed to a bylaw.
This is an intervention power. Unless a director takes some kind of regulatory action, they live with what they have prior to the bill coming into effect.
Mr Elston: What sort of work do they have to do around changing the bylaws in these credit unions? Is there any specific action in terms of size of vote required to change a lending limit bylaw or any of that stuff, or is it just a majority of the board members?
Mr Glower: Under the current statute or the bill?
Mr Elston: Actually both, because you're going to grandfather the first, and then as soon as you grandfather it, the changes will have to be done under the new act.
Mr Glower: Under Bill 134, the members have to approve it, and I think it's a majority, to allow the credit union to engage in a type of lending. If they're not in personal lending, the members have to approve them to go into personal lending and then they would default to the regulation as to what their limits would be.
Under the current situation, and I think it's two thirds, the members vote not only for the type of lending but also the lending limit, the bylaw limit, and then that bylaw is submitted to the director for approval.
Mr Elston: So the director now has, in actual fact, almost a veto. If somebody tried to load up their lending areas before there was a coming into play of this act or whatever, basically the director is in charge to make sure there isn't something untoward occurring.
Mr Glower: Yes. But it wouldn't be in relation to what's going to be coming in the regulation. It would still be in relation to prudence.
Mr Kwinter: This discussion is causing me a bit of a problem. When we were dealing with 197(3.1), I was agonizing over whether I should get into it, because it really provides for the director to lower a credit union's lending limit. If you say the lending limits are set by a two-thirds majority of the members, I can understand your saying that if he wants to raise the lending limit he'd have to go to the membership. But by the same token, if the members decide that this is the limit, again we have this arbitrariness where he says, "In my opinion, we're going to lower the limit because I think it's in the best interests of everybody." It would seem to me that if he were going to do it, he should also have the authority of the people who gave him the power to set the limits in the first place as opposed to doing it unilaterally.
Mr Abols: If I understand your question, you're saying that the director can only exercise his regulatory power if the members of the credit union permit him to do?
Mr Kwinter: The question was just asked, about this particular amendment, about who sets the lending limits, and it wasn't the director. It was either the board or the members, with two thirds of the members voting to set the limits.
Mr Abols: Actually, it's not as simple as that. I'll give you the broader context of the bill.
There are three components to the lending limit. One is that the regulations will prescribe maximum lending limits, the ceilings. So it doesn't matter what the director wants to impose; he's governed by those ceilings. The members themselves, though, notwithstanding the fact that a credit union can apply to the director and say, "Look, I want a maximum commercial lending limit of 35%" or "a maximum of 20%," can say, "No, I don't think our credit union really is in a position to take on that kind of risk, so we will only authorize you to go to the director and apply for a licence up to a 15% limit." That's not to say they'll necessarily get that, because the director then has to make an assessment from a regulator's perspective of whether this is appropriate for a given credit union.
So the exercise of regulatory power, yes, is independent of what the members think, because it's the responsibility of the regulator to bring another objective view about whether a particular limit is appropriate for a given credit union, given its track record, given its expertise and sophistication in making lending decisions, more particularly in commercial lending. So I don't see a contradiction here. One is a regulatory oversight function and the other one, the last amendment or motion, deals with the issue of who controls the credit union. The members do, and notwithstanding what management may think is appropriate, members may have a different view and say, "We don't want to incur this level of risk."
The Chair: Because there is a similarity to the next motion Mr Johnson will be dealing with, I thought I'd ask him if he wished any more clarification or wanted to make any comments on this particular motion.
Mr David Johnson: I gather, Mr Chairman, the government's motion has been moved. It seems there is the potential that it addresses what I was attempting to address, but the language is just a little different. I wonder if maybe the staff could comment. For example, it says "deemed to hold a lending licence with respect to prescribed classes of loans that are comparable" to the classes prescribed.
Mr Abols: Actually, the effect is different. The grandfathering provision that you're proposing really is not a grandfathering provision because it says that you have the benefit of both worlds. If the regulations prescribe higher limits, you automatically default to those higher limits.
The view that's reflected in the bill and the government motions is that, no, there shouldn't be this automatic default to the higher limits. We will grandfather you, because there was strong representation that it was unfair. At one point when we had discussed the lending regulation and looked at some of the proposed limits, some of these limits would actually be lower than limits currently enjoyed by credit unions through their lending bylaws. So there was strong representation that: "This is unfair. We've lived with those limits. We've demonstrated that we can prudently exercise our powers under those limits, and here you're cutting them back."
The motion recognizes that problem and therefore says, fine, on day one, you continue to operate with your current limits. If you want to increase, if you want to go beyond those limits set out in your bylaws, which are now your new lending licence, you have to come to the director and make an application to increase those limits up to whatever the prescribed maximum might be in the regulation.
If I were to characterize your motion, it's not a grandfathering provision, really. It's a provision which creates a default mechanism which allows them to automatically move up to a higher lending limit without any kind of prudential regulatory oversight.
Mr David Johnson: Well, it would be grandfathering in the context that it would permit the limits that are in place today to exist, but it would go beyond that, as you say, to allow the limits of the regulations. What's the harm in that?
Mr Abols: The harm in that is that the regulation may prescribe limits far in excess of what they currently enjoy in their bylaws. For example, if it's a commercial lending limit and they now can make loans up to 10% of their assets and the regulation provides a 35% limit, that's a sizeable increase, and the regulator would have to be shown that there is the expertise, the ability to deal with that kind of risk, because commercial lending by its very nature is quite risky.
1730
Mr David Johnson: I must be missing something here, obviously. If there was no amendment, the limits within the regulations would apply, would they not?
Mr Abols: I'm sorry, the regulations would apply if there were no --
Interjection: They would have to get a variation.
Mr Abols: They would have to get a variation. The limits prescribe maxima up to which you can be granted a lending licence. The actual limit is governed by the lending licence and the regulations will effectively say that within each category of loan and lending licence you can grant limits up to x percentage, but it doesn't say that as of day one, all credit unions have these limits under the regulation. The regulation governs what those limits can be as reflected in the lending licence. So there has to be an application procedure, either for a new licence, if you've never done this kind of lending, or if you've done it and you have a prescribed limit, for a variation, an increase in your lending limit.
Mr David Johnson: Isn't the intent, though, that the credit union would be able to apply either what's in existence today or what's in the regulations?
Mr Abols: No. In fact, what we're carrying forward is no different than what exists today. A credit union has its lending limits set out in its bylaws. If it wants to increase those lending limits, it has to come to the regulator for approval, so we're carrying forward that regulatory function in this bill. We're now calling these bylaws licences and we're going to set out the upper range in a regulation, which currently is not set out in a regulation. It is somewhat discretionary. There's just a so-called matrix that the regulator uses, and one of the criticisms has been: "That's not good enough. Set it out in the regulations."
Mr David Johnson: I see. I think maybe I'm starting to get around this in simplistic terms. The government's motion would permit the limits that exist today by bylaw, but in terms of the new limits, there would have to be a process to go through to establish them.
Mr Owens: That's right.
Mr David Johnson: And I guess my motion, the way it's worded, would automatically grant that without the discipline of some sort of approval process for the regulation part of it.
Mr Abols: That's right.
Mr Elston: Or for the members, who have to think about it as well.
Mr David Johnson: It's my opinion, then, that the government motion, in terms of the grandfathering -- maybe I should give further thought to this but I guess we won't have time. I guess the grandfathering was primarily intended for what exists today and that is covered by the government amendment, so in that case I'll withdraw my amendment.
The Chair: Shall the amendment carry? All those in favour? All those opposed? Carried.
Shall section 197 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall section 198 of the bill carry? All those in favour? Opposed? Carried.
Section 199 has an amendment.
Mr Owens: I move that subsection 199(4) of the bill be struck out and the following substituted:
"Monitoring by board
"(4) The board shall inform itself at each board meeting about the particulars of the investments made and held by the credit union since the last board meeting."
This is consistent with a previous amendment with respect to the reporting on loans and that there is an understanding that credit union boards may not meet on a monthly basis.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 199 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Section 200 of the bill has an amendment.
Mr Owens: I move that the French version of subsection 200(2) of the bill be amended by striking out "de manière à" in the sixth line and substituting "et n'a pas pour effet de."
Again we're changing the terminology used in the French-language version.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
There's an additional amendment to section 200.
Mr Owens: I move that subsection 200(3) of the bill be amended by adding "or a securities dealer" at the end.
I'll ask Mr Abols to explain this.
Mr Abols: Effectively, including a securities dealer in subsection (3) and making it for the purposes of this section not a financial institution means that any investment by a credit union in a securities dealer is subject to the restrictions on the amount or size of a single investment. The view is that unlike putting deposits in a loan and trust or bank, there's a qualitatively different degree of risk if you are putting deposits or investing money in a securities dealer, so it should be governed by some prescribed limit.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 200 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall sections 201, 202 and 203 carry? All those in favour? Opposed? Carried.
Section 204 has an amendment.
Mr Owens: I move that subsection 204(1) of the bill be struck out and the following substituted:
"Transfer of assets
"204(1) A credit union shall not transfer all or a substantial portion of its assets unless the transfer is approved by special resolution or ordered under section 206."
This amendment clarifies that if a transfer of assets is the result of an order by the director or on an application by the stabilization authority, the shareholders' and members' approval is not necessary, given that the principal regulator, the director of credit unions, has already ruled that the transfer of assets will be in the best interests of the credit union.
The Chair: Any comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 204 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Shall section 205 of the bill carry? All those in favour? All those opposed? Carried.
Section 206 has an amendment.
Mr Owens: I move that the French version of section 206 of the bill be amended by striking out "surveillance" in the first line and substituting "supervision." That's franglais.
Mr Glower: If I could just comment for the record, this was raised by the credit unions and caisses populaires in their joint submission as well as by Ste-Anne-Laurier in its submission, that the term "surveillance" was not an accurate reflection of the English translation. We've gone to great lengths to make an adequate correction, so "supervision" is acceptable. I just wanted that noted.
The Chair: Any other comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 206 of the bill, as amended, carry? All those in favour? Opposed? Carried.
Shall sections 207 and 208 of the bill carry? All those in favour? Opposed? Carried.
There's an amendment to section 209.
Mr Owens: I move that section 209 of the bill be amended by striking out "the loan is approved by the credit committee, the board and the audit committee" at the end and substituting "the credit committee and the board approve the loan before it is made."
The requirement for the audit committee to approve loans to officers, directors or committee members is deleted with this amendment. Approval of loans is clearly a principal responsibility of the credit committee and, in special circumstances, the board.
Mr Elston: Just a question as to how large the credit committee generally is, in a practical sense, and how large the boards often are. I take it the reason is you don't want a small group of people being able to make the loans and you want to expand it to the credit committee plus the board. Is that what's happening here?
Mr Glower: No, it's just that the old statute had "supervisory committee." In going through the changes, we replaced "audit committee" for "supervisory committee." But part of the relationship of the supervisory committee in the present statute would have made sense, that it get involved, but it makes absolutely no sense given what the duties of an audit committee are. So we've just taken it out. But the credit committee is normally a minimum of three people. It doesn't otherwise change anything else.
1740
Mr Kwinter: Without being vexatious, if that's the word, the syntax of this bill is abominable. I've been gritting my teeth as I keep reading this thing. You need an English teacher to go through this thing. I really think, if the intent is to eliminate the need for the audit committee to do it, the amendment should read, "A credit union may lend to an officer, a member of a committee established under this act or a director an amount in excess of the aggregate of deposits of the officer, member or director only if the credit committee and the board approve the loan," period.
In the first sentence, it says you cannot make the loan unless they approve it. You don't have to say "before it is made"; you've already said that in the first paragraph. I'm just pointing that out. But all the way through there are instances where, as I say, you'd get a failing grade if you were in an English class.
Mr Owens: I think Mr Kwinter must moonlight as William Safire in the Sunday New York Times Magazine.
The Chair: Any further comments? Shall the amendment carry? All those in favour? Opposed? Carried.
Shall section 209 of the bill, as amended, carry? All those in favour? All those opposed? Carried.
Are there any comments on section 210 of the bill?
Mr Owens: Yes. The government will not be supporting this section, and the reason is that section 210 will be deleted because the issue of directors, officers and committee members or employees guaranteeing or cosigning loans will be addressed in the regulations governing restricted party transactions.
The Chair: Shall section 210 of the bill carry? All those in favour? All those opposed? The section is lost.
Shall sections 211 to 223, inclusive, carry? All those in favour? Opposed? Carried.
There are amendments to section 224.
Mr Owens: I move that subsection 224(5) of the bill be amended by inserting after "officer" in the first line "or employee."
The reason for this amendment is that it permits authorized employees to inspect members' accounts. Limiting the right of inspection to an authorized officer is impractical because the day-to-day business of the credit union will invariably require employees to have access to such information.
Mr Elston: They could authorize the employee anyway, couldn't they? Is it sometimes an oversight? It says "or a person specifically authorized by a resolution of the board." Does it really matter? Couldn't they authorize an employee to do that work anyhow? Who else would be authorized if it wasn't an employee?
Mr Abols: You're right. The concept of "person" is a pretty generic one. In respect of those comments on drafting, some of this is a product of drafting by committee and so it gilds the lily, I grant you that.
Mr Elston: If there's nobody else, it seems to me then that you should probably take out as well the phrase "or a person specifically authorized by a resolution of the board," unless you can tell me that there is another individual who should be authorized, who might be. Is an auditor an officer? Would he or she have to be able to inspect?
Mr Kwinter: Mr Chairman, could I just make a comment before we move on? It would seem to me that where the word "employee" should be substituted is not after "an officer" but where it says or an employee "specifically authorized by a resolution of the board." As my colleague said, if they're going to go outside an officer of the credit union or the employees, that's a real stretch to figure out who is going to be given authority to authorize this thing.
Mr Owens: We'll stand this section down, if it's agreeable to the committee.
The Chair: The whole of section 224, Mr Owens?
Mr Owens: At this point, just the subsection.
The Chair: Just subsection 224(5).
We are now dealing with a government motion, subsection 224(6).
Mr Owens: I move that section 224 of the bill be amended by adding the following subsection:
"Use of information
"(6) A person authorized to inspect a document under this section shall not use the information in it except in connection with,
"(a) an effort to influence the voting of members or shareholders of the credit union;
"(b) an offer to acquire shares of the credit union; or
"(c) any other matter relating to the affairs of the credit union."
The reason for this amendment is that it of course governs the use of any information obtained by a person who has a right to inspect the records of a credit union. It's designed to prevent the trafficking of information with respect to lists of members for purposes that are not related to the affairs of the credit union. Perhaps the word "trafficking" is too strong or has other connotations.
Mr Elston: I'm interested in this. It says a person can't use any of the information except in "an effort to influence the voting of members or shareholders." Can I get an explanation of what that is about?
Mr Abols: Essentially, one sort of information they would need is to know who is a member and who is a shareholder of a credit union if they're going to, let's say, move a motion or requisition that a certain order of business be considered at an annual meeting, in order to gauge what kind of support they would have for that motion. In fact, elsewhere in the bill you will see there's a power in the members to requisition a meeting of members if 5% of the membership petitions the board to call a meeting. It's difficult, unless this member has access to the members list, to find out who is a member of the credit union to garner that support. That's one example. The shareholders similarly would have to know who the other shareholders are if they were going to float some proposal that they wanted others to support.
Mr Elston: I haven't looked, but is there a definition of what the books are?
Mr Abols: Yes. There are requirements elsewhere in the bill that deal with the sort of records a credit union has to keep. In section 232, one of the records is "a register of members and shareholders."
Mrs Haslam: It's in section 224. In subsection 224(2) it says, "and the books, at whatever place they are kept, containing the names of the members."
Mr Elston: Yes, but all I'm saying is that's not all that the books would be comprised of.
Mrs Haslam: That's what this refers to, membership.
Mr Elston: Yes, but I'm asking about the books, and we're talking about being able to inspect the books. I was just advised that section 232 has a statement about what books are to be kept. It seems to me you could get interesting results from some people being given access, at a vote, to particular information when others don't have it.
Mr Owens: If Mr Abols could finish his explanation, it might clarify.
Mr Elston: I'm sorry, Mr Abols, we've interrupted.
Mr Abols: Section 224 deals with two types of records: personal accounts of a member and then generally the books of a credit union. In terms of content of those books, some of it is captured in section 232 when it speaks to "a register of members and shareholders." That's one of the records a credit union, by statute, must keep, and the statements as to the names and addresses of members, number of shares held by members or shareholders and so on. This gives you a flavour of some of the information the act requires that a credit union maintain, and it's those records that invariably would be of interest to anybody who's trying to influence the voting of members or shareholders.
1750
Mr David Johnson: Looking at clause (c), one of the exceptions is "any other matter relating to the affairs of the credit union." That seems somewhat broad. I don't know how serious this is, but doesn't that raise the possibility of a considerably broad range of interpretations? I don't know how one would define "any other matter relating to the affairs of the credit union," but is that a concern to the government?
Mr Owens: It's my understanding, and Mr Abols is certainly free to correct that understanding, that while it may appear semantically to be a broad power, my view is that there would have to be a direct relationship with respect to the affairs of the credit union in terms of how far offside one could go with respect to this (c) section.
Mr Abols: I just would make one observation. This section is simply a carry-forward of what's already in the act in terms of accessibility to the accounts. But it speaks to the issue of your concern, whether this is open to abuse, and the practice and experience has been that it isn't. The access to the credit union's records is also governed by the credit union's bylaws, so the members decide what degree of access anybody is going to have to those records. That's another important component that is still there. So it isn't just carte blanche. If the members in their own wisdom believe certain people should have a right to inspect the books of a credit union, that is in the nature of a cooperative and the right of a cooperative to set the ground rules for the way it's going to operate.
Mr David Johnson: If a credit union, through its own bylaws, permitted somebody to look at the books, according to clause (c) it would have to be pertaining to the affairs of the credit union, whatever that means.
Mr Abols: What it means is that, for example, you can't as a member or a shareholder take information from the credit union -- I think the most valuable information is lists of members and shareholders -- and then sell it to some company or individual who can in turn solicit these people, to sell other services that have nothing to do with the credit union as a financial institution.
Mr David Johnson: If they sold the list, there would be money involved and that would raise money that would be used for the credit union, so would that not be a matter related to the affairs of the credit union? This may not be an issue, but it seems to me that you could twist almost anything around to be a matter related to the affairs of the credit union. In that case, they would be raising revenue for the credit union by selling the list of their members.
Mr Abols: I suppose you can make that argument.
Mr David Johnson: A devious mind could make that argument.
Mr Abols: I would suggest, though, that the intent here is one that would capture that sort of situation. If you're simply selling the list and really have no concern about how the list is going to be used, this would prohibit that kind of transaction. Nobody's going to pay you money for a list unless they're going to use the list for some sort of purpose, and if the purpose has nothing to do with the credit union as a credit union, this provision would prohibit that kind of sale.
Mr Elston: This may be a carry-on of the previous act, but I wonder if we shouldn't stand the whole of 224 down and let it be looked at in its entirety and then come back to it. The way this thing is written under (6), if I am an officer, I can go into anybody's records for any purposes because I am authorized to do that. It says my use of my access to that document, whatever the record might be, is okay if I use it in an effort to influence the voting of members or shareholders of the credit union.
While I know it doesn't intend to allow me to use financial records of my members and of the loans I have outstanding to influence the vote, in effect it says I could do that and be held without responsibility. Maybe we need to clean up the language and do the whole section so that it fits what we want to have happen.
Mr Owens: That's agreeable. Let's stand it down and move on.
The Chair: Section 224 is stood down.
Shall sections 225 to 231, inclusive, carry? All those in favour? Opposed? Carried.
Mr Owens: Is this the point where you move a motion where all the amendments are deemed as read?
The Chair: I'm certainly in the hands of the committee members, but as we have to come back next week for clause-by-clause of this bill, and we have done very well so far, and because it's very near the end of the day, could we have an agreement to adjourn the committee to meet Thursday next at 10 am?
Mr Owens: With respect to that, if it's possible at all, we may want to either meet a little earlier or agree not to see the clock at the end of the day or some process like that. I'm concerned with the amount of work we still have to do and the amount of discussion that seems to --
Mr Elston: There hasn't been much discussion.
Mr Owens: This is not a criticism of --
Mr David Johnson: You're just too slow reading the amendments.
Mr Owens: That's right. But if the subcommittee could agree --
Mr Elston: I actually don't think it's necessary even to worry about this. This bill's going on. We're going to try and make it work. If somebody wants to come in here at 9:30, I'm not really that much opposed to it, if you want an extra half-hour, subject to everybody else being available, but we're not doing badly.
Mr Owens: What time did you get here this afternoon?
Mr Elston: I had meetings this afternoon.
Mrs Haslam: Not to pick on all this wonderful, "Let's get along and get the bill done," but I remind members that some of us were here on time and some of us waited half an hour before this committee could convene. In an extra half-hour, we might have made it through 300 sections.
With all due respect to "Let's meet and let's get it done and we're getting along just fine" --
Mr Elston: I apologize for being a House leader.
Mrs Haslam: I am picking on anybody who doesn't show up on time to a committee meeting.
The Chair: Thank you very much. This committee stands adjourned until 10 am Thursday next.
The committee adjourned at 1757.