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.
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 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 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.
"(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.
"(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."
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?
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?
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.
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.
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.
"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."
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.
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 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.
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.
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.
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 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.
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.
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.
"(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.
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.
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.
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.
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.
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.
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.
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.
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: 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.
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 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.
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.
"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.
"(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.
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.
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.
"(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.'"
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 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."
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.
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.
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.
"(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 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.
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: 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 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 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."
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.
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.
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.
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 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.
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.
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.
"(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 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.
"(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."
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.
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.
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.
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.
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 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."
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.
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 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."
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.
"(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.
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."
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 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.
"(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.
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.
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.
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 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 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: 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.
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.
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."
"(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.
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.
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 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).
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.
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.
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.
"(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."
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.
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.
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 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.
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.
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 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 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 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.
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.
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: 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: 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 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.
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.
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.
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 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.
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.
"(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.
"(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.
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.
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 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 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 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.
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.
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 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 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.
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.
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.
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.
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.
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: 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 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.
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 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."
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 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.
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 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.
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: 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.
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.