CBA urges feds to reconsider mergers, insurance

When the Competition Policy Review Panel puts forth its recommendations to the federal government in June, it may have to address whether the bans on allowing banks to merge and sell insurance in the branches should be lifted.

The Canadian Bankers Association (CBA) submitted its recommendations to the Competition Policy Review Panel on Thursday. Among them was the suggestion that the panel reconsider Canada’s current laws forbidding the banks from merging with each other or with Canada’s two largest insurers, Manulife Financial and Sun Life Financial. It also expressed its disappointment with the government’s ban on promoting life insurance in the banks’ branches.

The submissions are in response to a consultation paper the review panel issued in October. All industry participants who made submissions, which were due on Friday, will have them reviewed by the panel’s members. Between now and June 30, the panel will consult in person with those who made submissions and create its own report on the state of Canada’s competition and investment policies, which will be presented to Canada’s Minister of Industry.

The issue of whether Canada’s financial service giants should be allowed to merge has been heated since 1998, when the federal government created the ban on mergers. At the time, the move was viewed as a safeguard against creating a banking industry that could be potentially dominated by two or three players, instead of six.

One of the things the competition review panel is looking at is whether the current competition regime offers a net benefit to Canadians. The CBA doesn’t think it does.

The CBA argues that the no-merger rule is antiquated and “out of step” with the realities of today’s competition, which is as much global as it is domestic. By hindering the option of consolidation, the CBA says, the federal government limits the ability of Canada’s large banks to compete on a global scale. Since the large banks are among the country’s largest employers and the majority of the earnings and corporate taxes are spent in Canada, the CBA claims it is in the interest of the Canadian economy to safeguard the global standing of the banks.

“It is important to remember that the banking industry’s ability to be strong players internationally has a very positive impact on the contributions the industry makes to Canada,” said Nancy Hughes Anthony, the CBA’s president and CEO. “While Canada’s banks make 41% of their profits from foreign activities, 81% of the jobs and 80% of the taxes paid are here in this country, benefiting all Canadians.”

She added, “Any review of competition policy must be conducted through a wider international lens and not through a domestic filter alone. This is how we will achieve a competitive advantage for Canada — one that benefits all Canadians by creating quality jobs, attracting investment and talent, encouraging innovation and building a strong tax base to support our social programs.”

The CBA’s submissions also provide wording that could provide the basis for re-examining whether bank branches should be allowed to promote life insurance.

“A key example in Canada of politically driven decisions that inhibit both competition and customer choice is the continuing restriction on in-branch involvement in most types of insurance by the banks,” the CBA writes. “Canada remains an outlier in modern financial systems in its prohibition of not only in-branch sales insurance but of any in-branch promotion of insurance products or referrals to qualified insurance professionals, to the detriment of the Canadian consumer.”

A media representative for the CBA issued a statement to Advisor.ca stating that the panel must determine if it’s an issue it wants to address.

“We know the government has indicated that this issue is not a priority for them at this time, but we have always said that we were very disappointed by the decision and that there are good public policy reasons why banks should be allowed to promote their insurance products in branches,” the CBA said.

If the panel does address the issue, it would still be up to the federal government to make the changes, and even if it was in the banks’ corner, the banks would have to contend with a Supreme Court decision from last May that makes banks subject to provincial insurance regulations.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com