Feds call for greater transparency, efficiency

The federal minister of finance is calling a more investor-friendly financial services industry, with increased legislative and regulatory efficiency and a more adaptable framework.

“The proposed recommendations will go a long way towards eliminating red tape, improving disclosure to consumers and fostering a strong and dynamic financial sector,” said Jim Flaherty, Minister of Finance. “Proposals will also allow new technology to benefit consumers and small businesses through reduced maximum holding periods for cheques.”

The white paper, entitled 2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework, provides a general overview of legislation which the government will table in the fall. Flaherty also extended the deadline for parliament to deal with statutes governing the industry, from October 24, 2006, to April 24, 2007.

Among the proposals, the white paper calls for improved disclosure to consumers on deposit products, including information on returns, the term of the product and any penalties for early withdrawal.

“The Government proposes to amend financial institutions legislation to explicitly require the disclosure of fees in respect of deposit-type registered plans offered by federally regulated financial institutions,” the paper reads. “This decision will assist customers to make informed decisions about their deposit-type registered plans.”

Under the proposed framework disclosure requirements for in-branch and online transactions would be harmonized. The government wants to amend the Bank Act to give itself the authority to regulate cheque hold periods, cutting the maximum hold period immediately to seven days and reducing it to four days once electronic cheque imaging comes into effect.

“The Government proposes to amend the Bills of Exchange Act to provide an enabling framework for the introduction of electronic cheque imaging by allowing financial institutions to use electronic cheque images in the cheque clearing system,” the white paper says.

Another proposal will increase ownership thresholds set in 2001 under the Bank Act, which currently allows for a $5 billion equity stake to be held for large banks and $1 billion equity stakes for small banks. The new limits will reflect the increased value of the Canadian banking sector. The equity limit on large bank ownership will rise to $8 billion, while that of small banks, trust and loan companies, and insurance companies will increase to $2 billion.

Another recommendation looks to decrease the mortgage down payment consumers are required to make before the law requires the purchase of mortgage insurance. Currently, homebuyers must offer a 25% down payment to avoid CMHC insurance fees. Under the new proposals, they would only need to pre-pay 20% of the cost of their home.

In the credit union sector, which includes Caisses populaires, the government proposes reducing the number of credit unions required to form an association to just two from 10. Credit union associations which are not accepting retail deposits will also be allowed to opt out of deposit insurance, which is currently mandatory.

The government is soliciting comment from consumers and the industry, which should be forwarded to the Department of Finance by July 21, 2006.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com