Mark R. Daniels
Chair, Financial Services Council of Canada and President and CEO, Canadian Life and Health Insurance Association
FINANCIAL SERVICES COUNCIL OF CANADA
Chairman: Ann Curran
President, The Empire Club of Canada
Head Table Guests
C. Alexander Squires, Managing Partner, Brant Securities Limited and Secretary, The Empire Club of Canada; Liam Churchill, OAC Student, North Toronto Collegiate Institute and Vice-President, Student Council; Rabbi Perry Cohen, Facilitator, Teacher and Author; Larry Waite, COO, Mutual Fund Dealers Association of Canada; Michael Lauber, Ombudsman and CEO, Ombudsman for Banking Services and Investments; The Hon. Thomas Hockin, PC, President and CEO, The Investment Funds Institute of Canada and Director, The Empire Club of Canada; Peggy-Ann Brown, Chair, Board of Directors and Ombudsman for Banking Services and Investments; Raymond J. Protti, President and CEO, Canadian Bankers Association; and Judy Goldring, Senior Vice-President and General Counsel, AGE Management Limited.
Introduction by Ann Curran
Mark Daniels has been the President of the Canadian Life and Health Insurance Association Inc. (CLHIA) since August 1989. This association represents 75 life and health insurance companies which account for 99 per cent of the life and health insurance in Canada.
Prior to joining the Canadian Life and Health Insurance Association. Mr. Daniels served as Vice-Chairman and later Chairman and Chief Executive Officer of Public Affairs International (PAI), an Ottawa-based consulting firm.
Before this Mr. Daniels spend 16 progressive years in the federal public service in Ottawa. He joined the government in 1971 as a Director in the Planning Branch of the Treasury Board He served with the Department of Regional Economic Expansion as Assistant Deputy Minister from 1973 to 1979; and with the Privy Council Office, as Senior Assistant Secretary to the Cabinet (Economic Policy) from 1979 to 1981. He was Assistant Deputy Minister, Economic Programs and Government Finance in the Department of Finance from 1981 to 1982; Deputy Minister of Labour from 1982 to 1985; and Deputy Minister of Consumer and Corporate Affairs from 1985 to 1987.
Mr. Daniels was Assistant Professor of Economics at McGill University in 1965, and at Brown University from 1966 to 1971. During his time at Brown, he also served a year as an Economic Policy Fellow at the Brookings Institute in Washington, D.C.
Mr. Daniels is a member of the Advisory Council, Faculty of Commerce and Business Administration of the University of British Columbia and is a member of the Board of Directors of the National Aboriginal Achievement Foundation.
Mr. Daniels was born in Vancouver, British Columbia. He received a Bachelor of Commerce degree from the University of British Columbia in 1961 and a PhD from Johns Hopkins University in 1966.
Early this year, Mr. Daniels became the inaugural Chair of the Financial Services Council of Canada. The council is a group of five major trade associations representing most of the financial-services industry in Canada. The council is primarily aimed at better co-ordinating work on legislative, regulatory and policy issues of common interest to the industry.
As chair of the council, Mark Daniels will discuss the work of the council, its background and more importantly, what might be expected from it in the years immediately ahead.
Without further ado I give you Mr. Mark Daniels.
Good afternoon. I have been looking forward to the opportunity to speak in a forum like this about the Financial Services Council of Canada. The council is, I believe, a timely and useful initiative on the part of the sponsoring industry associations. It is also an initiative that can have an important, positive impact on the operating environment for the financial-services industry in Canada. Those impacts, I believe, can help better secure the future of the financial-services industry in this country.
I have to say that I am pleased to see this audience here today. The problem is that the title of the address is so bloodless I was worried that I would not have a group larger than my immediate colleagues whom I could at least try and bully into coming. For the rest of you, thank you very much for being here.
In the time I have available today I want to do three things. First, to say a few words about the council itself: what it is, and what are its origins. Second, I want to speak briefly about its most important initiative to date. Since that initiative is about to be formally launched, it is a timely opportunity for a status report, if not a commercial. Third, I want to look ahead and speak from a personal point of view on where I believe the council must direct its efforts in the future. The stakes for the financial-services industry in Canada in the period ahead are high and I think the council can make an important contribution to helping secure the future of our industry.
The Financial Services Council of Canada: Its Origins and Mandate
Turning first to the origins of the council and its mandate, industry players in this audience will be acutely aware that the last decade or so has witnessed a period of extraordinary change in the financial-services industry worldwide. That change has been ushered in by a number of factors that have essentially reshaped the industry. I think most observers would agree that central to all those elements driving change have been four principal factors: (1) Technology and the accompanying revolution in communications;
(2) Demographic changes and the new consumer; (3) Wide-ranging and rapid regulatory reform; and (4) The emergence of a global marketplace.
Flowing from these forces of change, most of us looking at various components of the financial-services industry in Canada would have seen the emergence of three defining trends characterizing today's industry. First, continuing consolidation and integration among the players. Second, a new emphasis on market conduct and marketplace relations. And third, a new functional emphasis in regulation. These trends together have had a great deal to do with defining the landscape not only in which individual financial-services companies operate but, perhaps more importantly, the industries themselves. It is, of course, this latter industry landscape that defines the domain in which those of us who deal with matters of collective interest to the various players--that is, the industry associations--tend to operate.
The simple fact is that up until the last few years each industry agenda--the agenda relevant to banks, insurers and so on--tended to be more or less industry-focused and somewhat independent from the other parts of the financial-services business taken together. In the case of my own industry, life and health insurers, for example, the main focus throughout most of the 1990s was on our own interests in several major federal legislative packages, some serious company insolvencies, consumer protection and demutualization. To be sure, issues like taxation were points of common interest but, by and large, our general concerns did not much intersect with the other, so-called, traditional pillars of the financial-services industry.
In the latter part of the last decade, as the trends I spoke about a moment ago took hold, a lot of this changed. Through consolidation and integration many of the major players found themselves operating in most major segments of the financial-services business. The traditional four pillars had melted away, at least for those companies interested in promoting economies of scale and scope. Even more importantly, the new focus on marketplace issues brought us all far closer to a common set of problems centering around things like privacy, licensing, regulatory compliance, consumer protection and so on. Moreover, the emerging focus on functional regulation--itself a product of consolidation and integration among the regulated industries--led to another developing set of common interests.
So the reality was that the various associations representing the different industry groups operating broadly under the label of the "financial-services industry" found themselves more and more frequently working on an increasingly common set of issues. That fact alone, coupled with the fiscal circumstances facing each of the associations, spoke eloquently of the need to find more effective ways to use our joint resources in the collective interests of the member companies who pay our bills.
Clearly, each of we association heads were looking at various versions of this same story and early in the summer of 2001 we got together for a private dinner to talk about the prospects for a more formal alliance. That dinner and several subsequent ones like it--along with some background work we commissioned--put in place the required documentation to scope out what a group might look like.
On February 18 of this year, about eight months after we first started our discussions, we announced the formation of the Financial Services Council of Canada to better co-ordinate our efforts on legislative, regulatory and policy issues in which we have a common interest.
The members of the council are Stan Griffin, President and Chief Executive Officer, Insurance Bureau of Canada, Thomas Hockin, President and Chief Executive Officer, The Investment Funds Institute of Canada, Joseph Oliver, President and Chief Executive Officer, Investment Dealers Association of Canada, and Raymond Protti, President and Chief Executive Officer, The Canadian Bankers Association. In addition, we have issued an invitation to Joanne De Laurentiis, President and Chief Executive Officer, Credit Union Central of Canada, and in due course we hope to have the credit unions as part of the group. Joanne is always invited to join our deliberations when she can. Right now we meet formally about every three months.
The First Project: A Single Window Dispute Resolution System for Financial-Services Consumers Let me now turn to talk about our first major project. In this case, the cart and the horse were moving along side-by-side. Around the time that the council was first being considered in the late spring of 2001, Bill C-8, An Act to Create the Financial Consumer Agency of Canada and to amend certain acts in relation to financial institutions, was working its way through Parliament. Royal Assent occurred on June 14, 2001 and the act came into force on October 24, 2001. It is said that C-8 was the second-longest bill in Canadian history. Over 950 pages, as I recall, and it emerged as the last major piece of three defining pieces of financial-services legislation to emerge from Ottawa in the 1990s. In part, this last leg on the stool was to be cast as the "consumers' round" aimed at dealing with a number of important consumer issues which were not addressed in the previous two bills.
Among many important provisions, C-8 proposed the establishment of a Canadian Financial Services Ombudsman (CFSO). In fact, the law actually required all federally chartered financial-services companies to
belong to an approved, independent third-party dispute-resolution system and invited companies to join the CFSO. The banks would be required to become members of the CFSO.
At the time, of course, the Canadian Banking Ombudsman had been successfully running for five or six years. In effect, its activities would be taken over by the CFSO. The rest of us had something of a patchwork of dispute-resolution mechanisms in operation. But the one thing we all have in common is that our primary market regulators are the provinces, not the federal government.
Three things were abundantly clear at the time. One: All of us would have to, by law, belong to an approved, independent third-party dispute-resolution program. Two: Whatever that program turned out to be, the companies would pay for it directly through increased assessments. And three: If this became a federal/provincial jurisdictional battle, we would likely end up with a disparate collection of new federal and provincial institutions, each with a different set of rules, regulations and expectations.
To add another dimension to the debate, at about the same time the Joint Forum of Financial Market Regulators, an inter-provincial co-ordinating body composed of securities, insurance and pension regulators, proposed the establishment of a single, national financial-services dispute-resolution program. It looked much like the CFSO to us but seemed to offer better prospects for avoiding a competing (if not conflicted) collection of institutions.
Among the industry groups, the banks had the most established dispute-resolution program--the CBO--and it also seemed to most closely meet the general criteria for the kind of service that was being broadly described by both levels of government. My organization, the CLHIA, also had an experienced OmbudService in place that went a considerable distance toward meeting the public-policy objectives as we understood them.
The IBC, the property and casualty insurers, which had a regionally based system dealing with auto insurance that had been working for some time in cooperation with provincial governments and the IDA, the investment dealers, had an arbitration program.
What we did not have, of course, was a common point of access. If a consumer knew where to go, they could get help but, if not, there was certainly no single portal where one could access the system generally. Moreover, each of us had a different system partly, we said, because the nature of the disputes we dealt with was different. But it was also true that we did not provide our services in accord with a common set of standards, something the governments involved all wanted to see, the point being that a financial-services consumer having a complaint ought to be able to have it handled in the same general way no matter what product they were dealing with.
In the event, the industry associations all agreed to be part of a Joint Forum Task Force to see if there was any way we could put together a national dispute-resolution system. Federal government representatives also sat as observers on the Task Force. Things moved along rather slowly through the spring of 2001 and finally the industry representatives formed a Working Group of our own to see if we could forge a proposal acceptable to both levels of government.
It was clear to the industry people involved that the status quo was not an option. Either we found a way to put an acceptable industry-sponsored plan together or we would face a grab-bag of competing government systems about which we would have nothing to say and all of which we would pay for. More importantly, it was hard to see how consumers--our customers--would fare with such a government-sponsored alternative.
After a fair bit of discussion through the summer of 2001, the industry associations were able to put together a proposal that would come to be called the National
Financial Services OmbudsNetwork (FSON). Each industry group would sponsor its own independent dispute-resolution service offering a comparable level of service to consumers, both French-speaking and English-speaking, whose complaints were not satisfactorily addressed by the particular company with which they had a problem. Each independent dispute-resolution service would be linked together under the Centre for the FSON, an umbrella organization with its own independent Board of Directors responsible for providing a central contact point (that is, 800 numbers, Web sites and so forth), establishing and maintaining standards, undertaking awareness--raising among financial-services consumers and providing reports on the operation and performance of the overall system.
Government representatives at both the federal and provincial level agreed to give this proposal a try and to postpone the establishment of any competing government systems pending a review of FSON performance after a reasonable period of time. The original announcement establishing the Financial Services OmbudsNetwork was made almost exactly a year ago today. All the individual industry dispute-resolution services are now up and running. They are the Ombudsman for Banking Services and Investments, the Canadian Life and Health Insurance OmbudService and the General Insurance Ombudsman.
I am pleased to say that in the next week or so the Centre for the FSON will be open for business. When that happens, this important and unique new service will be officially in business.
I should make one last point about the OmbudsNetwork. All of us are committed to making this system work for the benefit of Canadian consumers. It may well be that, down the road, we can integrate each of the individual industry mechanisms into a single, independent administrative unit. That is certainly where the governments involved would like us to get. So would we!
As we develop experience with the new systems we expect to be able to get there.
The Way Ahead
Let me turn now and talk about the future of the council itself. As is clear from my remarks, we actually undertook our first major project, the Financial Services OmbudsNetwork, even as we were putting in place the formalities to launch the council. Now that the FSON is a reality, what is next?
I do not propose here to outline a list of specific projects we might have at hand. What is relevant, however, is that all our discussions centre on the importance of rationalizing and simplifying the regulatory environment for Canadian financial-services providers. This goes well beyond the usual co-ordination and harmonization efforts, although we certainly are continuing to undertake various projects of this kind right across the country. Most of them, of course, are along traditional industry lines and deal with our particular sectors. Needless to say, that sort of endeavour is the bread and butter of the association business, at least as it has been historically practised.
But beyond that, a new realization has occurred among many practitioners that the overall regulatory environment must be addressed as part of a broad approach to ensuring Canada can keep a vital, independent financial-services industry in an increasingly integrated North American market.
I should say that the ground I am moving into now is my own in the sense that I do not want to implicate my colleagues on the council in any specific comments I make. We all have views on these issues and there is certainly no council position per se.
Just in the last few days we have seen a continuation of the chorus of industry observers advocating the need for a country-wide approach to the regulation of the financial-services industry. My colleague Ray Protti spoke along just these lines at a major event in Ottawa on Tuesday. Harold MacKay has now completed his report for the federal minister of finance on an approach to putting in place a national securities regulatory system. David Brown, Chairman of the Ontario Securities Commission, has spoken along similar lines as well. And the list goes on.
As far as I can tell, there is no consensus emerging on how to effect a rationalization of our regulatory system but there certainly is a consensus that something has to be done. In my experience, the regulators themselves feel that way too, at least for the most part, and are themselves looking for ways to improve the efficiency and the effectiveness of the current system.
I am certainly part of that chorus of observers calling for a rationalized and simplified approach to the regulation of the financial-services industry in Canada. I also have a slightly different take on the issue and in the few minutes remaining to me I would like to talk about it.
My starting point is that the stakes in this game are very high. A necessary condition to ensuring the long-run viability of an independent Canadian-based financial-services industry depends upon timely action to put in place a fully integrated, country-wide, financial-services regulatory network. This would not be a federal or a provincial body but rather a national authority--a network really--with responsibility for prudential and marketplace relations.
So how to get started? A few months ago, just about the time I was asked to speak here about the council, I attended a luncheon address to pension administrators by Ed Clark, President and COO of the TD Bank Financial Group. Part of the focus of Ed's remarks had him address two questions:
First: Should Canada be concerned about the potential migration of their financial-services industries toward major United States'centres?
And second: Will Canadian cities have trouble holding on to existing headquarters jobs in the face of stiff competition from major United States and international players?
His answer to both questions was "yes," and he went on to outline what needed to be done to deal with the situation. A key part of what Ed Clark had to say lay in the importance of the private sector in taking the lead in dealing with the circumstances he envisaged in the answer to those two questions. He went on to say: "In the end though, we in the private sector have to stop saying that all the issues are government issues--because they are not." Once government has created the right environment, once it makes sure that our fiscal house is in order, that we are investing in the future, that we have the right incentive system to reward people and a tax system that doesn't punish innovation, then it's up to the private sector to take the lead.
I could not agree more with that analysis. But it does make clear that there is an important role for government in getting the "environment" right and that environment certainly includes the difficult and costly regulatory climate in which we increasingly find ourselves operating.
The only twist I would put on Mr. Clark's point is that I think it is going to be necessary for financial-services industry leaders--the major company leaders--to get the governments clearly moving along the path of reform.
I should say here that I do not think that the place to start this important process is with an attempt to forge a national securities regulator. In fact, that is the wrong target. The right target in my view is, as I have already said, to put in place a fully integrated, country-wide, financial-services regulatory network right from the get-go. This network should cover all institutions in the financial-services industry: banks, insurers, investment dealers, mutual funds and credit unions. And it should cover consumer protection, dispute resolution and redress, compliance, licensing, market conduct, discipline, capital
adequacy and prudential standards--basically all the regulatory functions currently flowing to OSFI and 13 provincial and territorial regulators.
This may look like a daunting task--indeed, it is--but much of the machinery to start the job exists. For example, for all intents and purposes we have a single, national prudential regulator already in OSFI, the Office of the Superintendent of Financial Institutions. Moreover, there is an important, functioning national network of provincial regulators in the CSA, CCIR and CAPSA--the national associations of securities, insurance and pension regulators. These organizations, as I discussed earlier, are already loosely wired together under the aegis of the Joint Forum of Financial Market Regulators. The fact is the Joint Forum, with virtually no political backing and not a whole lot of support from industry, is moving right now to address some of the issues which need simplifying and rationalizing. I can certainly point to the Financial Services OmbudsNetwork as one example of the kind of leadership offered by the regulators themselves. There are others.
You see here, I know, the well-worn hand of a committed incrementalist but in many respects what will work best is to build on the institutional network we already have. Many critics look at the sheer number of financial-services regulators we have in Canada and say that is the place to start. The Financial Services Authority in the U.K. published a study of several countries for the year 2000 in which they noted that they employ only 2,765 people to regulate a financial-services sector four times the size of Canada's. By contrast we employ 3,780 people in our system and both systems cost about the same amount--just under C$500 million annually.
Interestingly enough, most practitioners I talk to worry a great deal less about the direct cost of the regulators than they do about the costs of complying with the regulatory system itself. Here is where the work should begin and urgently.
So my own preference is to start with the building blocks we already have in place. The immediate task is to find an appropriate political and governance overlay to link these institutions formally together. Once that is done, I would begin with a series of specific projects aimed at dealing immediately with areas where compliance costs are highest. In fact, I would start with data reporting and move quickly to a single system from which all jurisdictions could draw the information they need, rather than having individual institutions reporting separately to individual jurisdictions.
My own expectation for the council in the period ahead is that we will find ourselves increasingly drawn into the process of helping simplify and rationalize our current regulatory system. To the extent that business and government leaders push this process forward in ways such as I have outlined or, indeed, in other ways, the council will find its work cut out for it.
In the limit, we may find a few years down the road as we face a more integrated regulatory system, that the financial-services industry itself no longer needs individual industry associations. Indeed, I can see a day when the council embraces the organizations that currently make it up and becomes, itself, the Canadian Financial Services Association. Frankly, I think that will be a pretty good idea in the right circumstances and it may serve as an appropriate touchstone moving forward.
The appreciation of the meeting was expressed by The Hon. Thomas Hockin, PC, President and CEO, The Investment Funds Institute of Canada and Director, The Empire Club of Canada.