Re: Bill C-21: An Act to Control the Administrative Burden that Regulations Impose on Businesses.

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Arabella Baker
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1 Monday, March Clerk of the Senate Standing Committee on National Finance Standing Senate Committee on National Finance The Senate of Canada Ottawa, Ontario Canada, K1A 0A4 Re: Bill C-21: An Act to Control the Administrative Burden that Regulations Impose on Businesses. Dear Ms. Turner, Please find attached Credit Union Central of Canada s submission in relation to Bill C-21. Credit Union Central of Canada sincerely hopes that Committee members will obtain some benefit from consideration of this submission as it reviews C-21. If you have any questions please contact me at x Regards, Rob Martin Senior Policy Advisor Credit Union Central of Canada x2327

2 Submission to the Senate Standing Committee on National Finance Bill C-21: An Act to Control the Administrative Burden that Regulations Impose on Businesses. March, 2015

3 Table of Contents Introduction 1 C-21 and the Regulatory Burden on Credit Unions 1 The Small Business Lens 2 Conclusion 3 All the information contained in this submission is provided "as is". Credit Union Central of Canada disclaims all warranties with regard to this information, including all implied warranties of merchantability and fitness for a particular purpose. Some of the information may be sample business documents, the suitability of which for the reader may depend on a number of factors, such as the current state of the law governing the reader's business, the reader's writing style, and the needs and preferences of the reader. Such sample documents may need to be modified to correspond to current local applicable law and practice and the advice of the reader's legal counsel and business advisors in the specific situation for which their use is intended. In no event shall Credit Union Central of Canada be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortuous action, arising out of or in connection with the use of any of the information in this document. The information contained in this document could contain technical inaccuracies or typographical errors. Credit Union Central of Canada reserves the right to make changes to any information contained within this document to make improvements and or changes in the services, programs and recommended business practices described in this document at any time and without notice.

4 INTRODUCTION Credit Union Central of Canada is writing the Senate Standing Committee on National Finance to express our support for Bill C-21: An Act to Control the Administrative Burden that Regulations Impose on Businesses. Credit Union Central of Canada is the national trade association for 315 credit unions operating outside of Quebec. Credit unions are financial cooperatives that are owned by their members. These credit unions provide banking services to the 5.3 million Canadians that are member/owners through 1746 credit union locations. These members help guide the evolution of their credit unions and exercise control over their institutions on a one member, one vote basis. Collectively, credit unions outside Quebec hold over $168 billion in assets and employ over 27,000 Canadians. They have strong relations with Canadian communities and do not embrace a short-term profits focus, but instead stay invested in communities when competitors leave. In fact, credit unions operate in 380 communities where there is no other physical banking presence. Credit unions also support small business. The annual Canadian Federation of Independent Business (CFIB) banking survey data shows that small businesses consistently rank credit unions the highest among financial institutions for service excellence, a sentiment that has given credit unions and caisses populaires combined the second highest share of small business lending in Canada at 18.6 percent. Also according to the CFIB data, credit unions are especially strong on fees, financing rates, and tenure of loan officers, all of which contribute to a favourable customer experience and help build a successful partnership with entrepreneurs. This affinity for small business derives, in part, from the fact that credit unions are the small businesses of the retail Canadian financial services marketplace. Vancity, the largest credit union in Canada, has assets of approximately $17.5 billion a large amount no doubt, but one that is many times smaller than the assets held by Canada s large chartered banks. The vast majority of credit unions are, however, much smaller than Vancity and have assets in the tens, or hundreds, of millions of dollars. C-21 and the Regulatory Burden on Credit Unions Canadian Central appreciates the federal government s policy measures aimed at addressing the amount of regulatory burden borne by business in Canada and we wish to signal our strong support for Bill C-21. When passed, C-21 will impose a One-for-One regulatory rule on the activities of the federal bureaucracy. More specifically, the new rule will require that every new federal regulation or administrative burden be matched by amendments to, or repeal of, other regulations to offset the cost of that new compliance burden. Credit unions welcome this initiative because in recent years the credit union system has faced vastly increased regulatory requirements. A recent analysis by the Filene Institute 1 indicates that the number of credit union full-time equivalents (FTEs) devoted to regulatory compliance 1 Giovanni Ferri and Panu Kalmi (2014) Only Up: Regulatory Burden and Its Effects on Credit Unions, Filene Institute. Filene Institute. 1

5 increased by 94 percent between 2007 and This rapidly increasing burden is, in part, the result of developments at the provincial level, but federal initiatives have also played a significant role in this regard, particularly in the area of Canada s anti-money-laundering and anti-terrorist financing (AML/ATF) compliance regime. Small credit unions in particular face a considerable challenge in trying to meet a growing list of compliance requirements with limited human and financial resources. It is, therefore, not inconceivable that at some point these obligations begin to impinge on the fundamental business purpose of the credit union: providing member/owners with the best financial services possible. In fact, the Filene Institute study also revealed that more than 80 percent of Canadian credit unions agree that increased regulatory burden is inhibiting product innovation. There is also mounting evidence that an ever-growing regulatory compliance burden is influencing mergers in the credit union system. As a result, we are strongly supportive of the implementation of a One-for-One rule. Of course, the effectiveness of any such rule will be dependent upon how rigorously it is applied. In this regard, we welcome efforts to conduct an inventory of regulations and administrative requirements across government, but caution that this cannot be a selective exercise all unavoidable government-related obligations must be included, not just a limited slate of administrative issues such as the ones considered by the Red Tape Commission. Furthermore, for this to be a truly meaningful bench-marking of the compliance burden carried by Canadian businesses, it should be conducted on a sectoral basis, as each industry segment has a different slate of government rules which it is required to obey and which contributes to the overall compliance burden carried by the businesses within it. And importantly, a periodic refreshment of these inventories should be carried out to not only validate the continuing significance of the elements included but also obtain a measure of the overall cost imposed on the economy by federal government regulation. Lastly, to ensure that the intent and spirit of the One-for-One rule is consistently met, it will be important for the federal government to develop internal guidance and administrative mechanisms that will effectively apply the Small Business Lens (SBL) policy framework across all government departments. The Small Business Lens The Small Business Lens (SBL) policy framework came into effect on February 1, 2012 and, in many respects, can be viewed as a companion piece to the One-for-One rule. The SBL policy suggests that regulators consider alternative approaches when a regulatory change will have disproportionate impact on businesses with fewer than 100 employees. It is of special significance because it recognizes that the application of the same regulations to businesses of vastly different sizes does not ensure a level competitive playing field, but rather favours larger institutions that have the compliance resources to readily accommodate regulatory requirements. This is particularly relevant to the credit union sector. As noted above, credit unions are the small businesses of the financial sector with 87 percent of them having fewer than 100 employees. Regulatory compliance is a non-productive expense and one that credit unions are unable to amortize over large client bases in the same manner as large banks. This gives large financial institutions greater economies of scale in relation to compliance and a competitive advantage over smaller competitors such as credit unions. 2

6 While the SBL policy holds out the promise of addressing this imbalance, it must be rigorously and consistently applied across government to be fair and effective. Regrettably, credit unions have not seen the benefits they hoped for with this policy. In particular, repeated lack of application of the policy 2, especially to internationally driven regulatory issues such as the AML/ATF obligations that credit unions view as their most burdensome, has been a source of long-standing frustration. A case in point are the new amendments to anti-money laundering (AML) regulations that came into force on February 1, The amendments introduce the concepts of a business relationship and on-going monitoring, that will require enterprise-wide transaction monitoring and entail new, and possibly onerous, recordkeeping and inquiry obligations, depending on the degree to which technologically-based AML solutions are utilized. For example, the introduction of the concept of a non-account based business relationship (NABBR) into the AML/ATF regulatory regime requires a financial institution to conduct a risk assessment on non-account holding clients; track transactions conducted for these clients in order to determine if, and when, a NABBR is established; and conduct on-going monitoring of the NABBR once it has been established. Significantly, these requirements are totally new and in addition to existing AML/ATF transaction tracking and reporting obligations. It is not difficult to see the considerable added compliance burden, and cost, the NABBR concept alone might place on a small financial institution, especially if it has to incur infrastructure development costs to deploy a technological solution to meet the new obligations. Yet, the Regulatory Impact Analysis Statement (RIAS) accompanying the new regulations put aside the SBL with the statement that the small business lens does not apply to this proposal, as there are insignificant costs to small business. CONCLUSION To conclude, credit unions support the federal government s efforts to reduce the regulatory burden faced by Canadian business. Canadian Central supports Bill C-21 because it will enshrine a One-for-One rule requiring regulators to offset administrative burden cost increases from new regulatory changes, with equal reductions to existing regulations. Application of a small business lens would highlight the burdens in terms of staff resources and costs that the reports and monitoring requirements of the regulations will create for small financial institutions and highlight issues that will hinder development of achievable and effective compliance programs. Without a disciplined and consistent approach to the application of these innovative and laudable policies they will be of little practical benefit. That being said, credit unions want to ensure the small business lens and the proposed Onefor-One rule are consistently and vigorously applied to all regulations affecting financial institutions, such as new anti-money laundering regulations. This can help ensure that small credit unions are not disadvantaged by a disproportionate regulatory burden and Canadians can continue to benefit from effective competition in the financial sector market place. 2. Canadian Central analysed a 3 month sample of recent regulations to gauge how often the SBL perspective is employed. The results can be found in the Appendix attached to this submission. 3

7 APPENDIX Small Business Lens Analysis Canadian Central analysed a total of 125 regulations that were published in Part II of the Canada Gazette 3 over a three month period of time from December 14, 2014 to March 11, The purpose of this analysis was to obtain a sense of how many times the small business lens (SBL) is applied to regulations. Unfortunately, our analysis revealed the SBL is not as consistently or frequently applied as might be expected. Although our analysis excluded regulations that could not be expected to attract an SBL it nonetheless revealed that the SBL assessment process was applied to only 5 percent of regulations analysed. Furthermore the SBL criterion was not at all considered for 39 percent of analysed regulations. Of the remaining regulations in which the SBL criteria was included in the regulatory impact analysis only 8.8% resulted in any adjustments to the regulation to reflect the SBL perspective. Many of these adjustments appeared minor. In short, the Government of Canada does not often implement the SBL assessment process and, often times, it does not include the SBL criterion as part of a regulatory impact analysis of a regulation. 3 The Canada Gazette Part II is a government newspaper that is published every second Wednesday and it contains all regulations that have been enacted as well as statutory instruments and other documents, such as orders in council. 4 The analysed regulations pertained to various sectors of government and were not exclusive to financial services sector regulations. 4

2017 Federal Pre-Budget Submission

2 2017 Federal Pre-Budget Submission Submitted to: House of Commons Standing Committee on Finance August 5, 2016 Introduction The Canadian Credit Union Association (CCUA) is pleased to participate in the