D. Bank Act Reform

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 27-32

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The current Bank Act is the outcome not only of almost 150 years of banking legislation in Canada but more especially of "a mound of research studies, discussion papers and committee reports"²¹of the past quarter-century, in which the policies underlying the legislation are debated. The modern starting point is the federal government’s 1975 White Paper on the Revision of Canadian Banking Legislation,²²on which the 1980 Bank Act was based. The 1980 Act is considered to be the first "modern" Act because it incorporated significant changes that have

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been developed in subsequent Acts, including expanding the scope of banking business beyond deposits and cheques to such activities as residential mortgages, credit cards, and computerized services; assimilating the corporate governance of banks with the corporate governance of business corporations in the CBCA; and permitting foreign banks, for the first time, to operate in Canada legally.

After 1980, a series of reports and studies²³appeared in preparation for the next decennial review and in light of the significant changes taking place within the financial institutions sector domestically and internationally. One of the most important of these changes was the move toward universal banking, whereby a single financial institution would be permitted to offer banking, investment, and insurance services and products through a holding company and subsidiary network. The Second Banking Directive²⁴permitted E.U. banks to move toward universal banking, which has operated successfully in Germany for several centuries, and in Canada the four pillars segregation of financial services was increasingly questioned by banks, trust companies, securities dealers, and insurers, each of which had their own versions of how a universal financial institutions sector might be shaped.

The outcome of a decade of study were the four acts²⁵regulating the sector enacted as a package in 1991 and coming into force on 1 June 1992. The Bank Act, 1991, continued in the direction of the 1980 Act, including permitting banks to diversify financial services through financial institution subsidiaries such as trust and insurance subsidi-

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aries; expanding bank in-house powers, such as extended lending powers, portfolio management, and giving investment advice; permitting banks to network services such as credit cards, Interac, or related goods and services; permitting banks to have limited ownership of shares in non-financial institutions; and reconfiguring how foreign banks may operate.²⁶

While the 1991 Act recognized the new forces at work in the financial institutions sector, including the globalization of commerce, computerization, and the introduction of new banking services, it adopted a cautious approach, necessitating more study in preparation for the legislative review in five years. The conclusion of that review²⁷was that the general framework established in 1980 and 1991 continued to work well, so that the 1997 Act²⁸amendments were minor. These adjustments included fine-tuning the corporate governance provisions, strengthening consumer protection by such additions as privacy safeguards for consumer information, disclosure of the costs of banking services, and protection against abuses in tied selling; and easing of some regulatory burdens by permitting banks to provide services through subsidiaries, streamlining self-dealing provisions, and modifying the foreign banks’ entry requirements.

The most important outcome of the financial services sector review prior to the 1997 amendments was the decision by the Minister of Finance to appoint a task force²⁹to undertake a...