E. Financial Institutions Regulation Generally

• 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: 32-34

Page 32

The Bank Act is the centrepiece of financial institutions legislation in Canada because of the central role banks play in the national economy, as well as the psychological and symbolic presence they have in consumers’ minds.³⁷

But it is only one part of a complex maze of financial sector legislation in Canada reflecting the numerous and complex varieties of financial institutions in the country. The Constitution Act, 1867, provided that the federal government should have sole authority over the banking sector (sections 91(15) and (16)), yet in 1867 other financial institutions operated pursuant to colonial legislation and continue to do so pursuant to federal and provincial legislation.

Each province through its provincial finance ministry regulates all non-bank financial institutions operating within that province, including trust and loan companies, cooperatives, caisses populaires, insurance companies, pension plans, and treasury branches, as well as securities commissions, to regulate the issue and trading of shares, money market instruments, bonds, and exchange-traded derivatives. Non-bank financial institutions that operate across provincial boundaries are regulated by Parliament pursuant to section 91(2) and have been since 1867. In addition, numerous federally regulated non-bank financial institutions, including trust companies, loan companies, insurance companies, caisses populaires, and pension plans, operate pursuant to legislation parallel to the Bank Act.

Since the 1871 Act, banks have been denied the power to act as trustees or fiduciaries on the ground that a bank might face a conflict of interest between acting for a customer in managing funds as a trustee and acting for itself as a bank in making a profit from deposited funds. During the final quarter of the nineteenth century, trust companies expanded their fiduciary role but were concurrently prohibited from taking deposits, underwriting securities, or promoting insurance products. In the early twentieth century, they were allowed to take de-

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posits and lend on mortgages and thus began to grow into near banks, offering many of the same services as banks, in addition to fiduciary services. Meanwhile, banks have continued to be denied direct expansion into fiduciary activities.

During this period, because banks were prohibited from offering residential mortgages, a market vacuum was created, and this permitted the parallel development of loan companies...