The Future Of Banking Canadian Essay Research — страница 2

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should be rigorously tested, Questions include whether the sector is now so international that we can accept international competition as a sufficient discipline in the Canadian domestic market. Also, are there market segments where the benefits of competition are less available because customers are uninformed? Similarly, we must test the adequacy of disclosure, both at the level of the institution itself and at the level of the products that it sells. Disclosure has costs, and the trade-off must be assessed between the benefits that disclosure provides and the extent of those costs. Since our terms of reference identify a number of specific objectives that should be served by the financial services sector, analysis is appropriate as to whether the sector is as responsive as it

should be to these various objectives. Specific questions in this connection are what policies might be adopted that would further encourage financial institutions to retain jobs in Canada; whether the institutions perform adequately in the creation of employment through the financing of other businesses; and whether there are segments of international financial markets where Canadian institutions (perhaps on a co-ordinated basis with government) could attract a significant market share. The distribution of financial products is being increasingly affected by technological developments. Responding principally to consumer protection concerns, a variety of rules surrounds the distribution process. More generally, is the sector adapting to technology to the extent that it should?

The discussion paper notes the vast expansion in the size of pooled funds (mutual funds, pension funds and segregated funds of life insurance policies) and inquires whether there are aspects of their operations on which recommendations would be appropriate. Specifically, has their growth created risk for the Canadian system, and are they contributing to the extent that might reasonably be expected to the development of entrepreneurial and knowledge-based businesses in Canada? The regulatory regime designed to mitigate potential impact of conflicts of interest is canvassed. The Task Force will consider whether the existing rules (including the Bill C-82 changes) are adequate to deal with the potential for transactions or decisions of financial institutions being, or perceived to

be, affected by non-arm’s length relationships, by the fact that the institution has various profit centres with disparate interests or by other conflicts or appearances of conflict. Throughout our work in this area, the Task Force will be cognisant that unregulated financial institutions compete with the regulated financial institutions across substantial segments of their business. On a functional analysis basis, it may be difficult to support the application of regulations dealing with various issues to regulated institutions, while not applying corresponding regulations to unregulated institutions. Of course, it must be recognised that it is the entity to which regulations are applied, rather than the function; prudential considerations may dictate the difference. Comments

on the treatment of unregulated financial institutions would be welcome. The “upstream” ownership rules affect Schedule I banks and would affect a large demutualized life insurance company. They dictate that no one investor may hold more than 10 per cent of any class of shares of the particular institution. This means that a take-over bid for such an institution is not possible. It means that such an institution cannot be owned by a holding company that might also control corporations engaged in unregulated or less-regulated activities. The application of the upstream ownership rules to Schedule I banks has important implications for competition and also for Canadian management of the banks: while the rules do not restrict the extent to which non-Canadians may own these

institutions, they do preclude the acquisition of effective control since associated investors may not own in excess of 10 per cent. One of the principal motivators for these rules is concern with commercial links and outside control of major financial institutions. Among the issues to be considered is whether the rules regarding domestically-owned Schedule II banks constitute an undue barrier to entry into the banking industry. Should the historic Canadian attitude that bank charters ought to be granted only sparingly be modified as one way to enhance the equality of regulatory treatment, and to provide the opportunity for increased competition? There are “downstream” ownership rules that affect not only banks and life insurance companies, but also other federally-regulated