Good afternoon. My name is Marina Mandal and I am Senior Legal Counsel with the Canadian
Bankers Association (CBA). I am joined today by Ken Thorlakson, Vice-President and Associate
General Counsel with Scotiabank. We are very pleased to be here today at the Committee’s
invitation to discuss Bill C-31, and in particular Division 13 of Part VI, which contains provisions to
amend the Bank Act to give the Department of Finance regulation-making authority over derivatives
and financial benchmarks.
The CBA works on behalf of 60 domestic banks, foreign bank subsidiaries and foreign bank
branches operating in Canada and their 275,000 employees.
In Budget 2014, the Government announced its intention to amend the Bank Act to create an
explicit regulation-making authority for banks regarding over-the-counter derivatives. The CBA
strongly supports the proposed amendments to the Bank Act to make clear that the federal
government has the authority to regulate OTC derivatives transactions where a bank is a
counterparty. Derivatives play a significant role in the economy by allowing businesses to manage
and hedge risk. In the banking context, derivatives allow banks to manage their exposure to credit
risk, which helps them expand their lending and investment capabilities.
Risk management is overseen by the Office of the Superintendent of Financial Institutions as the
banks’ prudential regulator. OSFI has always been responsible for the oversight of bank
derivatives activities, as part of its mandate to ensure the safety and soundness of Canadian banks.
OSFI also has always had the ability to access data regarding derivatives transactions that
Canadian banks enter into with foreign counterparts. In that sense, the derivatives businesses of
Canadian banks have always been subject to oversight and regulation.
Transactions in OTC derivatives take place between highly sophisticated, well-capitalized parties,
including financial institutions and other large corporations. It is important to note that there is no
retail market for OTC derivatives. Canada’s five largest banks operate in these markets globally
and they are the counterparties to over 95% of the OTC derivatives transactions that take place in
In 2009, the G20 countries committed to improving transparency and reducing systemic risk in the
global OTC derivatives market by requiring contracts to be traded on exchanges or electronic
trading platform and cleared through central counterparties. All derivatives trades were to be
reported to trade repositories to which regulators would have access, and non-centrally cleared
derivatives trades would be subject to higher capital requirements. Since 2009, all major G20
jurisdictions have made significant progress in implementing regulatory reforms of OTC derivatives
Since 2009, OSFI has been working with a number of other Canadian regulators to develop a
Canadian regulatory structure that will meet the G20 commitments. Furthermore, in addition to
other guidance provided to banks, we understand that OSFI will be issuing in the near future
revised guidance for the banks’ derivatives businesses. OSFI has also been working with the U.S.
and other foreign regulators on harmonization of cross-border rules. This is necessary to ensure
that the Canadian banks that transact in derivatives on a global basis are able to rely on Canadian
rules rather than having to comply with various, often conflicting rules in multiple jurisdictions.
As you know, Division 13 of Part VI in Bill C-31 also proposes amendments to the Bank Act that
gives the federal government regulation-making authority in respect of banks’ activities relating to
financial benchmarks. Although the CBA did not advocate for this amendment, we have no
concerns and the banking industry is looking forward to working with OSFI as it carries out its new
mandate to oversee the setting of financial benchmarks in Canada.
We look forward to your questions. Thank you.