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 Canada.

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 markets.

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.