Published: Saturday, October 10, 2009
Finance Minister Jim Flaherty appears to have been reading too many U.S. news stories about czars. We have auto czars, compensation czars, health czars. Mr. Flaherty seems to want to set himself up as Canada's bank czar. In a bizarre letter to Canada's chartered banks, he issued a heavy-handed directive to the banks telling them to "quickly adapt" their business practices and stop promoting insurance products on their websites.
The exercise of power in Ottawa is often mysterious, but it's pretty certain that Mr. Flaherty has no legal authority to tell the banks what to do. He's just demonstrating that, within most politicians, there lurks a latent petty Stalinist who, in certain circumstances, finds it expedient to engage in ad-hoc law making, stroke-of-the-pen dispensations of arbitrary authority, by issuing unilateral diktats. I diktat, therefore I am.
The banks are obviously acting within the law when they promote insurance products on their websites. To support their position, the banks can cite a formal ruling from the Office of the Superintendent of Financial Institutions, issued last June, which concluded: "OSFI concluded that, for purposes of the Regulations, a bank website is not a bank branch. As a result, a bank may, on its website, promote in Canada any insurance policies or any insurance companies, agents or brokers, subject to the conditions that the Regulations impose on such promotion outside a branch." (See OSFI ruling below)
Mr. Flaherty, in short, is telling the banks not to adhere to law and regulation. They are, strangely, being told to cease and desist from lawful behavior and, instead, do what the finance minister says they should do. "I would expect your institution to initiate steps quickly to adapt the business practices of banks to meet this policy objective," he told the banks.
The Tory policy objective here, as if anybody needed to be reminded, is to crumble in the face of the Insurance Brokers Association of Canada's prolonged, self-serving, relentless, decades-old campaign to protect themselves from competition from the banks. Protecting brokers was not part of the 2008 Tory platform, but it was in the 2006 platform. Maybe politicians should be held to account for their latest campaign promises, but not those of three elections ago.
The insurance brokers group knows no bounds. Via aggressive pestering, phoning, lobbying and pressure on Members of Parliament, bureaucrats, cabinet ministers and through the media, the insurance brokers have cowed the government and Mr. Flaherty. It's an unseemly capitulation to the brokers, who's legal and business arguments are little more than raw protectionism for brokers who are much in need of competition.
The brokers' position is that the banks could, among other things, engage in aggressive tied selling. This consumer protection canard was shot down back in 2006 by Mark Daniels, the former head of Canada's life and health insurance association, in a paper for the C.D. Howe Institute. He concluded there is no real case against the banks getting into insurance, aside from some easily cleaned-up regulatory issues. As an insurance man, Mr. Daniels should know. On the hoary issue of tied selling, a largely mythical threat to begin with, Mr. Daniels noted that there are now ample consumer protection laws on the books. The insurance industry itself is also now dominated by massive shareholder-controlled companies. There is room for competition between the banks and insurance over banking and insurance products.
Instead of putting the brokers' arguments that they need to be protected from the banks to public test and review, Mr. Flaherty arbitrarily declared in their favour. Mr. Flaherty may feel he has to do something in response to OSFI's ruling, even though he has no authority to interfere with the work of an independent regulatory agency. He cannot tell OSFI to change its ruling, and he has not changed the law on which the ruling is based.
Furthermore, it is the insurance brokers themselves who harangued OSFI last year and early this year, first pushing the agency to change its position and ultimately, through aggressive lobbying, pushing the agency to formally issue a ruling. Now that the brokers don't like the ruling, they want the government to intervene.
That Mr. Flaherty chose to arbitrarily intervene looks bad on the man who was just named finance minister of the year, or something like that. It will look good on the banks, acting to serve their customers, if they decide to ignore the minister's diktat and force him to change the law after a proper process.
OSFI BACKS THE BANKS
Office of the Superintendent of Financial Institutions
Ottawa, June 30, 2009 Ruling
No: 2009 -02
Category: Business and Powers
Subject: Insurance Promotion on a Bank's Website
Issue: The issue was whether, for the purpose of the Insurance Business (Banks and Bank Holding Companies) Regulations (the Regulations), a bank website is a bank branch.
Background: OSFI was asked to rule on the issue above.
Considerations: The definition of "branch" in the Bank Act, both in English and French, refers to physical premises. Furthermore, there are numerous provisions in that statute that specifically distinguish a website from being a branch1. Pursuant to the Interpretation Act, the meaning of the word "branch" in the Bank Act carries over to the Regulations.
Conclusion: OSFI concluded that, for purposes of the Regulations, a bank website is not a bank branch. As a result, a bank may, on its website, promote in Canada any insurance policies or any insurance companies, agents or brokers, subject to the conditions that the Regulations impose on such promotion outside a branch.
Section 2 of the Bank Act defines "branch" as an agency, the head office or any other office of the bank...
Tuesday, October 13, 2009
Posted by Fillibluster at 9:59 AM