Order Fixing the Day on which this Order is made as the Day on which section 121 of the Act Comes into Force: SI/2018-48

Canada Gazette, Part II, Volume 152, Number 14

Registration

July 11, 2018

BUDGET IMPLEMENTATION ACT, 2016, NO. 2

Order Fixing the Day on which this Order is made as the Day on which section 121 of the Act Comes into Force

P.C. 2018-878 June 22, 2018

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 126 of the Budget Implementation Act, 2016, No. 2, chapter 12 of the Statutes of Canada, 2016, fixes the day on which this Order is made as the day on which section 121 of that Act comes into force.

EXPLANATORY NOTE

(This note is not part of the Order.)

Proposal

Pursuant to section 126 of the Budget Implementation Act, 2016, No. 2 (the “BIA, 2016, No. 2”), this Order in Council brings section 121 of the BIA, 2016, No. 2 into force on the day on which the Order is made. This section amends the Financial Administration Act (the “FAA”) by introducing a new set of provisions in the FAA, entitled Part III.2 “Financial Transactions Related to Asset Management.”

Objective

The objective of this Order in Council is to bring a set of legislative amendments to the FAA into force to clarify the authorities for the Minister of Finance to engage in certain funds management activities.

Background

The Minister of Finance draws his authorities to manage public debt and engage in related treasury management activities from Part IV of the FAA. Part IV of the FAA, entitled “Public Debt,” contains legislative provisions that allow the Minister of Finance to issue public debt (i.e. borrow money by any means that he or she considers appropriate, subject to Governor in Council’s approval). It also authorizes the Minister of Finance to enter into contracts and agreements for the purposes of debt management (e.g. enter into cross-currency swaps with large financial institutions to raise US dollars, euros, British pounds or Japanese yen for the purchase of foreign assets held in the Exchange Fund Account). Additionally, there are provisions that allow for the management of assets (and liabilities), but only as it relates to the management of public debt (e.g. purchase and sale of Government of Canada securities and creation of interest on the Government of Canada debt).

The legislation governing debt and treasury management activities is reviewed from time to time to ensure it remains up to date and appropriately permits for the effective management of the Government of Canada’s treasury. In Budget 2016, the Government of Canada announced that it would review and potentially propose amendments to Part IV of the FAA and related statutes (e.g. the Bank of Canada Act) to ensure that they continue to support effective management of federal funds. The review identified a number of legislative amendments in relation to the management of the Government of Canada’s assets that needed to be made to clarify and enhance the authorities of the Minister of Finance in support of sound management of federal funds and operation of Crown corporations.

The amendments enable the Minister of Finance to lend excess funds out of the Consolidated Revenue Fund, enter into contracts and agreements of financial nature for the purposes of risk management, and make payments of discretionary nature in support of public debt. The amendments also delegate the management of lending to agent corporations from the Minister of Finance to the Bank of Canada and allow the Bank of Canada to act as a custodian of the financial assets of the Canada Mortgage and Housing Corporation. These amendments were made as part of BIA, 2016, No. 2, which received royal assent on December 15, 2016, and amended the FAA, the Bank of Canada Act, and the Canada Mortgage and Housing Corporation Act.

Section 121 of the BIA, 2016, No. 2 (i.e. Part III.2 of the FAA) clarifies the following of the Minister of Finance’s authorities by inserting explicit text into the FAA: (1) the authority to lend excess cash balances out of the Consolidated Revenue Fund (to eligible entities per rules governing the lending of funds, such as large financial institutions and Crown corporations) and establish rules in relation to the lending of these balances; and (2) the authority to enter into contracts and agreements designed to protect against adverse financial developments in relation to the management of Government of Canada’s financial position. These amendments are supported by a statutory appropriation provision^{footnote 1} that is included in the new Part III.2 of the FAA.

The first of the two authorities explicitly states that the Minister of Finance may lend excess cash balances out of the Consolidated Revenue Fund by way of auction, which allows the Government to earn a competitive, market-driven return on excess government cash. This operation is referred to as conducting Receiver General auctions, since the funds that are auctioned off come out of the Receiver General account. This treasury management activity is conducted by the Bank of Canada in line with the terms and conditions set out by the Minister of Finance.

The second authority explicitly provides for situations where the Minister of Finance may need to enter into a contract or an agreement (a financial transaction) for the purposes of asset management (e.g. to hedge currency risk as it relates to the Government of Canada’s financial position). Without an explicit authority to enter into such a contract or agreement, the Minister of Finance does not have the flexibility to protect the Government of Canada’s financial position against adverse financial developments in relation to the management of federal assets. For example, when converting large funds into Canadian dollars issued in a foreign currency upon a sale of an asset, it may be prudent for the Government of Canada to enter into a contract with a financial institution designed to protect against the depreciation in the value of that currency.

The supporting (statutory appropriation) authority allows the Minister of Finance to draw funds out of the Consolidated Revenue Fund for the payment of potential expenses incurred in the exercise of his authorities under Part III.2 of the FAA, either in relation to conducting Receiver General auctions or entering into contracts and agreements to hedge risks. This provision is needed to operationalize Part III.2 of the FAA, and a separate authority will be sought from the Governor in Council to authorize these expenses.

Implications

The coming into force of Part III.2 of the FAA will provide the Minister of Finance with greater flexibility to manage the Government of Canada’s treasury by clearly establishing that the Minister of Finance has the authority to conduct Receiver General auctions and to enter into contracts and agreement to hedge risks to the financial position of the Government of Canada. This greater flexibility (resulting from a broader toolkit of potential funds management activities) will improve the effectiveness of the management of the Government of Canada’s assets.

While the explicit authority to conduct Receiver General auctions and establish the rules governing these auctions will be exercised upon the coming into force of section 121 of the BIA, 2016, No. 2, the authority to enter into contracts or agreements will require additional Governor in Council approval.

The legislative provisions created in Part III.2 of the FAA replicate in large part the authorities governing the management of public debt, some of which are included in the annual borrowing authority Order in Council. The structure of the new legislation parallels and reflects the provisions on the debt management side to borrow by way of auctions and to enter into contracts and agreements for the purposes of debt management. Furthermore, the statutory appropriation provision in Part III.2 contains a similar set of authorities as those enumerated under section 55 of the FAA that are requested under the annual borrowing authority Order in Council.^{footnote 2} This similitude implies that the authorities under Part III.2 of the FAA are not unique in what they proffer for the Minister.

Consultation

The provisions being brought into force were reviewed through the Parliamentary process. Given that this matter is internal to government, no consultations were undertaken in association with this Order.

Departmental contact

For more information, please contact

Nicolas Moreau
Director General
Department of Finance Canada
Funds Management Division
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-369-5613
Email: Nicolas.Moreau@canada.ca