The Government of Ontario has announced that it plans to update the Credit Unions and Caisses Populaires Act (Act) to implement recommendations made in a recent report prepared by Laura Albanese, Parliamentary Assistant to the Minister of Finance. Credit unions and caisse populaires are financial institutions formed under the jurisdiction of the province that provide essentially the same services as federal banks but have cooperative ownership.
The report includes fifteen recommendations for the Government to update the Act and other relevant Ontario legislation. The following is a summary of some of the key recommendations of the report.
- Regulatory capital requirements will be revised to conform to the Basel III standard. In moving to the standard, investment shares will be recognized as Tier 1 capital provided that they meet certain requirements. A five year phase-out will be implemented for existing investment shares. The minimum leverage ratio will be maintained at 4%, however, off-balance sheet assets will now be included in the calculation.
- Gaps between the consumer protection measures currently applicable to federally regulated banks and those applicable to credit unions and caisses populaires will either be closed by legislation or through voluntary commitments provided by credit unions and caisses populaires. In addition, the regulator will begin to collect consumer complaint data.
- Credit unions and caisses populaires will be permitted to enter into loan syndication agreements with credit unions and caisses populaires in other provinces. In addition to providing a vehicle for asset diversification, this will allow credit unions and caisses populaires to retain larger loans within the movement.
- Credit unions and caisses populaires will be permitted to wholly own a wider spectrum of subsidiary businesses than currently permitted. As an example, the report mentions the authority to own insurance brokerages, which will put them on a level playing field with federal banks. However, the report also recommends that credit unions and caisses populaires retain the power to own vehicle leasing subsidiaries, a power that the federal banks do not share.
- Deposit insurance coverage for deposits will be increased from $100,000 to $250,000. However, coverage for registered accounts (such as registered retirement savings plans and tax-free savings accounts), which is currently unlimited, will be reduced to $250,000 for each type of registered account. For example, a person who had $250,000 in each of an RRSP and another type of registered account would have $250,000 of coverage for each account. Currently, federal deposit insurance for bank deposits is capped at $100,000.
- Although the report did not recommend additional corporate governance rules, the importance of strong governance was acknowledged and the regulator was encouraged to continue to monitor corporate governance practices at credit unions and caisse populaires.
- Also rejected was a suggestion from some commenters that stricter rules be imposed for smaller credit unions and caisse populaires.
Legislation to implement the recommended changes has not yet been published and it is not yet clear the extent to which individual credit unions and caisse populaires will have to update their practices, policies and procedures. No timeline for the changes was provided.
We will continue to monitor these developments and report on this blog when draft legislation is released.