Ontario Modernizes Credit Union Regulation

Important amendments to the Credit Unions and Caisses Populaires Act, 1994 are coming into effect on October 1, 2009.  A new General Regulation under the Act will also come into force on the same date to replace the existing four regulations under the Act

New Cost of Borrowing and Disclosure to Borrowers requirements will take effect on October 1, 2010.  This transitional period will enable the credit union sector to reprogram computer systems, develop new forms, and train staff.

Key Amendments to the Act

Streamlined regulatory functions

• Many functions of the Superintendent of the Financial Services Commission of Ontario (FSCO) will be transferred to the Deposit Insurance Corporation of Ontario (DICO). These include the responsibility for monitoring and enforcing compliance with capital and liquidity requirements, restrictions on borrowing, pledging of assets and lending and investments.

New administrative penalties

• The Superintendent of Financial Services and DICO will be able, by order, to impose administrative penalties for contraventions of specified requirements in the Act.  An appeal of the order can be made to the Financial Services Tribunal. 

Improved credit union governance

• Any training requirements and qualifications for directors and members of the audit committee will be established by the credit union, not by regulation.

• Directors will be prohibited from directly managing or being involved in the day to day activities of the credit union.

Enhancements to Capital requirements

• Credit unions will be able to form groups for the purpose of satisfying the capital requirements of the Act.

• Credit unions will be able to raise capital by issuing additional membership shares.

Updated investment and lending powers

Credit unions will no longer be required to apply for lending licenses and will have greater flexibility to meet the borrowing needs of their members.  Larger credit unions with commercial loan portfolios will be able to establish their own prudent limits for lending activity.

New General Regulation

The General Regulation will introduce modernized and streamlined rules for credit unions that are specific to their size and complexity.

Highlights of the General Regulation include new or revised measures that:

• Tailor rules for small credit unions (institutions with less than $50 million in assets that do not engage in commercial lending).

• Require salary disclosure for officers or employees of a credit union whose total remuneration for the year was over $150,000 (five highest earners only). 

• Increase the minimum amount of the required bond for persons handling money to the lesser of $5 million (currently $1 million) and the amount of the credit union's assets.  

• Require credit unions to designate an officer who would be responsible for reporting to the credit union's board at least once annually on complaints received from members and depositors and how they were resolved.

• Set a limit of $1,000 per member for additional membership shares issued by a credit union to raise capital.

• Sets out the circumstances in which a credit union may create a security interest in its property for the purpose of accessing adequate liquidity.      

• Elaborate on the requirements necessary for an Ontario credit union to transfer to another jurisdiction or be incorporated under another Ontario Act.  Similarly, elaborate how an entity from another jurisdiction in Canada, or under another Ontario Act, may be continued as a credit union in Ontario.

Measures effective October 1, 2010

Under the amendments to the Act, the maximum number of consecutive terms for directors and the chair of the board will be set out in the by-laws.  As well, the by-laws will be required to provide for the appointment of officers and the establishment of their duties, and matters regarding the calling of meetings of the board.

Cost of Borrowing and Disclosure to Borrowers Regulation

Harmonized rules will govern the disclosure of the cost of consumer loans (that is, non-business loans to natural persons). These regulations are intended to:

• Contribute to uniform consumer protection across Canada

• Modernize laws to reflect changes in credit markets

• Reduce compliance costs

• Provide a level-playing field between provincially and federally-regulated lenders.

Going Forward

In an effort to make this legislative review process the beginning - not the end - of a modern era in credit union regulation in Ontario, the amended Act provides for ongoing five-year reviews of the operation of the Act and its regulations.