The Financial Services Regulatory Authority of Ontario (FSRA) released finalized guidance July 5, in effect as of the date it was released, requiring credit unions to develop and file effective recovery plans with the regulator, starting in January 2022.
FSRA says recovery plans equip credit unions with strategies to use in the event of a crisis. The guidance document sets out the principles of effective recovery planning and describes how FSRA will assess the quality of the risk management and credibility of the recovery options that credit unions present in their plans.
Based on consultation received from four stakeholders during a consultation period between January and March 2021, the guidance now includes a phase-in period. Credit unions have until January 13, 2023 to submit their final plans. Interim plans with key elements are required by the regulator no later than January 14, 2022.
Four principles outlined
The guidance outlines four principles. First, the credit union, through its board and senior management, should create a recovery plan to prepare the credit union to manage adversity. The plan should evaluate risks and adverse scenarios and prepare to implement identified actions, if necessary. The plan should be periodically reassessed and, finally, a credit union recovery plan should be tailored to the structure, size, complexity and risk profile of the institution.
Serves as a playbook in times of financial stress
“The purpose of the recovery plan is ultimately to serve as a playbook for both the credit union and FSRA in times of financial stress,” FSRA states. It then provides the “essential elements” FSRA will be assessing when looking at a credit union’s recovery plan processes and documentation. Institutional analysis, key measures and associated triggers, recovery options, scenario analysis, governance, information management and implementation plans are all discussed further in the document, as well.
FSRA adds that it expects to review a credit union’s recovery plans once each year for institutions with total assets over $500-million and once every two years for those with total assets under $500-million.
“FSRA expects incremental improvements with each iteration of the recovery plan,” they add. “Any recovery plan that fails to identify a material risk or to provide a series of escalating credible responses to those risks will need to be amended.”