Ontario regulator submits new credit union rules to minister for approval

The Financial Services Regulatory Authority of Ontario (FSRA) has drafted and submitted for ministerial approval, three rules governing business practices, capital adequacy and liquidity adequacy for credit unions. The proposed rules replace the Deposit Insurance Corporation of Ontario (DICO) By-Law No. 5.

The Sound Business and Financial Practices rule authorizes FSRA to make a rule “establishing standards of sound business and financial practices for Ontario’s credit unions and caisses populaires.” It was drafted after a stakeholder working group indicated that the DICO by-law was too prescriptive and should be replaced by a principles-based and outcomes-focuses rule. The proposed rule addresses cooperative principles, governance communications, board composition and responsibilities, senior management responsibilities, ethics and responsible action, whistleblower policies, internal audit, risk management, compliance and finance functions, operational management and more.

The liquidity adequacy requirement changes meanwhile authorize FSRA to make a rule regarding the maintenance of adequate capital and appropriate forms of liquidity. “In the board approved rule, FSRA is aligning its regulatory approach with the requirements in other jurisdictions as well as international best practices,” the proposed rule states. “The purpose of the board approved rule is to articulate the methodology that credit unions must use to calculate liquidity requirements and the principles-based expectations for credit unions to maintain adequate and prudent liquidity.” 

Finally, capital adequacy requirement changes were made after the working group indicated that FSRA should develop a rule “in a manner that is clear, transparent and better aligns with international standards.” The amendments expand the risk weighting categories to include additional investments, clarify the investments that receive higher risk weightings, and add a new section on regulatory adjustments for investments in capital instruments and other total loss absorbing capacity (TLAC) instruments.

All of the rules were approved by FSRA’s board of directors in January 2022. The changes become law 15 days after the Minister of Finance’s approval or when the government proclaims the Credit Unions and Caisses Populaires Act, 2020 into force.