The ontario ministry of Finance is looking to liberalize the now-outdated legislation governing provincial credit unions and caisses populaires in order to allow the subsector to compete better in the financial services marketplace and to ensure its long-term stability.

The ministry issued a consultation paper in late November proposing changes to the Credit Unions and Caisses Populaires Act, 1994. The proposals included in the paper would affect legislation surrounding incorporation, membership and governance; capital and liquidity requirements; business powers; and regulatory oversight.

The overall effect of the proposals would be to drop or loosen some of the restrictions applied to the industry and allow credit unions to grow, merge and become more effective alternatives to the banks. The ministry has set a deadline of Dec. 16 for comments.

What the consultation paper does not include, however, is an outright proposal that credit unions have the right to sell insurance products in-branch, but the paper does raise the issue for discussion. It’s a right the credit unions — as well as the big banks — have sought.

Howard Bogach, CEO of the Credit Union Central of Ontario, says that other provinces have liberalized the rules around credit unions and insurance. He cites Quebec, which allows credit unions to sell insurance products, and British Columbia, which allows credit unions to own insurance brokerages.

Why does Bogach believe credit unions should get the right to sell insurance in-branch when banks have been prohibited from doing so?

“People talk about a level playing field, but the banks have had 200 years of advantages,” he says. “We think creating advantages for smaller players is just a fair turn.”

Indeed, credit unions, he says, provide a vital service to communities, especially rural and remote communities, underserved by the banks. He says there are 40 Ontario communities in which only a credit union serves the local population.

Bogach suggests if credit unions don’t get the right to retail insurance, they would push for the right to own insurance brokerages or to own a partnership in a brokerage. The consultation paper does, indeed, propose that the list of approved subsidiaries for credit unions be expanded to include insurance brokerages.

The other important element in the consultation paper, according to Bogach, is the proposal that credit unions adopt the so-called Basel II requirements, which the credit unions are eager to adopt. The Basel II requirements would replace the industry’s previous risk-weighted capital test, based on the first Basel capital accord.

The ministry would like the industry to keep the leverage test for capital requirements even after the adoption of Basel II. “There is no experience yet with the implementation of Basel II pillars and test,” it says. But Bogach argues that retaining the leverage test as well as adopting Basel II is unnecessary, describing it as akin to wearing suspenders and a belt at the same time. The Credit Union Central of Ontario will continue to argue against retention of the test.

Despite disagreements about some elements of the consultation paper, Bogach is very pleased that the government is paying attention to the industry. “The real positive is in the consultation,” he says. “There seems to be an acknowledgment of the role credit unions can play in the overall picture.”

Some other proposals include:

n that credit unions be able to apply for continuance, the legal process by which they can change their jurisdiction of incorporation;

n that credit unions from other provinces and federal financial institutions be allowed to
transfer to Ontario and become Ontario-incorporated credit unions.

n that credit unions be permitted to define or amend their own bonds of association without the approval of the Superintendent of Financial Services ;

n that credit unions be given more autonomy to establish their own internal governance rules;

n that current liquidity regulations in the act be replaced by a “prudent person” approach that would see credit unions determine their own liquidity requirements;

n that credit unions be allowed to set lending policies that determine whether tangible security be required for personal loans.

n that the minister appoint one or more people to review the credit union act every five years. IEThe ontario ministry of Finance is looking to liberalize the now-outdated legislation governing provincial credit unions and caisses populaires in order to allow the subsector to compete better in the financial services marketplace and to ensure its long-term stability.

@page_break@The ministry issued a consultation paper in late November proposing changes to the Credit Unions and Caisses Populaires Act, 1994. The proposals included in the paper would affect legislation surrounding incorporation, membership and governance; capital and liquidity requirements; business powers; and regulatory oversight.

The overall effect of the proposals would be to drop or loosen some of the restrictions applied to the industry and allow credit unions to grow, merge and become more effective alternatives to the banks. The ministry has set a deadline of Dec. 16 for comments.

What the consultation paper does not include, however, is an outright proposal that credit unions have the right to sell insurance products in-branch, but the paper does raise the issue for discussion. It’s a right the credit unions — as well as the big banks — have sought.

Howard Bogach, CEO of the Credit Union Central of Ontario, says that other provinces have liberalized the rules around credit unions and insurance. He cites Quebec, which allows credit unions to sell insurance products, and British Columbia, which allows credit unions to own insurance brokerages.

Why does Bogach believe credit unions should get the right to sell insurance in-branch when banks have been prohibited from doing so?

“People talk about a level playing field, but the banks have had 200 years of advantages,” he says. “We think creating advantages for smaller players is just a fair turn.”

Indeed, credit unions, he says, provide a vital service to communities, especially rural and remote communities, underserved by the banks. He says there are 40 Ontario
communities in which only a credit union serves the local population.

Bogach suggests if credit unions don’t get the right to retail insurance, they would push for the right to own insurance brokerages or to own a partnership in a brokerage. The consultation paper does, indeed, propose that the list of approved subsidiaries for credit unions be expanded to include insurance brokerages.

The other important element in the consultation paper, according to Bogach, is the proposal that credit unions adopt the so-called Basel II requirements, which the credit unions are eager to adopt. The Basel II requirements would replace the industry’s previous risk-weighted capital test, based on the first Basel capital accord.

The ministry would like the industry to keep the leverage test for capital requirements even after the adoption of Basel II. “There is no experience yet with the implementation of Basel II pillars and test,” it says. But Bogach argues that retaining the leverage test as well as adopting Basel II is unnecessary, describing it as akin to wearing suspenders and a belt at the same time. The Credit Union Central of Ontario will continue to argue against retention of the test.

Despite disagreements about some elements of the consultation paper, Bogach is very pleased that the government is paying attention to the industry. “The real positive is in the consultation,” he says. “There seems to be an acknowledgment of the role credit unions can play in the overall picture.”

Some other proposals include:

> that credit unions be able to apply for continuance, the legal process by which they can change their jurisdiction of incorporation;

> that credit unions from other provinces and federal financial institutions be allowed to transfer to Ontario and become Ontario-incorporated credit unions.

> that credit unions be permitted to define or amend their own bonds of association without the approval of the Superintendent of Financial Services ;

> that credit unions be given more autonomy to establish their own internal governance rules;

> that current liquidity regulations in the act be replaced by a “prudent person” approach that would see credit unions determine their own liquidity requirements;

> that credit unions be allowed to set lending policies that determine whether tangible security be required for personal loans.

> that the minister appoint one or more people to review the credit union act every five years. IE