The Financial Services Regulatory Authority of Ontario (FSRA) is proposing guidance for the use of “living wills” by large players in the credit union sector.
FSRA launched the consultation on effective resolution planning for credit unions with assets greater than $1 billion.
Resolution plans, or living wills, set out how a failing institution can be wound down with a minimum of damage to both its depositors and the broader financial system.
The consultation noted that, historically, credit unions that run into financial trouble have either been merged with another institution or liquidated.
“Over the last decade, there have been fewer liquidations and dissolutions, but merger activity continues,” it said.
However, mergers have become more complicated for large credit unions, which are “less likely to find a partner capable or willing to merge with in the event of non-viability,” it said.
To deal with the failure of a large credit union, FSRA said it will need a detailed understanding of the firm’s systems, processes and resources “to ensure that insured deposits are fully paid-out, which would be provided through resolution planning.” This information would also inform the regulator’s decisions to sell assets, merge or wind down a failing firm.
The regulator said the failure of smaller firms could be managed with the information already collected in ordinary regulatory reporting.
FSRA said resolution planning supports its goal of “developing a sound resolution regime for the Ontario [credit union] sector to promote and maintain stability of the […] sector in the event of a crisis.”
The proposed guidance covers considerations such as a credit union’s resolution strategy, the feasibility of its plans, and the responsibilities of its management and board.
It also details how FSRA will assess whether resolution plans meet the regulator’s goals, which include protecting consumers, ensuring the continuity of critical functions, and minimizing the risk of losses by the sector’s contingency fund.
The consultation on the proposed guidance runs until Feb. 18.