Canada: New Proposed Regulations For Federal Credit Unions – A Step Closer To A Federal Regime

The Federal Government has just released new regulations in draft form which are intended to implement recent amendments to the Bank Act pursuant to which new or existing credit unions could come under the Bank Act and continue as federal credit unions, thereby retaining the essential characteristics of a credit union but at the same time gaining the benefits of being regulated by the Bank Act and therefore becoming more competitive with banks regulated by the Bank Act.


For a number of years, Canada has sought a way in which to encourage a "second tier" of banking in Canada – financial institutions that would focus more on consumer banking and stimulate competition in this space. A number of changes have been made in recent years to federal legislation, including the Bank Act and the Cooperative Credit Associations Act, that were intended to spur growth in this area. Examples of these changes include permitting commercially owned banks (which happened with the creation of new banks such President's Choice Bank, Canadian Tire Bank, Bridgewater Bank, etc., a trend which has continued) and creating the concept of retail associations as a form of federal cooperative financial institution (which was not successful).

Credit unions still represent an opportunity for the Federal Government to achieve this goal but the core of the issue is that a framework is required that will enable credit unions to operate across provincial borders – something that is difficult at the moment because credit unions are provincially regulated.

Credit unions have been subject to significant competitive pressure over the last few years and one of the objectives of the Federal Government has been to create a framework which would allow a credit union to retain all of the attributes of still being a member owned credit union, but at the same time, being able to access the benefits of being under the Bank Act. Credit unions are creatures of provincial law, but those provincial laws have struggled to keep up with the ever-expanding concept of "financial services" and credit unions have argued that the powers of a bank are wider, thereby disadvantaging the credit union as a financial services competitor. As a result, some credit unions are unable to provide some of the financial services their customers seek because the service is not authorized by the governing provincial statute. In addition, technology is expensive and, to remain competitive, the credit unions have found that they must spend in order to compete and, again, meet the service levels in terms of technology demanded by their members. This means that the credit union must spend valuable resources, which is difficult in an age where scale matters in terms of costs. Finally, in view of the recent financial crisis, the whole supervisory framework is changing and there may be an attractiveness to credit unions to be part of the current and robust federal system of regulation.

All of these pressures have, according to the Federal Government, resulted in significant consolidation in the credit union sector, as there are now about half the number of credit unions as there were 10 years ago and currently the 10 largest credit unions now represent 41% of the credit union system. This consolidation is seen as continuing in view of the many pressures described above.

Federal Legislation

In 2010, the Federal Government enacted legislation aimed at providing a national framework for credit unions. While some might have expected that the amendments would have been made to the Cooperative Credit Associations Act, the legislation instead formed part of amendments to the Bank Act by defining a "federal credit union" as a bank that is organized and carries on business on a cooperative basis. A federal credit union could be a new "bank" incorporated as such under the Bank Act or be continued under the Bank Act from provincial jurisdiction. The rationale for implementing credit union proposals under the Bank Act was to reduce regulatory overlap and confer powers consistent with the other federally regulated financial institutions (banks, trust companies and insurance companies).

These amendments required complimentary regulations before being proclaimed in force. It is these draft regulations the Federal Government has just released for comment.

Proposed Regulations

On July 7, 2012, the Federal Government published a series of proposed regulations to implement the legislative framework for federal credit unions. The comment period for these draft regulations ends on August 6, 2012.

The stated objective of the proposed regulations is to implement requirements necessary to operationalize the legislative provisions set out in the Bank Act pertaining to federal credit unions. The federal credit union framework is voluntary and, according to the Federal Government, was created in response to requests made by credit unions. The proposed regulations do not compel provincially regulated credit unions to become federally regulated.

The proposed regulations include consequential amendments to the Bank Act regulations to adapt the existing framework to allow for cooperative ownership, as well as a series of substantive regulations pertaining to demutualization, deposit insurance disclosure, the payments framework and disclosure to members on the issuance of investment shares. Below is a high level summary of the proposed regulations.

Prospectus (Federal Credit Unions) Regulations

The disclosure requirements in respect of issuances of securities are set out by the provinces, and the relevant Bank Act regulations for banks defer to provincial securities law prospectus requirements. The proposed prospectus regulations for credit unions would take a similar approach. However, if a credit union is eligible to issue securities on a prospectus-exempt basis, it would be required to provide a minimum level of disclosure to the buyers of its securities. For example, the proposed regulations would require the disclosure of the nature of the business of the credit union, a description of the security being issued, the risks associated with that security, including details of any securities ranking ahead of the security, as well as the capital structure of the credit union.

Regulations Amending the Canadian Payments Association Election of Directors Regulations

The proposed regulations would amend the existing Canadian Payments Association Election of Directors Regulations with respect to the process for the election of directors for the Canadian Payments Association (CPA) Board. The proposed regulations would require federal credit unions to vote and participate in the governance of the CPA as part of the Cooperatives class, rather than in the Bank class. This would maintain the current level of participation in the governance of the CPA by the credit unions.

The CPA has proposed technical amendments to its By-law No. 1 (General) which would require federal credit unions to participate in the governance of the CPA as part of the cooperatives class and to By-law No. 3 (Payment Items and Automated Clearing Settlement System) which would provide federal credit unions with the option of belonging to a group to facilitate the clearing of payment systems.

Disclosure on Continuance Regulations (Federal Credit Unions)

The proposed regulations specify the information that must be publicly disclosed to members and customers of the credit union and the process that must be followed to qualify the credit union to continue federally and be eligible for federal deposit insurance.

For example, the credit union must send a notice approved by the Superintendent of Financial Institutions in consultation with the Canada Deposit Insurance Corporation to the last known mailing address of every member of such credit union at least four weeks before the members vote on a special resolution authorizing the continuance application.

If a person applies to become a member of such credit union after such notice has been sent and before the earlier of the day on which the members vote against the special resolution or the day that the Minister of Finance issues letter patent continuing such credit union as a federal credit union, the credit union must provide the person applying to become a member with the notice at the time of application. Any such notice must include (a) the day on which provincial deposit insurance coverage for the credit union would end; (b) a description of the Canada Deposit Insurance Corporation coverage that would apply during the transitional period to the deposits of the credit union that is continued as a federal credit union; and (c) a description of the Canada Deposit Insurance Corporation coverage that would apply after the transitional period to the deposits of the credit union that is continued as a federal credit union and how it differs from the pre-continuance provincial deposit insurance coverage.

Federal Credit Union Conversion Regulations

In addition to permitting a provincial credit union to convert to a federal credit union, the 2010 amendments to the Bank Act allow a federal credit union to convert into a bank with common shares. The proposed regulations specify the process and disclosure required for such credit union to change its legal form from a company owned by members to one owned by shareholders. The proposed regulations contain a series of requirements that must be followed to ensure a fair demutualization process, such as ensuring members are treated equally, mandating a fairness opinion and an independent evaluation of the conversion proposal, as well as restricting management from benefiting unduly from the conversion transaction.

Guidelines Respecting Control in Fact for the Purpose of Section 377.2 of the Bank Act

Subsection 377.1(1) prohibits a person from acquiring "control" of a bank with equity of less than $12 billion without the approval of the Minister of Finance. The Bank Act contains a definition of "control" which includes both "legal control" and "de facto control". The Bank Act provides authority to the Minister of Finance to issue guidelines as to what constitutes control including guidelines describing the policy objectives that the guidelines and the relevant provisions of the Bank Act are intended to achieve.

Such guidelines have been issued in respect of banks – the Guidelines Respecting Control in Fact for the Purpose of Subsection 377.1 of the Bank Act. Subsection 377.2 of the Bank Act is the corresponding prohibition on a person acquiring "control" of a federal credit union without the approval of the Minister of Finance. The package of regulations proposed includes a new guideline to be applied in the case of a federal credit union.

Regulations Amending Certain Regulations Made Under the Bank Act

The proposed regulations specify consequential amendments to existing Bank Act regulations to make them apply to federal credit unions. For example, amendments are proposed to the Related Party Transactions (Banks) Regulations, the Affiliated Persons (Banks) Regulations, the Regulatory Capital (Banks) Regulations, the Equity of a Bank or a Bank Holding Company Regulations, the Minority Investment (Bank Holding Companies) Regulations, the Minority Investment (Banks) Regulations, the Access to Basic Banking Services Regulations, the Civil Remedies (Banks and Bank Holding Companies) Regulations, the Going-Private Transaction (Banks and Bank Holding Companies) Regulations, and the Meetings and Proposals (Banks and Bank Holding Companies) Regulations to ensure federal credit unions are captured by the requirements set out in these Bank Act regulations.

Stephen Clark's practice focuses on financial institutions and corporate finance. Kashif Zaman is a partner in the firm's Financial Institutions Group. Victoria Graham's practice focuses on corporate and regulatory issues relating to financial institutions and public and private corporations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.