In its March 2010 Budget, the Government of Canada signalled plans to create a legislative framework to enable credit unions to incorporate and continue their operations as federal entities. The Government indicated that it believes that by allowing credit unions to grow and be competitive on a national scale that such will broaden choices for consumers, help credit unions to attract new members, and improve services to existing members across provincial borders. This is an important initiative, with implications for the financial services industry as a whole, and access to competitive banking services more generally for Canadians, particularly individuals and small and medium sized businesses, where credit unions are seen as a very significant banking service option.
The legislative framework to implement the Government's objective to permit the establishment of federal credit unions is contained in the legislation tabled in the House of Commons to implement the 2010 Budget (Bill C- 9, Jobs and Economic Growth Act). Some general background to this initiative and a brief summary of the proposed legislative framework is outlined briefly below.
The Government of Canada plays a regulatory role in the credit union movement outside Quebec through the national and provincial centrals. The national central, Credit Union Central of Canada, is chartered and regulated by the Government of Canada under the Cooperative Credit Associations Act (CCA Act). In addition, provincial centrals (except those in New Brunswick, Prince Edward Island and Newfoundland and Labrador) are regulated at the federal level under the CCA Act, as well as at the provincial level.
The creation of federal cooperative banks would not be the first attempt by the Federal Government to establish a form of cooperative financial institution under federal jurisdiction. The CCA Act, which was enacted almost 50 years ago, was intended to provide a means for the establishment of federally-regulated cooperative credit associations. However, notwithstanding the early objectives, unlike the United States saving and loan industry, national Canadian retail credit unions have not materialized.
In the 2001 amendments to federal financial institution legislation, the Federal Government introduced the concept of "retail association" into the CCA Act in an effort to provide for a more flexible form of federal cooperative financial institution.
In 2002, the Federal Government published a Cooperative Bank Consultation Paper (Paper). The Paper set out broad options to contribute to the competitiveness of credit unions. Three models were proposed - a national cooperative bank model in which two or more credit unions would be permitted to roll over their assets into a federal cooperative bank and the former offices of the credit unions would become the branches of the new cooperative bank; a federated cooperative bank model in which each credit union in the group would become a local cooperative bank and the cooperative banks would own a central cooperative bank; and an individual cooperative bank model in which individual credit unions would convert into cooperative banks.
As reflected in Bill C-9, the Federal Government settled on the third option that was set out in the Paper (i.e., individual cooperative bank model in which individual credit unions would convert into cooperative banks).
Bill C-9 proposes to define a "federal credit union" as a bank that is organized and carries on business on a cooperative basis. The various additions and amendments to the Bank Act (Canada) and other federal financial institution legislation, including the Canada Deposit Insurance Corporation Act, that are contained in Bill C-9 seek to extend the rights and privileges of Canadian chartered banks to federal credit unions that have either been continued (from provincial jurisdictions that permit the export of a provincial credit union (including British Columbia and Ontario)) or been created de novo.
The New Federal Regime
A significant number of provisions of the Bank Act are being amended by Bill C-9 to accommodate the special ownership and governance aspects of credit unions. In other respects, generally, the provisions of the Bank Act applicable to existing banks will be made applicable to federal credit unions. This will mean that federal credit unions will have the same powers as existing banks and be subject to the same business limitations, including limits on insurance and auto leasing.
Subject to certain transitional rules related to deposit insurance to accommodate provincial credit unions in jurisdictions where deposit insurance limits exceeds CDIC limits (e.g., Alberta and Saskatchewan), the current CDIC regime will be applicable to federal credit unions. Other elements of the federal regime applicable to existing banks, including regulation by OSFI, FINTRAC and FCAC, would also be applicable. Next Steps
Since the changes to the Bank Act to permit the establishment of federal credit unions are embedded in the legislation to implement the 2010 Federal Budget, there is little doubt that passage will occur in the coming months. However, there are a significant number of regulations and OSFI and other regulatory guidelines that will need to be considered, and possibly updated in light of the provision for federal credit unions. We will monitor developments and report again once the implementation process has been advanced.
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