On November 28, 2019, the Financial Institutions Amendment Act, 2019 (B.C.) ("Bill 37") received Royal Assent. Bill 37 modernizes the legislative framework of the Financial Institutions Act (B.C.) (the "FIA") and the Credit Union Incorporation Act (the "CUIA") and follows an extensive consultation process conducted by the Ministry of Finance in relation to its review of the FIA and CUIA.
Bill 37 introduces significant changes to the regulation of financial institutions in British Columbia. These changes are being implemented in stages. The first set of changes came into force in 2020. On February 17, 2022, the Lieutenant Governor signed orders-in-council bringing into force several more provisions of Bill 37, with effective dates of February 17, 2022, and June 30, 2022.
This article provides a general overview of what credit unions need to know about the most recent provisions to come into force and the steps credit unions should take to ensure continued compliance with the legislation.
SUMMARY OF CHANGES THAT CAME INTO FORCE ON FEBRUARY 17, 2022
| Source | Impact | Change | Credit Union Obligation |
|---|---|---|---|
| CUIA, s. 14.3 | Low | Credit unions are explicitly able to use a trade name. | If a credit union chooses to use a trade name, it must comply with requirements in section 14.1 of the CUIA and section 1 of the Credit Union Incorporation Act Regulation. |
| CUIA, s. 40(1) | Moderate | Common bonds are now optional. | If a credit union wishes to remove its common bond, it must amend its Constitution. This requires a special resolution of the members, as well as consent of the Superintendent of Financial Institutions (the "Superintendent"). |
| CUIA, s. 55.11 | Low | Credit unions may issue shares in series. | If the credit union wishes to issue shares in series or provide directors with such authority, the credit union will need to amend its Rules. This requires a special resolution of the members, as well as consent of the Superintendent. |
| CUIA, ss. 76 and 77 | High | The required number of member signatures for a member requisition now depends on the size of the credit union. | (1) Allow members to propose special resolutions
for consideration at a general meeting, if proposed in accordance
with the CUIA. (2) Some credit unions may need to amend their Rules to be consistent with the new provisions. This will require a special resolution of the members, as well as consent of the Superintendent. |
| CUIA, s. 77.1 | High | A member may propose a matter for consideration at an AGM. | (1) Allow members to propose matters for
consideration at an AGM, if proposed in accordance with the
CUIA. (2) Some credit unions may need to amend their Rules to be consistent with the new provisions. This will require a special resolution of the members, as well as consent of the Superintendent. |
| CUIA, s. 78.1 | Moderate | Credit unions can set record dates to determine members entitled to notice of a general meeting, as well as members entitled to vote at a general meeting. | If a credit union wishes to set record dates for general meetings, it must amend its Rules accordingly. This will require a special resolution of the members, as well as consent of the Superintendent. |
| FIA, s. 139.1 | High | A wider range of transactions now require regulatory approval. | Keep track of which types of transactions require regulatory approval and obtain any applicable approval as specified in the Credit Union Transactions Regulation. |
| FIA, s. 266 | Low | Deposit insurance coverage is eliminated for deposits made by savings institutions. | N/A |
More detail about the changes in force as of February 17, 2022 is set out below:
1. Use of Trade Names
A credit union will be permitted to carry on business or identify itself by a name other than its corporate name, subject to the CUIA and to other prescribed requirements, conditions and restrictions. This change reflects an operational practice that some credit unions have already implemented, even before Bill 37. For example, credit unions often continue to operate a DBA (i.e., doing business as) or division name upon the completion of a merger in order to leverage the goodwill of the legacy credit union. The changes introduced by Bill 37 explicitly allow this practice, provided that the credit union does so in accordance with the CUIA and the Credit Union Incorporation Act Regulation.
2. Optional Common Bond
Credit unions are no longer required (but are still permitted) to have a common bond of membership. Common bonds were historically significant, but many argue that they are outdated and unnecessarily limit the ability of credit unions to compete in a highly competitive industry, particularly with respect to the prevalence of online banking and the increased mobility of members. Many BC credit unions already have a geographical bond of the entire province, and, for those credit unions, the removal of the common bond requirement will not have a significant impact.
3. Shares in Series
The Rules of some credit unions already allow for the possibility of equity shares that are issued in series. However, there was some debate as to whether series shares were previously permitted under the CUIA. The new section 55.11 of the CUIA settles the debate by explicitly permitting credit unions to issue shares, other than membership shares, in series and providing a framework to do so.
If permitted by the Constitution or Rules, the directors of a credit union may, by resolution, take certain related actions, such as attaching or altering special rights or restrictions on a series of shares, provided that each share of a series must have the same special rights or restrictions.
No series of shares may have priority over another series of shares of the same class, whether on payment of dividends or of proceeds on liquidation, dissolution or wind-up.
4. Members' Requisition of Special Resolutions
Previously, the number of member signatures required for a requisition for consideration of a special resolution at a Special General Meeting or an Annual General Meeting was 5% of members or 300, whichever was less.
The amendments to sections 76 and 77 of the CUIA adjust the minimum number of members required to requisition a special resolution, instead basing the number on the size of the credit union, as follows:
- if the credit union has 6,000 or fewer members, the number of members required to requisition a special resolution is 5% of the members (i.e., 300 or less); and
- if the credit union has more than 6,000 members, the number of members required to requisition a special resolution is 300 members plus 1% of the difference between the number of members and 6,000 members.
5. Member's Proposal at an AGM
A new section 77.1 of the CUIA introduces a procedure for a member of a credit union to propose a matter for consideration at an Annual General Meeting. The proposal must be submitted to the credit union at least 90 days before the anniversary date of the last AGM or at least 90 days before the date of the next AGM. Interestingly, a single member may submit a proposal in this manner on his or her own.
6. Record Dates
Credit unions are now permitted to set record dates to determine the members entitled to notice of and to vote at a general meeting. The record dates must not be more than two months before a general meeting. If credit unions choose not to set record dates, the default record date will be 5 p.m. on the day immediately preceding the first date on which notice is sent, or if no notice is sent, the beginning of the meeting.
This provision does not extend to setting record dates for director elections or special resolutions.
7. Consent for Prescribed Transactions
Previously, credit unions were only required to obtain regulatory approval for transactions that involved corporate structural changes, such as mergers or continuances. Under the new provisions, credit unions, including central credit unions, are required to obtain consent from the Superintendent prior to entering into certain other prescribed transactions.
A new regulation, the Credit Union Transactions Regulation, has been created setting out the types of transactions requiring Superintendent consent, as well as the criteria for obtaining Superintendent consent.
8. Deposit Insurance
The recent changes have eliminated deposit insurance coverage for deposits in a credit union made by a savings institution or its subsidiary, or in which a savings institution has a beneficial interest. The Ministry of Finance has indicated that this provision has been implemented because of the fact that large interbank deposits raise serious risks for the liquidity of credit unions in times of financial stress.
SUMMARY OF CHANGES COMING INTO FORCE ON JUNE 30, 2022
| Source | Impact | Change | Credit Union Obligation |
|---|---|---|---|
| FIA, s. 94.2 | High | Credit unions are required to have a Code of Market Conduct. | The Board of Directors must prepare, file and adopt a Code of Market Conduct. |
| FIA, s. 94.3 | High | Credit unions are required to abide by certain complaint resolution requirements. | (1) Establish complaint resolution
procedures. (2) Designate an officer or employee responsible for implementing the procedures. (3) Designate one or more officers or employees to receive and deal with complaints. (4) Publish the complaint resolution procedures on the credit union's website. (5) Provide the procedures in writing to any person who requests them. (6) Become a member of the Ombudsman for Banking Services and Investments (OBSI). |
The changes that will come into force as of June 30, 2022, are focused primarily on consumer protection and include the following:
1. Code of Market Conduct
The Board of Directors of a credit union will be required to adopt a code of market conduct for the credit union, as well as file a copy of the code with the Superintendent, along with any amendments. The Superintendent may direct the Board of Directors to amend the code at any time. We expect that many credit unions will adopt the template market conduct code that has been prepared by the Canadian Credit Union Association (CCUA).
If the Board of Directors does not adopt a code of market conduct, the BC Financial Services Authority (the "BCFSA") may require them to adopt a code established by the BCFSA.
According to the Ministry of Finance, the requirement to adopt and abide by a code of market conduct will help maintain public confidence in credit unions.
2. Complaint Resolution
Credit unions will be required to establish procedures for dealing with complaints made to the credit union in relation to products or services of the credit union. Credit unions will also be required to:
- designate an officer or employee responsible for implementing the complaint procedures;
- designate one or more officers or employees to receive and deal with complaints;
- publish the complaint resolution procedures on the credit union's website; and
- provide the procedures in writing to any person who requests them.
In addition, a new Credit Union Complaint Resolution Regulation will require credit unions to be a member of the Ombudsman for Banking Services and Investments to deal with complaints that are not dealt with internally to the satisfaction of complainants.
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.
