Canada: Federal Credit Union Draft Regulations Released For Comment

Last Updated: July 19 2012
Article by Robert E. Elliott, Kathleen Butterfield and Koker Christensen

In July 2010 the federal Government established a legislative framework for the creation of federal credit unions and to permit provincial credit unions to continue voluntarily as federal credit unions under the Bank Act. These amendments to the Bank Act will be proclaimed in force once implementing regulations are finalized. On July 7, 2012 the Governor in Council published draft regulations in the Canada Gazette, Part I for comment. Interested parties must submit their comments by August 6, 2012. This Bulletin summarizes the following draft regulations under the Bank Act:

  • Disclosure on Continuance Regulations (Federal Credit Unions);
  • Federal Credit Union Conversion Regulations;
  • Guidelines Respecting Control in Fact for the Purpose of Section 377.2 of the Bank Act;
  • Prospectus (Federal Credit Unions) Regulations; and
  • Regulations Amending Certain Regulations made under the Bank Act.

In addition, the Governor in Council has released for comment amendments to Canadian Payments Association (CPA) By-law Number 1 (General), CPA By-law Number 3 (Payment Items and Automated Clearing Settlement System) and the Canadian Payments Association Election of Directors Regulations, which are also briefly summarized.

Disclosure on Continuance Regulations (Federal Credit Unions)

These Regulations prescribe the manner in which information is to be provided, and some of the information that must be provided, to members and customers of a provincial credit union prior to its members approving an application to the Minister for continuance as a federal credit union. The content of the notice must receive prior approval by the Superintendent of Financial Institutions (Canada) (Superintendent) in consultation with the Canada Deposit Insurance Corporation. A key concern is that members be made aware of differences in coverage between provincial and federal deposit insurance schemes.

Federal Credit Union Conversion Regulations

These Regulations specify the process to be followed and disclosure to be made prior to members of a federal credit union approving the conversion of the credit union to a bank with common shareholders. Similar in structure to the insurance company demutualization regulations, these Regulations specify the content of a conversion proposal and other information applicants are required to prepare and file with the Superintendent as well as the content of an application to the Minister of Finance (Canada) (Minister). The Regulations provide that, unless the converted credit union will become publicly listed within three years of its conversion, the converted credit union's by-laws are to contain restrictions on the number of common shares issued as well as restrictions on the transfer of those shares.

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

These Guidelines set out the policy objectives and factors to be considered by the Minister in determining whether an acquisition of a significant interest in a federal credit union would respect the prohibition on a person having control in fact of that credit union. These Guidelines are substantially similar to the existing bank ownership control in fact guidelines, the Guidelines Respecting Control in Fact for the Purpose of Subsection 377(1) of the Bank Act.

Prospectus (Federal Credit Unions) Regulations

These Regulations address the requirements for disclosure by federal credit unions when issuing securities, which are generally determined by provincial securities law. These Regulations incorporate by reference provincial prospectus requirements – subject to certain minimum disclosure requirements – and provide that an exemption from those provincial requirements constitutes an exemption from federal prospectus requirements. A federal credit union that is exempt from having to provide a prospectus is required to comply with certain disclosure requirements set out in these Regulations in respect of securities issued to any individual members, except in the event that the securities are an issue of shares as a dividend or patronage allocation under the Bank Act.

Regulations Amending Certain Regulations under the Bank Act

These Regulations specify consequential amendments to existing Bank Act regulations so that they also apply to federal credit unions. Regulations amended are:

  • Access to Basic Banking Services Regulations;
  • Affiliated Persons (Banks) Regulations;
  • Civil Remedies (Banks and Bank Holding Companies) Regulations;
  • Equity of a Bank or a Bank Holding Company Regulations;
  • Going-Private Transaction (Banks and Bank Holding Companies) Regulations;
  • Meetings and Proposals (Banks and Bank Holding Companies) Regulations;
  • Minority Investment (Bank Holding Companies) Regulations;
  • Minority Investment (Banks) Regulations;
  • Regulatory Capital (Banks) Regulations; and
  • Related Party Transactions (Banks) Regulations.

By-law Amending Certain By-laws Made Under the Canadian Payments Act

The amendment to CPA By-law No. 1 (General) is a conforming change further to earlier amendments to paragraphs 9(3)(a) and 9(3)(b) of the Canadian Payments Act, which require federal credit unions to participate in the cooperatives class for the purpose of the selection of board members to the CPA finance committee.

The amendment to CPA By-law No. 3 (Payment Items and Automated Clearing Settlement System) provides federal credit unions with the option of belonging to a group for clearing purposes, such that their payment items would be cleared by a group clearer.

Regulations Amending the Canadian Payments Association Election of Directors Regulations

These Regulations amend the process for the election of directors to the CPA board. These amendments have the effect of requiring federal credit unions to vote and otherwise participate in the governance of the CPA as part of the cooperatives class of members rather than the bank class, thereby maintaining the current level of participation in the governance of the CPA by the credit union movement.

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