(Post-FSRA board approved version)
Background
FSRA’s Board Approved Draft Liquidity Adequacy Requirements for Credit Unions and Caisses Populaires Rule (Rule) promotes a stronger credit union sector by setting requirements for the assessment and maintenance of adequate and appropriate forms of liquidity. The Rule is largely based on the existing liquidity guidance and completion guides and further aligns with international standards with adjustments similar to other Canadian jurisdictions.
The Rule sets requirements for:
- Diversification of Funding
- Calculation and Reporting of Liquidity Metrics: Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), and Net Cumulative Cash Flow (NCCF)
- Internal Liquidity Adequacy Assessment Process (ILAAP)
The Rule will be made under the new Credit Unions and Caisses Populaires Act, 2020, once proclaimed into force.
Stakeholder Consultation
On June 14, 2021, the Rule was posted for public consultation for a 90-day period, ending on September 14, 2021. During this period, FSRA held a technical briefing that was accessible to the public and engaged in multiple meetings with credit union sector stakeholders to respond to comments and questions about the Rule.
Outcome of Consultation
Based on the feedback from the consultation, FSRA has incorporated minor changes and technical clarifications to the inputs for calculating liquidity metrics in the Rule in a manner consistent with international standards and appropriate for Ontario’s credit unions.
Feedback from the Consultation
FSRA has made minor changes and technical clarifications to address the comments received. The changes would better align the Rule with international standards in a manner appropriate for Ontario’s credit unions. FSRA is also developing reporting templates that reflect the application of the Rule to support credit unions’ liquidity reporting to FSRA once the Rule comes into force.
FSRA would like to thank all stakeholders that commented on the Rule. FSRA has carefully considered all comments before finalizing and submitting the Rule to the Minister of Finance.
FSRA received written submissions from the following seven credit unions and associations, which are available on FSRA’s website:
|
Organization |
Representative |
|
|---|---|---|
| 1 |
Alterna Savings and Credit Union (Alterna) |
Rob Paterson |
| 2 |
Canadian Bankers Association (CBA) |
Alex Ciappara |
| 3 |
Canadian Credit Union Association (CCUA) |
Nick Best |
| 4 |
Central 1 Credit Union (Central 1) |
- |
| 5 |
FirstOntario Credit Union (FirstOntario) |
Lloyd Smith |
| 6 |
Libro Credit Union (Libro) |
Stephen Bolton |
| 7 |
Meridian Credit Union (Meridian) |
Tara Daniel |
|
Subject |
Stakeholders |
Summary of Stakeholders’ Feedback |
FSRA’s Response |
|---|---|---|---|
|
Liquidity Metrics |
|
Stakeholders requested that the liquidity metrics include the following inputs:
|
FSRA’s intent is for the inputs for calculating the liquidity metrics (LCR, NSFR, NCCF) in the Rule reflect international standards.
As a result of the consultation, FSRA has made additions to the liquidity metrics, in a manner consistent with international standards. |
|
Internal Liquidity Adequacy Assessment Process |
|
Stakeholders requested that FSRA support the sector as they develop ILAAPs and be flexible in their supervision of ILAAPs as real-world experience is developed.
A stakeholder proposed that the ILAAP be introduced through a transition period. |
FSRA will work with the sector as they develop their ILAAPs. The ILAAP is an outcomes-focused requirement with proportional application and should be viewed as an iterative process which is regularly improved.
FSRAs existing liquidity guidance has substantially the same requirements as the ILAAP as set out in the Rule. Therefore, no transition period is being contemplated at this time, nor are prescriptive expectations.
As required, ILAAP related material may be developed. |
|
Loan Maturities |
|
Stakeholders proposed that the section on the treatment of loan maturities be expanded to include additional information, similar to what is available in the Liquidity Coverage Ratio Completion Guide. |
Based on the comments received, FSRA has updated the language on the treatment of loan maturities, in a manner consistent with international standards. |
|
Internet Account |
|
A stakeholder proposed that the Rule remove reference to “internet account” in Table 3, as it does not reflect the use of digital technology in banking. |
Based on the comment received, FSRA has updated Table 3, in a manner consistent with international standards. |
|
Performing Loans |
|
A stakeholder proposed that the section on the treatment of performing loans be expanded to include additional information, similar to what is available in the Liquidity Coverage Ratio Completion Guide. |
Based on the comment received, FSRA has updated the language on the treatment of performing loans, in a manner consistent with international standards. |
|
Proportionality |
|
A stakeholder requested clarification on what FSRA considers “appropriate compensating actions” for those credit unions under $500 million in assets who choose not to implement a NSFR and/or NCCF. |
Appropriate compensating actions could include policies and metrics that manage funding risk and long-term liquidity needs.
FSRA will take a principle-based and outcomes-focused approach, recognizing that appropriate compensating actions will vary depending on the structure, size, complexity and risk profile of the credit union. |