Ontario credit unions are regulated through a comprehensive regulatory framework, in addition to their own by-laws and articles of incorporation. They are also expected to adhere to FSRA issued Guidance Notes and Advisories that outline sound business and financial practices.
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Deposit Insurance Reserve Fund (DIRF)
Deposit Insurance Coverage for Ontario Credit Unions and Caisses Populaires
The Financial Services Regulatory Authority of Ontario’s (FSRA) deposit insurance program protects insurable deposits held with Ontario credit unions and caisses populaires. Deposit insurance is part of a comprehensive depositor protection program that ensures the safety and soundness of credit unions and caisses populaires.
The DIRF is set out under the Credit Unions and Caisses Populaires Act, 1994. It is administered by FSRA and funded by Ontario credit unions and caisses populaires at no cost to depositors. As required, FSRA’s Board of Directors has established a DIRF Advisory Committee to oversee the DIRF. Please see FSRA’s 2018-19 Annual Report for the most recent value of the DIRF. The fees that Credit Unions are required to pay to support the DIRF are set out in the Credit Unions and Caisses Populaires Act, 1994.
In addition to the DIRF, FSRA has a credit facility with the Ontario Financing Authority (OFA). The credit facility offers contingency funding to FSRA to protect depositors, safeguard the liquidity of the credit unions, and maintain confidence in the sector. The Government of Ontario has recently agreed to enhance the credit facility provided to FSRA, with an increased limit of $2B for a period of 12 months.
Why do credit unions contribute to the deposit insurance fund?
One of FSRA’s most important responsibilities is the obligation to ensure that depositors are protected from loss in the event that a credit union or caisse populaire is unable to pay its depositors. In order to ensure that we can fulfil this obligation, the Credit Unions and Caisses Populaires Act, 1994 (CUCPA) requires FSRA to maintain a deposit insurance reserve fund.
What does DIRF cover?
Deposit insurance covers eligible deposits up to the prescribed statutory limit of $250,000 for each individual depositor in non-registered accounts. Maximum individual depositor protection applies to the total of all insurable deposits a member holds at the same credit union. Joint accounts are covered separately from those held by individuals in their own names. Deposit held in trusts are covered up to $250,000 for each named beneficiary. Separately from non-registered accounts, eligible deposits held in registered accounts (RRSP, RRIF, RSDP, RESP and TSFA) have unlimited insurance protection.
FSRA automatically insures savings and chequing accounts, term deposits (GICs), money orders, certified cheques, and funds in transit. If a credit union is unable to repay all its insured deposits, the DIRF is used to pay deposits up to the maximum prescribed limits for deposits held in each of the separate categories of FSRA deposit insurance coverage. FSRA’s credit facility with the Ontario Financing Authority also offers supplementary financing to FSRA.
The DIRF can also be used to pay-out deposit insurance claims and provide financial assistance to a credit union under administration (for example, supporting the operations of the credit union under administration and orderly wind up.)
How much do credit unions contribute to the insurance fund?
Credit Unions are charged an annual deposit insurance premium based on their level of capital and corporate governance scores. The premium rate calculation is set out in regulations under the CUCPA. The premium rate range is set in order to gradually grow the DIRF towards the target size of 100 bps (or 1%) of total insured deposits.
Annually, FSRA reviews and evaluates the Board-approved long-range DIRF target and its adequacy using models. In the same context, FSRA also annually reviews the range of deposit insurance premium rates and may propose recommended changes for the government’s consideration.