Credit Union Technical Advisory Committee (TAC) for Supervisory and Regulatory Initiatives
Date: December 7th
Time: 9:00 - 11:00 am
The meeting of the Supervisory and Regulatory Initiatives TAC focused on the 5-year Credit Union (CU) Work Plan, the Operational Risk and Resilience Guidance, and the Innovation Office Stakeholder Engagement on assessing opportunities and barriers to innovation in the CU sector.
5-Year Credit Union work plan
FSRA presented its approach and rationale for developing a new 5-year CU work plan for the development of FSRA rules and guidance. FSRA is listening to the sector and understands that there has been a significant volume of consultations which has put a strain on CUs’ operational resources. FSRA has also heard that there is a need for open banking and climate risk guidance.
In addition to rules and guidance, the 5-year work plan considers major initiatives that require sector resources, such as the Enhanced Data Collection initiative, and aims to minimize overlap. FSRA communicated that it will develop new guidance related to open banking and climate risk and will also develop one new rule related to restricted party transactions.
FSRA also stressed that the work plan, when finalized, is subject to change on account of any unforeseen circumstances that may arise.
Summary of questions related to the 5-year work plan
A member communicated that they were surprised to see that the Rules (Capital Adequacy Requirements Rule (CAR), Liquidity Adequacy Requirements Rule (LAR), and Sound Business and Financial Practices Rule (SBFP)) are being revisited so quickly after they went into effect in 2022.
- FSRA stated that the Rules were always meant to be proactively reviewed within 5 years to address issues that have come up since their implementation and to keep up with evolving sector trends.
One member raised a question about stress testing, as there is no stress testing department in CUs to undertake this activity.
- FSRA is looking for opportunities to review the Stress Testing Guidance and provide some clarity in certain areas. This guidance has been in existence for some time in several different iterations for CUs that have over $500M total assets.
- FSRA will examine the Stress Testing Guidance and assess if there is a need to separate elements that are associated with capital or liquidity, and streamline the guidance as well as remove any redundancies between our other rules and guidance. Both the LAR and CAR have stress testing requirements through the Internal Capital Adequacy Assessment Process (ICAAP) or Internal Liquidity Adequacy Assessment Process (ILAAP).
A stakeholder asked about the Securitization Guidance as they thought it has become outdated and is overly prescriptive. It was suggested that this guidance should be reviewed to reflect the current environment.
- FSRA to consider adding Securitization Guidance to the 5-year work plan.
A member requested clarification on whether FSRA is looking to time the guidance concurrently with the development of the federal open banking framework.
- FSRA can adjust the 5-year work plan to ensure that work on the Open Banking Guidance coincides with the launch of the federal open banking framework.
A member asked about restricted party transactions and if there were issues that FSRA has observed in this area.
- FSRA communicated that there was a CU that was engaging in restricted party transactions; however, this is not a widespread issue throughout the CU sector.
A member raised the point that the cycle time from the initial consultation to the final release and effective date of guidance tends to be fairly short and does not give CUs enough time to prepare and plan. The members asked if there is any room for flexibility.
- FSRA aims to be flexible and will carefully set the “effective date” of guidance to provide CUs with enough time following the publication of final guidance to implement their plans.
In general, stakeholders were in consensus that spreading out consultation timelines and/or having transition periods similar to the Office of the Superintendent of Financial Institutions (OSFI) would be helpful.
FSRA will consider this feedback going forward.
Operational Risk and Resilience Guidance
FSRA presented an overview of its forthcoming Approach and Interpretation Guidance and expected timelines for implementation. FSRA also communicated that it will release Open Banking Guidance in the future for CUs that would like to participate in open banking. It will take a holistic approach to assessing and evaluating a CU’s data management and governance risks, IT risk management, and effective overall risk management to ensure that consumers’ privacy/security are not exposed.
Summary of questions related to the Operational Risk and Resilience Guidance
A member asked how much detail FSRA will have in the interpretation guidance on procurement, data management, etc.?
- FSRA will take a principles-based and outcomes-focused approach to allow for proportionality, size/scale, and complexity of the CU.
- FSRA welcomes the feedback and would like the guidance to be as detailed, clear, and robust as possible, including all relevant issues/scope of issues.
A member asked about the implementation timeline and if they can get more detail or the full guidance to respond accordingly.
- FSRA will review this request and decide if we can share an early draft version with the committee that is subject to change to better inform future discussions. This is also something that we can consider for future guidance to help with the consultation process. (An early draft of the guidance was shared with the TAC on January 12th).
Assessing opportunities for and barriers to innovation in Ontario’s CU sector
FSRA provided an overview of the work on assessing the innovation state of play in each of FSRA’s regulated sectors to better understand how FSRA can support innovation and address barriers to/ opportunities for innovation. FSRA provided background on the work that has been done in the context of the mortgage brokering and insurance sectors, as they were the pilot sectors for this Innovation Office initiative.
FSRA’s Innovation Office conducted a review through two distinct but complementary work streams:
- internal analysis/assessment and scoping of trends where the Innovation Office has worked with counterparts across FSRA to highlight emerging trends and ideas driving innovation; and
- stakeholder engagements and roundtables.
It became clear that the sector is very engaged and interested and that their feedback is key to helping FSRA frame the innovation state of play in the two sectors.
These discussions were well-received by our stakeholders as a proactive attempt to imagine the future of their sectors, while also providing them with an opportunity to contribute to FSRA’s thinking around emerging issues.
Summary of questions
A member communicated that Ontario needs more innovation in the CU system and economies of scale, as financial services provision continues to be transformed by digitization.
- FSRA acknowledges that this requires national coordination and collaboration with other regulators. We are a member of the international global innovation network and are collaborating and coordinating with other regulators and provincial/federal authorities as FSRA progresses on its innovation journey.
A stakeholder asked about: a) timing on the stakeholder roundtables and expressed that it would be beneficial to extend timelines to give the sector more capacity and time; b) Is the goal to potentially create a sandbox regulatory environment to test new technologies in a controlled environment that enables innovation, and if so, can they be temporarily exempt from certain regulatory requirements to test and pilot new innovation?
- FSRA’s Innovation Office would like to pursue this and create sandbox opportunities and our test and learn environment can be expanded. We are actively working with interested parties on using discretion instead of an exemptive authority on some rules to allow latitude for FSRA in exercising its discretion.
- In terms of next steps, the Innovation Office is asking for the sector’s participation in stakeholder roundtables similar to the two conducted in the pilot initiatives for the mortgage brokering and insurance sectors.
- These stakeholder roundtables would begin in early February.
The sector should expect another TAC meeting on the early side of the new year. We are looking at developing a rule governing unclaimed deposits due to an unproclaimed provision in the Credit Unions and Caisses Populaires Act 2020 and would appreciate the TAC’s input before drafting the rule outline.
|Ministry of Finance
|Ministry of Finance
|Copperfin Credit Union
|Northern Birch Credit Union
|BDO Canada LLP
|Caisse Populaire Desjardins
|Libro Credit Union
|Alterna Credit Union
|Caisse Populaire Alliance
|motusbank (Meridian Credit Union)
|Northern Credit Union
|DUCA Financial Credit Union
|Meridian Credit Union