Credit Union Technical Advisory Committee (TAC) for Regulatory and Supervisory Initiatives
Date: July 21, 2023
Time: 11:00 - 12:00 pm
Attendees: See Appendix A
The meeting of the TAC for Credit Union Regulatory and Supervisory Initiatives focused on proposed Commercial Lending Guidance that FSRA is in the process of developing.
Proposed Commercial Lending Guidance
FSRA presented its rationale for developing commercial lending guidance for the credit union (CU) sector. FSRA staff then presented highlights and key elements that it is considering in the development of its interpretation of legislative requirements related to commercial lending and its approach for supervising CUs against those requirements.
FSRA provided a brief overview of the four proposed principles that would form the basis of FSRA’s interpretation of existing requirements for prudent CU commercial loan underwriting. The principles would be applied proportionally based on the size, complexity, and risk profile of the individual CU. The four proposed principles were as follows:
Principle 1: Framework
- The Board is accountable and Senior Management is responsible for developing and maintaining a prudent framework for commercial lending activities.
Principle 2: Lending & Underwriting Policy
- The Board is accountable and Senior Management is responsible for the development and review of prudent underwriting policies, standards and procedures for commercial lending.
Principle 3: Portfolio Management Systems
- Prudent commercial lending practices rely on a portfolio management system, which is implemented by Senior Management and overseen by the Board, that contains the appropriate technology, processes and systems for ongoing administration, control, and oversight to effectively support the commercial lending activity.
Principle 4: Risk Management
- The Board is accountable and Senior Management is responsible for ensuring the CU has effective risk management policies, practices and processes in place for commercial lending activities; these include the integration of Principles 1, 2, and 3 of this Guidance within the CU’s Enterprise Risk Management (“ERM”) framework, short- and long-term business plan and strategy, and capital and liquidity management activities.
The Guidance would propose to set out FSRA’s interpretation of applicable provisions under:
- Rule 2021-001 Sound Business and Financial Practices;
- Credit Unions and Caisses Populaires Act, 2020; and
- Ontario Regulation 105/22.
Finally, FSRA provided a brief overview of considerations for its approach to supervision of CUs’ commercial lending practices. This included a discussion on FSRA’s processes and practices for assessing how effectively CUs adhere to the principles stated above under the Risk Based Supervisory Framework for Credit Unions (RBSF-CU).
Summary of questions related to the Commercial Lending Guidance
- A member asked if there are milestones in meeting the requirements of the proposed guidance.
- FSRA explained that it would consider the CU's size, complexity, and risk profile in meeting the requirements of the proposed guidance.
- One member asked if FSRA could provide some further details on expectations of CUs in meeting the requirements of the proposed guidance. The member wanted to understand FSRA’s view, proactively, before the guidance is released.
- FSRA explained that it would provide assistance and direction to CUs in due course.
- A member asked whether setting obligations for the board to approve a CU’s commercial lending procedures would result in boards delving into operational matters of the CUs.
- FSRA explained that Boards are ultimately accountable for CUs achieving the required outcomes. In practice, there may be some latitude on exactly which policies and procedures the board would need to approve. This would be assessed on a case-by-case basis.
- A member asked if obligations relating to integration of technology is standard.
- FSRA explained that any CU using such tools should ensure that they are appropriate and fit into its overall framework, as well as ensuring that risks relating to the use of relevant technology are mitigated.
- Another member asked if the concern relates more to how the technology is integrated into the overall framework, as opposed to whether or not technology is being used.
- FSRA reiterated that the use of the technology should be appropriate and fit into the framework, and relevant risks should be mitigated.
- One member asked if Artificial Intelligence (AI) conflicted with Enhanced Data Collection (EDC) and how that would be reconciled going forward.
- FSRA explained that it would be open to discussion on such conflict if the situation occurs.
- A member asked about the proposed time for the issuance of the guidance.
- FSRA explained that FSRA is targeting early 2024. FSRA further clarified that the guidance may not necessarily be effective upon issuance (there may be a transition period).
- One member asked FSRA to provide the opportunity to have the draft copy of the guidance ahead of public consultation.
- FSRA will discuss this internally and consider providing a draft to the TAC in advance of publication for comment.
- Another member asked whether the proposed guidance would require CUs to change their process and procedures, even if their current commercial lending activities are prudent and operating effectively.
- The guidance would set out FSRA’s views on prudent commercial lending. If a CU is not operating in accordance with the guidance, then it would be required to adjust its practices in order to adhere to the principles. FSRA further explained that the intent of the proposed guidance is to assist CUs with getting to the required outcomes based on the size, complexity, and risk profile of each CU.
FSRA will consider the input provided at the meeting in drafting the guidance. FSRA is targeting to publish the proposed guidance for consultation in Fall 2023.
Appendix A: Attendance record
|Tenyenhuis Steven||Meridian Credit Union||A|
|Imran Khan||DUCA Financial Credit Union||A|
|Brian Lawson||Alterna Credit Union||A|
|Ed Boere||Libro Credit Union||A|
|Scott Lister||Northern Birch Credit Union||A|
|Jeff Daubs||Libro Credit Union||A|
|Sajeel Raza||Mainstreet Credit Union||A|
|Luc Racette||CP Alliance||A|
|Abid Khawaja||Northern Credit Union||A|
|Sandy Ferguson||Mainstreet Credit Union||A|
|Olivier Lareau||Caisse Populaire Desjardins||A|
|Dan Campbell||Copper Finance||A|
|Allison Kasper||Copper Finance||A|
|Riz Ahmad||DUCA Financial Credit Union||A|
|Anita Saar||Northern Birch Credit Union||A|
|Myriam Boisvert||CP Alliance||A|
|José Gallant||Alterna Credit Union||A|
|Mo Mauri||DUCA Financial Credit Union||A|
|Lionel Gutierrez||Caisse Populaire Desjardins||A|