Meeting summary

TAC for Supervisory and Regulatory Initiatives

Date: November 4th and 9th
Time: 9:30-11am / 2:30-4pm
Location: Virtual

The first meeting (split across two dates) of the Supervisory and Regulatory Initiatives TAC focused primarily on new Approach Guidance FSRA is developing. This includes the implementation of the new risk based supervisory framework and our approval processes for new business and investment activities under the new Credit Unions and Caisses Populaires Act, 2020 (the Act).

Approach Guidance: Risk-Based Supervisory Framework (RBSF)

Timeline

FSRA presented its proposed timeline for developing the RBSF Approach Guidance which includes a sector consultation period. It is anticipated that the Approach Guidance will be finalized in April 2022. FSRA will start assessing credit unions under RBSF in 2022.  

RBSF Approach Guidance

FSRA presented an overview of the integrated RBSF that will set out how FSRA assesses the risk profiles of credit unions and determines the required level of supervisory engagement and intervention.  As part of this discussion, FSRA discussed its guiding principles for its approach, including being outcomes-focused and principles-based.

Supervisory process

FSRA walked the committee through the various stages of the risk profile assessment process, including the four sub-frameworks: Inherent Risks, Quality of Controls and Oversight (QCO), Capital and Liquidity, and Resilience (non-financial).

The final risk rating, Overall Risk Rating (ORR), will be an aggregation of the assessments performed using the four sub-frameworks. The ORR provides an assessment of the credit union’s overall risk profile and reflects the safety and soundness of the credit union and its business conduct.

FSRA will assess the extent to which credit unions are able to demonstrate that they have a comprehensive risk management process to identify, measure, evaluate, monitor, report and mitigate all material risks effectively and on a timely basis.

It was noted that the RBSF sets out FSRA’s approach to supervision, as it provides transparency around FSRA’s supervisory process and practices, but does not impose any compliance obligations on credit unions.

What does this mean for Credit Unions?

The adoption of principles-based regulation (PBR) and risk-based supervision (RBS) will change the way  credit unions are supervised under the new regulatory framework. FSRA guidance will generally not provide thresholds, checklists, or other prescriptive metrics for credit unions to meet. Instead, it will state desired outcomes, and credit unions will be responsible for determining how to effectively meet the outcomes.

Summary of questions related to RBSF

Resources and Training. FSRA advised that its supervisory team has been  undertaking extensive training over the past year, with a focus on PBR and RBS. While the initial roll out of this framework will require additional resources and effort, efficiencies will be achieved once it reaches a steady state, which will ultimately be aligned with burden reduction both for credit unions and FSRA.

Scope and Frequency.  FSRA confirmed that the scope of an assessment under the RBSF would be relatively broad. During an assessment, anything that could impact the risk profile of the credit union, including subsidiaries and parent companies, would be considered.

One committee member inquired about the frequency and duration of examinations and asked whether this will change significantly from existing practices. FSRA noted that the greater the size and complexity of the credit union and/or the higher its ORR, the higher the level of supervisory intensity. Depending on the risk profile, various examination tools will be utilized, like full-scope examinations, limited scope examinations, and desk reviews that will be flexible in duration and frequency.

Data Requirements. Some committee members inquired about  data requirements under the new RSSF, in particular for smaller credit unions. FSRA advised that proportionality will be applied, and data requirements will be tailored and optimized against a credit union’s capabilities and what makes sense from a risk perspective.

Transparency. The committee asked if credit unions will be able to see their overall risk rating assessments and if FSRA intends to publish assessment criteria as part of the guidance. FSRA confirmed the overall risk rating would be provided to credit unions, and a conversation would be held with the credit union to explain the rating. As well, a Supervisory Letter will be issued that will provide details and rationale for the rating and explain the recommendations and requirements with supporting findings.  With the principles-based approach, FSRA would like to remain flexible and open and not to subject all credit unions to one specific set of published prescriptive assessment criteria. However,  this is a topic that FSRA would be willing to discuss through the consultation process.

Framework. One committee member asked if the RBSF would consider a credit union’s capacity to bear risk. FSRA confirmed that the framework contains tools for the supervisory team to use and assess credit unions for their safety and soundness which will aid in determining the stability of the sector. In doing this, the sub frameworks will allow FSRA to assess and come up with an accurate risk profile of a credit union.  Part of the assessment will include reviewing historical, regional, sector, and forward-looking risk data. Each credit union will be assessed on a current and forward-looking basis. The risk assessment process and risk ratings will be dynamic. Under this framework, FSRA will be updating the ratings at different points in time as more information becomes available to ensure ratings remain accurate and current.

Sub-Frameworks. The committee asked if a credit union’s ERM risk assessment would be leveraged during the RBSF assessment process. FSRA confirmed credit union ERM components will be reviewed to determine how they can be assessed in the various sub frameworks.

Risk Ratings. The committee discussed the process for resolving disagreements between FSRA and a credit union about an assessment. FSRA advised these discussions would be initially managed by the Relationship Management team , and if the disagreement is not resolved at that level, there would be an escalation process within FSRA that could be utilized.

FSRA noted that risk ratings will be determined on a continuous scale. FSRA noted that optimization was a key consideration in the rating scale, along with consistency of application and clarity for credit unions. The proactive and dynamic characteristics of RBSF provides for early warning signals and proactive communication between FSRA and the credit union.

Impact on Premiums. One committee member asked if the FSRA Regulatory Assessment would continue to be driven by risk-weighted assets, or if it would be driven by the ORR going forward. FSRA noted the current regulatory assessment is within the Fee Rule,  and is not being reviewed at this time and therefore will continue to use risk-weighted assets as the driver in the determination of  prudential assessments. A new Differential Premium System (DPS) methodology for deposit insurance premium determination is currently being developed to better incorporate the risk profile of the credit union as determined through the RBSF process (using the ORR and potentially other metrics within the framework). This will more accurately align the level of deposit insurance premiums with the riskiness of each individual credit union. This proposed new methodology will be consulted on.

Approach Guidance: Business and Investment activities

Under the Act, credit unions will have increased flexibility with respect to Business and Investment Activities, and FSRA will have discretionary powers to approve certain activities. The development of Approach Guidance is underway to explain how FSRA will support and approve those activities. Details of the new draft Guidance will be discussed at the next TAC meeting, including the principles that will be used when considering applications, for input by the committee.

In addition to the Approach Guidance, FSRA is also contemplating the creation of a supporting guide with further operational details (e.g., examples of specific documentation to submit with an application).

One committee member asked about new investment activities in the context of FSRA’s new Capital Adequacy Rule. FSRA advised that while the Capital Adequacy Rule is following a separate consultation process to the Approach Guidance, and the feedback received during the consultation period has been taken into consideration.

Next steps

A meeting of this committee with be scheduled for early December to further review the content of the Business and Investment Activities Approach Guidance along with the proposed Resolution Guidance.

Attendance record

Invited/Attended

Company Name

Attendance Status
(A)ttended; (R)egrets; (S)ubstitute;

Alena Thouin

FSRA

A / A

Daniel Padro

FSRA

A / A

Mehrdad Rastan

FSRA

A / A

Rhonda Mauricette Pollard

FSRA

A / A

Joshua Lerner

FSRA

A / A

Steve Kokaliaris

FSRA

A / A

Catherine Tam

FSRA

A / A

Kelly Brunn

FSRA

A / A

Michele Anderson

FSRA

A / A

Brigitte Elie

FSRA

A / A

Shivdeep Panaich

FSRA

A / R

Peter Stavropoulos

FSRA

A / A

Chris Georgakopoulos

FSRA

A / A

Calvin Johansson

FSRA

A / A

Bradley Hodgins

FSRA

A / R

Kerry-Ann Alleyne

FSRA

A / A

Ellen Kaross

FSRA

A / A

Daniel Friedman

FSRA

A / A

Lily Li

FSRA

A / A

Joanna Wearing

FSRA

A / A

Chris Perrin

MOF

A / A

Nathan Fahey

MOF

A / A

Vadim Gracie

BDO Canada LLP

A / A

Sunny Sodhi

Meridian Credit Union

A / A

Mike Howard

Picuz Solutions

A / A

Janet Johnson

Libro Credit Union

A / A

Sabena Sandhu

CCUA

A / A

Luc Racette

Caisse Alliance

A / A

Bernard Brun

Caisse Populaire Desjardins

A / A

Richard Adam

Northern Credit Union

A / A

Riz Ahmad

DUCA Financial Credit Union

A / A

Sandy Ferguson

Mainstreet Credit Union

A / A

Anita Saar

Northern Birch Credit Union

A / A

Anthony D’Errico

Italian Canadian Savings Credit Union

A / A

Roger Gauthier

FSRA Consumer Advisory Panel

A / A

Harry Joosten

Governance Vitality

A / A

Allison Kasper

Copperfin Credit Union

A / R

José Gallant

Alterna Credit Union

A / R