Overview of Amendments on Ontario’s Liquidity Guidance for Credit Unions | Financial Services Regulatory Authority of Ontario

The following table (beginning on page 2) describes the amendments to FSRA’s liquidity guidance documents, which were publicly consulted over the period of November 2 – December 2, 2021. The table reflects feedback received from the public consultation.

The following liquidity guidance documents have been amended and reissued:

Guidance Note: Liquidity Guidance (2018)
Guidance Note: Stress Testing – Credit Unions With Assets Greater Than $500 Million (2017)
Liquidity Coverage Ratio Completion Guide (2017)
Net Cumulative Cash Flow Completion Guide (2017)
Net Stable Funding Ratio Completion Guide (2017)

The amendments that have been made to the liquidity guidance are specifically with the aim of promoting the safety of the assets that credit unions (CUs) hold for liquidity purposes. On November 5, 2020, the government introduced the Credit Unions and Caisses Populaires Act, 2020 and announced its intention to bring the new legislation into force in 2022. The new legislation, once proclaimed, will provide FSRA with the authority to develop rules in a number of areas, including liquidity. Over 2021, FSRA will work collaboratively with the sector to develop a new liquidity rule which will be principles-based, replace existing liquidity guidance and aim to modernize the liquidity framework for Ontario CUs.

Liquidity assets and management

Amendment	Rationale
The following sentence has been removed from the Completion Guide: Liquidity Coverage Ratio under the section “Level 1 Assets”: Liquidity Reserve Deposit with Central 1 or a League;	This removal promotes the objective of ensuring that assets used to meet High Quality Liquid Assets (HQLA) requirements are unencumbered and, when managed by a third-party provider, are held in a structure that is bankruptcy remote and protected from creditors of the third-party provider. CU deposits that are currently held in the Central 1 Mandatory Liquidity Pool (MLP) and transitioned to the new Central 1 trust structure will be considered HQLA, provided that the trust structure satisfies the principles set out in guidance (i.e., creditor proof & bankruptcy remote) and that the assets being held meet HQLA criteria, as set out in the guidance.

Amendment

Rationale

The following sentence has been removed from the Completion Guide: Liquidity Coverage Ratio under the section “Level 1 Assets”:

Liquidity Reserve Deposit with Central 1 or a League;

This removal promotes the objective of ensuring that assets used to meet High Quality Liquid Assets (HQLA) requirements are unencumbered and, when managed by a third-party provider, are held in a structure that is bankruptcy remote and protected from creditors of the third-party provider.

CU deposits that are currently held in the Central 1 Mandatory Liquidity Pool (MLP) and transitioned to the new Central 1 trust structure will be considered HQLA, provided that the trust structure satisfies the principles set out in guidance (i.e., creditor proof & bankruptcy remote) and that the assets being held meet HQLA criteria, as set out in the guidance.

Amendment	Rationale
The following sentence has been removed from the Completion Guide: Net Stable Funding Ratio under the section “Assets Assigned a 0% RSF factor”: Liquidity Reserve Deposit with Central 1 or a League;	See rationale for amendment 1

Amendment	Rationale
Section Title: Bankruptcy Remote and Creditor Proof Credit unions should ensure that their liquidity assets are unencumbered. A credit union may choose to hold its liquidity assets in a structure that uses one or more third-party service providers, such as an asset manager, custodian and/or trustee. The credit union must ensure that its liquidity assets are not subject to the claims of the creditors of these third-party service providers. This includes, but is not limited to, circumstances involving the insolvency, bankruptcy or winding-up of these third-party service providers. If the use of a third-party service provider may create a risk to a credit union’s liquidity assets, the credit union’s board and management should act prudently to investigate, evaluate and mitigate such risk. As part of this, it would be prudent to obtain any opinion from external legal counsel confirming that the credit union’s liquidity assets which involve the use of third-party service providers are not subject to the claims of the creditors of these third-party service providers. This includes, but not limited to, in circumstances involving the insolvency, bankruptcy or winding-up of these third-party service providers. This opinion should be made available to FSRA upon request. The legal opinion should be updated as necessary because of, amongst other things, changes to applicable laws or the structure used to hold the credit union’s liquidity assets.	This addition promotes the safeguarding of CU liquidity assets when managed by third-party providers. It will ensure that creditors of a CU’s liquidity provider do not have access to such assets, so that there is assurance that they are available to a CU if and when needed. This will improve the certainty that a CU can swiftly and reliably access liquidity in “business as usual” and crisis scenarios.

Amendment

Rationale

Section Title: Bankruptcy Remote and Creditor Proof
Credit unions should ensure that their liquidity assets are unencumbered. A credit union may choose to hold its liquidity assets in a structure that uses one or more third-party service providers, such as an asset manager, custodian and/or trustee. The credit union must ensure that its liquidity assets are not subject to the claims of the creditors of these third-party service providers. This includes, but is not limited to, circumstances involving the insolvency, bankruptcy or winding-up of these third-party service providers.

If the use of a third-party service provider may create a risk to a credit union’s liquidity assets, the credit union’s board and management should act prudently to investigate, evaluate and mitigate such risk. As part of this, it would be prudent to obtain any opinion from external legal counsel confirming that the credit union’s liquidity assets which involve the use of third-party service providers are not subject to the claims of the creditors of these third-party service providers. This includes, but not limited to, in circumstances involving the insolvency, bankruptcy or winding-up of these third-party service providers. This opinion should be made available to FSRA upon request. The legal opinion should be updated as necessary because of, amongst other things, changes to applicable laws or the structure used to hold the credit union’s liquidity assets.

This addition promotes the safeguarding of CU liquidity assets when managed by third-party providers. It will ensure that creditors of a CU’s liquidity provider do not have access to such assets, so that there is assurance that they are available to a CU if and when needed. This will improve the certainty that a CU can swiftly and reliably access liquidity in “business as usual” and crisis scenarios.

Amendment	Rationale
The following sentence has been added to the Guidance Note: Liquidity under the section “Assets Held for Liquidity”: Credit unions should have unfettered and timely access to assets held for liquidity purposes.	This addition ensures that a CU can quickly access their HQLA if needed suddenly and unexpectedly.

Amendment	Rationale
The following paragraph has been added to the Completion Guide: Liquidity Coverage Ratio under the section “HQLA”: 7.Credit unions should ensure that their HQLA held and/or managed by a third-party provider (i.e., asset manager, custodian, trustee) be available on demand, unencumbered, and held in a structure that is bankruptcy remote and creditor proof. For greater clarity, this means that the credit union’s assets held for liquidity purposes and managed by a third-party provider must not be subject to the claims of the creditors of that third-party provider, including in the circumstances of its potential insolvency, bankruptcy or winding-up. 8. A credit union’s management and board should ensure that the credit union has timely and unfettered access to its HQLA before leadership includes them in their LCR calculation.	See rationale for amendment 3 & 4

Amendment

Rationale

The following paragraph has been added to the Completion Guide: Liquidity Coverage Ratio under the section “HQLA”:

7.Credit unions should ensure that their HQLA held and/or managed by a third-party provider (i.e., asset manager, custodian, trustee) be available on demand, unencumbered, and held in a structure that is bankruptcy remote and creditor proof. For greater clarity, this means that the credit union’s assets held for liquidity purposes and managed by a third-party provider must not be subject to the claims of the creditors of that third-party provider, including in the circumstances of its potential insolvency, bankruptcy or winding-up.

8. A credit union’s management and board should ensure that the credit union has timely and unfettered access to its HQLA before leadership includes them in their LCR calculation.

See rationale for amendment 3 & 4

Liquidity reporting metrics

Amendment	Rationale
The following paragraph has been added to the Guidance Note: Liquidity under the section “Stress Testing Metrics”: CUs with assets equal to or less than $500 million are required to adopt the LCR effective June 1, 2021. In addition, credit unions with assets equal to of less than $500 million are expected to develop sufficient liquidity regimes to manage their short-term and long-term liquidity needs. FSRA expects that all CUs operationalize monthly LCR reporting as soon as practical.	This addition sets out proportional liquidity reporting requirements for CUs with assets equal to or less than $500 million, in order to ensure that FSRA can monitor liquidity for such CUs, be confident that they are able to manage unexpected liquidity needs, and identify potential issues at an early stage so that FSRA can work with the CU to address such issues.

Amendment

Rationale

The following paragraph has been added to the Guidance Note: Liquidity under the section “Stress Testing Metrics”:

CUs with assets equal to or less than $500 million are required to adopt the LCR effective June 1, 2021. In addition, credit unions with assets equal to of less than $500 million are expected to develop sufficient liquidity regimes to manage their short-term and long-term liquidity needs.

FSRA expects that all CUs operationalize monthly LCR reporting as soon as practical.

This addition sets out proportional liquidity reporting requirements for CUs with assets equal to or less than $500 million, in order to ensure that FSRA can monitor liquidity for such CUs, be confident that they are able to manage unexpected liquidity needs, and identify potential issues at an early stage so that FSRA can work with the CU to address such issues.

Amendment	Rationale
The following section has been amended in the Stress Testing – Credit Unions With Assets Greater Than $500 Million under the section “Minimum Stress Testing Requirements”: In order to apply proportionality in minimum liquidity stress testing requirements, the liquidity metric reporting requirements for credit unions with greater than $500 million in total assets are different from those for credit unions with assets equal to or less than $500 million. Satisfying the minimum liquidity metrics do not necessarily mean that a credit union is holding adequate and prudent liquidity. Each credit union will have to determine what they consider to be adequate, and appropriate forms of, liquidity based on their individual business and risk profile and demonstrate that such determination is prudent. The minimum ratios outlined throughout this guidance represent pre-stress minimum requirements and FSRA has the discretion to exercise forbearance during stress to allow credit unions to operate at a lower level. The following sections outline the specific liquidity metrics for credit unions with total assets above $500 million and for credit unions with assets equal to or less than $500 million.	This amended section introduces the separation of requirements for CUs with assets greater than $500 million and CUs with assets equal to or less than $500 million.

Amendment

Rationale

The following section has been amended in the Stress Testing – Credit Unions With Assets Greater Than $500 Million under the section “Minimum Stress Testing Requirements”:

In order to apply proportionality in minimum liquidity stress testing requirements, the liquidity metric reporting requirements for credit unions with greater than $500 million in total assets are different from those for credit unions with assets equal to or less than $500 million.

Satisfying the minimum liquidity metrics do not necessarily mean that a credit union is holding adequate and prudent liquidity. Each credit union will have to determine what they consider to be adequate, and appropriate forms of, liquidity based on their individual business and risk profile and demonstrate that such determination is prudent.

The minimum ratios outlined throughout this guidance represent pre-stress minimum requirements and FSRA has the discretion to exercise forbearance during stress to allow credit unions to operate at a lower level.

The following sections outline the specific liquidity metrics for credit unions with total assets above $500 million and for credit unions with assets equal to or less than $500 million.

This amended section introduces the separation of requirements for CUs with assets greater than $500 million and CUs with assets equal to or less than $500 million.

Amendment	Rationale
The following section has been added to the Stress Testing – Credit Unions With Assets Greater Than $500 Million: Section Title: Credit Unions with Assets Equal to or Less Than $500 Million Credit unions should develop liquidity regimes which take into account their size, complexity and risk. FSRA recognizes that the complexity of liquidity regimes will differ and proportional to the size, specific risks and business exposures of the credit union. Stress Testing Metrics To ensure that credit unions with assets equal to or less than $500 million have a prudent tool to measure their ability to withstand a liquidity shock, they should complete an updated LCR template on a monthly basis, effective June 1, 2021. Additionally, credit unions with assets equal to or less than $500 million should maintain sufficient liquidity over a longer period to manage both “business as usual” and liquidity stress events. Liquidity Coverage Ratio (LCR) The LCR aims to ensure that a credit union has an adequate stock of unencumbered HQLA that consists of cash or assets that can be converted into cash at little or no loss in value to meet potential liquidity needs for a 30-calendar day liquidity stress scenario. FSRA expects that, at a minimum, the LCR should be no lower than 100% on an on-going basis such that the stock of unencumbered HQLA should enable the credit union to survive to Day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions will be taken by management and/or the supervisor, or that the credit union can be resolved in an orderly fashion. Long-Term Liquidity Reporting CUs with assets equal to or less than $500 million should maintain adequate and prudent liquidity to manage their liquidity needs beyond the 30 days outlined in the LCR. Each credit union is expected to determine what they considered adequate and prudent long-term liquidity based on their specific business exposures and risk appetite, which should be outlined in their liquidity policies. Credit union management should be able to demonstrate to their boards that they have adequate liquidity to manage their long-term liquidity needs under “business as usual” and stress scenarios. As part of its regular supervisory process, FSRA will request evidence that credit unions have adequately liquidity to manage both short-term and long-term liquidity needs. Completion Guides and Templates for the LCR are available on FSRA’s website. Credit unions with assets equal to or less than $500 million should also consider incorporating more complex metrics such as the NSFR and NCCF into their stress testing program, particularly as the institution grows larger, more complex and approaches the $500 million threshold.	This new section outlines the minimum stress testing metrics for CUs with assets equal to or less than $500 million. The LCR was recognized as the most appropriate short-term metric to manage sudden liquidity needs. Additionally, the current data provided to FSRA during COVID-19 aligns with the LCR calculation and is not viewed as overly burdensome. FSRA also recognized that CUs with assets equal to or less than $500 million will need to monitor and manage their longer-term liquidity needs past the 30-day LCR stress test. FSRA’s view is that a principles-based solution would be most appropriate, requiring CUs with assets equal to or less than $500 million to determine what they consider adequate and prudent long-term liquidity based on their specific business exposures and risk appetite. While FSRA considered requiring CUs with assets equal to or less than $500 million to report on the NSFR and NCCF, this option was considered burdensome and unnecessary. FSRA may, as part of the more extensive changes to the liquidity framework, develop more formal long-term liquidity requirements for CUs with assets equal to or less than $500 million.

Amendment

Rationale

The following section has been added to the Stress Testing – Credit Unions With Assets Greater Than $500 Million:

Section Title: Credit Unions with Assets Equal to or Less Than $500 Million
Credit unions should develop liquidity regimes which take into account their size, complexity and risk. FSRA recognizes that the complexity of liquidity regimes will differ and proportional to the size, specific risks and business exposures of the credit union.

Stress Testing Metrics
To ensure that credit unions with assets equal to or less than $500 million have a prudent tool to measure their ability to withstand a liquidity shock, they should complete an updated LCR template on a monthly basis, effective June 1, 2021.

Additionally, credit unions with assets equal to or less than $500 million should maintain sufficient liquidity over a longer period to manage both “business as usual” and liquidity stress events.

Liquidity Coverage Ratio (LCR)
The LCR aims to ensure that a credit union has an adequate stock of unencumbered HQLA that consists of cash or assets that can be converted into cash at little or no loss in value to meet potential liquidity needs for a 30-calendar day liquidity stress scenario.

FSRA expects that, at a minimum, the LCR should be no lower than 100% on an on-going basis such that the stock of unencumbered HQLA should enable the credit union to survive to Day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions will be taken by management and/or the supervisor, or that the credit union can be resolved in an orderly fashion.

Long-Term Liquidity Reporting
CUs with assets equal to or less than $500 million should maintain adequate and prudent liquidity to manage their liquidity needs beyond the 30 days outlined in the LCR. Each credit union is expected to determine what they considered adequate and prudent long-term liquidity based on their specific business exposures and risk appetite, which should be outlined in their liquidity policies.

Credit union management should be able to demonstrate to their boards that they have adequate liquidity to manage their long-term liquidity needs under “business as usual” and stress scenarios. As part of its regular supervisory process, FSRA will request evidence that credit unions have adequately liquidity to manage both short-term and long-term liquidity needs.

Completion Guides and Templates for the LCR are available on FSRA’s website.

Credit unions with assets equal to or less than $500 million should also consider incorporating more complex metrics such as the NSFR and NCCF into their stress testing program, particularly as the institution grows larger, more complex and approaches the $500 million threshold.

This new section outlines the minimum stress testing metrics for CUs with assets equal to or less than $500 million.

The LCR was recognized as the most appropriate short-term metric to manage sudden liquidity needs. Additionally, the current data provided to FSRA during COVID-19 aligns with the LCR calculation and is not viewed as overly burdensome.

FSRA also recognized that CUs with assets equal to or less than $500 million will need to monitor and manage their longer-term liquidity needs past the 30-day LCR stress test. FSRA’s view is that a principles-based solution would be most appropriate, requiring CUs with assets equal to or less than $500 million to determine what they consider adequate and prudent long-term liquidity based on their specific business exposures and risk appetite.

While FSRA considered requiring CUs with assets equal to or less than $500 million to report on the NSFR and NCCF, this option was considered burdensome and unnecessary.

FSRA may, as part of the more extensive changes to the liquidity framework, develop more formal long-term liquidity requirements for CUs with assets equal to or less than $500 million.

Liquidity reporting frequency

Amendment	Rationale
The following paragraph has been added to the Liquidity Guidance under the section “Stress Testing Metrics”: All credit unions are required to submit to FSRA an updated LCR template within 21 days after the end of each month, beginning on June 1, 2021, with the first monthly report to be provided to FSRA by July 21, 2021. FSRA expects that all CUs operationalize monthly LCR reporting as soon as practical. Prior to June 1, 2021, credit unions with assets greater than $500 million are required to submit to FSRA an updated LCR template at the end of each calendar quarter. Additionally, credit unions with assets greater than $500 million are required to submit to FSRA an updated NSFR and NCCF template at the end of each calendar quarter.	This new paragraph improves the usefulness of CU LCR reporting. It acknowledges that, given the short-term basis of LCR, quarterly reporting does not provide a meaningful indication of a CUs short-term liquidity position, which could impact the regulator’s ability to work with a CU to address potential issues and provide support if needed. With quarterly LCR reporting, FSRA does not receive a CU’s 30-day liquidity metric until 3 months after such period has passed. As a result, the information provided is not reflective of the CUs current short-term liquidity position. Requiring this information within 21 days after the end of each month would increase the likelihood that the information is reflective of the CUs current liquidity position.

Amendment

Rationale

The following paragraph has been added to the Liquidity Guidance under the section “Stress Testing Metrics”: All credit unions are required to submit to FSRA an updated LCR template within 21 days after the end of each month, beginning on June 1, 2021, with the first monthly report to be provided to FSRA by July 21, 2021. FSRA expects that all CUs operationalize monthly LCR reporting as soon as practical.

Prior to June 1, 2021, credit unions with assets greater than $500 million are required to submit to FSRA an updated LCR template at the end of each calendar quarter. Additionally, credit unions with assets greater than $500 million are required to submit to FSRA an updated NSFR and NCCF template at the end of each calendar quarter.

This new paragraph improves the usefulness of CU LCR reporting. It acknowledges that, given the short-term basis of LCR, quarterly reporting does not provide a meaningful indication of a CUs short-term liquidity position, which could impact the regulator’s ability to work with a CU to address potential issues and provide support if needed.

With quarterly LCR reporting, FSRA does not receive a CU’s 30-day liquidity metric until 3 months after such period has passed. As a result, the information provided is not reflective of the CUs current short-term liquidity position.

Requiring this information within 21 days after the end of each month would increase the likelihood that the information is reflective of the CUs current liquidity position.

Amendment	Rationale
The following section has been amended in the Stress Testing – Credit Unions With Assets Greater Than $500 Million under the new section “Credit Unions with Assets Greater than $500 Million”: Credit unions with assets greater than $500 million are required to submit to FSRA an updated LCR template 21 days after the end of each month, beginning on June 1, 2021, with the first monthly report to be provided to FSRA by July 21, 2021. Prior to June 1, 2021, credit unions with assets greater than $500 million are required to submit to FSRA an updated LCR template at the end of each calendar quarter. FSRA expects that all CUs operationalize monthly LCR reporting as soon as practical. Additionally, credit unions with assets greater than $500 million are required to submit to FSRA an updated NSFR and NCCF template at the end of each calendar quarter. Credit unions should be prepared to submit the NSFR and NCCF templates monthly when requested. Reporting templates in Excel format are available on FSRA’s website.	See rationale for amendment 9 for LCR reporting In recognition that the NSFR and NCCF are longer-term metrics, FSRA considers quarterly reporting on such metrics to be appropriate.

Amendment

Rationale

The following section has been amended in the Stress Testing – Credit Unions With Assets Greater Than $500 Million under the new section “Credit Unions with Assets Greater than $500 Million”:

Credit unions with assets greater than $500 million are required to submit to FSRA an updated LCR template 21 days after the end of each month, beginning on June 1, 2021, with the first monthly report to be provided to FSRA by July 21, 2021. Prior to June 1, 2021, credit unions with assets greater than $500 million are required to submit to FSRA an updated LCR template at the end of each calendar quarter.

FSRA expects that all CUs operationalize monthly LCR reporting as soon as practical.

Additionally, credit unions with assets greater than $500 million are required to submit to FSRA an updated NSFR and NCCF template at the end of each calendar quarter. Credit unions should be prepared to submit the NSFR and NCCF templates monthly when requested.

Reporting templates in Excel format are available on FSRA’s website.

See rationale for amendment 9 for LCR reporting

In recognition that the NSFR and NCCF are longer-term metrics, FSRA considers quarterly reporting on such metrics to be appropriate.

Amendment	Rationale
The following section has been added to the Stress Testing – Credit Unions With Assets Greater Than $500 Million under the new section “ Credit Unions with Assets Equal to or Less than $500 million”: Credit unions with assets equal to or less than $500 million are required to submit to FSRA an updated LCR template 21 days after the end of each month, beginning on June 1, 2021, with the first monthly report to be provided to FSRA by July 21, 2021. Reporting templates in Excel format are available on FSRA’s website.	See rationale for amendment 9

Amendment

Rationale

The following section has been added to the Stress Testing – Credit Unions With Assets Greater Than $500 Million under the new section “ Credit Unions with Assets Equal to or Less than $500 million”:

Credit unions with assets equal to or less than $500 million are required to submit to FSRA an updated LCR template 21 days after the end of each month, beginning on June 1, 2021, with the first monthly report to be provided to FSRA by July 21, 2021.

Reporting templates in Excel format are available on FSRA’s website.

See rationale for amendment 9

Housekeeping edits

Amendment	Rationale
The name of the guidance note “Guidance Note: Stress Testing Guidance for Credit Unions with Assets Greater than $500 million” has been changed to “Guidance Note: Stress Testing Guidance”.	The stress testing guidance has been amended to apply to all CUs to reflect the need to have risk-based metrics for institutions of all sizes.

Amendment	Rationale
The minimum stress testing requirements section name has been split into the following two sections: (1) “Credit Unions with Assets Greater than $500 Million” and “Credit Unions with Assets Equal to or Less Than $500 million”.	The new section sets out the different liquidity requirements based on total assets.

Amendment	Rationale
The DICO format for the guidance and completion guides has been transferred to the FSRA interpretation and approach templates.	The DICO format for guidance and completion guides has been replaced using FSRA’s Interpretation and Approach templates. Additional sections have been added to accommodate differences in the two templates; however, they do not include new or amended requirements for CUs.

Amendment	Rationale
The references to DICO in the guidance documents have been replaced with FSRA.	Outdated references to DICO have been replaced with references to FSRA, its successor organization.

Amendment	Rationale
References to La Caisse centrale Desjardins du Québec or Credit Union Central of Canada be removed.	Reference to organizations that no longer exist have been removed.