Regulatory Statement

Purpose

This Regulatory Statement (Statement) establishes the general process and core content of a B.C. credit union’s application for consent from the Superintendent of Financial Institutions (Superintendent) and from the Credit Union Deposit Insurance Corporation of British Columbia (CUDIC) to continue under the laws of another jurisdiction as if it had been incorporated under the laws of that jurisdiction, under section 15.2 [Transfer of Incorporation from British Columbia] of the Credit Union Incorporation Act (CUIA). It repeals and replaces Regulatory Statement CU-17-001.

This Statement may not be exhaustive of all requirements of either the Superintendent or CUDIC, or of BC Financial Services Authority (BCFSA) on every application, because each application from a credit union is based on unique facts. In addition, this Statement is focused primarily on applications to continue as a federal credit union under the Bank Act (Canada) administered by the Office of the Superintendent of Financial Institutions (Federal) (OSFI). However, section 15.2 of the CUIA applies to other jurisdictions as well. Accordingly, the Superintendent or CUDIC may require additional information or records, in addition to the requirements set out in this Statement, to satisfy themselves that it would be appropriate to consent to a proposed continuance.

Finally, this Statement is not exhaustive of any other requirements under the laws of B.C. or any other jurisdiction that may apply to a credit union’s continuance from B.C.

Background Information

Continuance is a rigorous process that requires a significant commitment of both time and resources from the credit union, BCFSA and its staff, the Superintendent, CUDIC, and/or OSFI, among others. As a result, the credit union is expected to engage early and meaningfully with BCFSA staff.

Until a credit union is continued under the laws of the other jurisdiction, the credit union remains subject to the laws of B.C., to BCFSA’s supervisory requirements and standards, and to assessments toward the deposit insurance fund held by CUDIC.

Legislation

Pursuant to section 15.2 of the CUIA, a credit union that is authorized by:

• a special resolution of its members;
• the consent given by the Superintendent¹ and CUDIC; and
• the laws of another jurisdiction,

may apply to that other jurisdiction for an instrument of continuation continuing the credit union as if it had been incorporated under the laws of that other jurisdiction. In the case of a credit union seeking to continue as a federal credit union, such application would be made to the Minister of Finance (Canada) for Letters Patent to continue under the Bank Act.

Review Criteria

In deciding whether to consent to the continuance, the Superintendent and CUDIC may consider:

1. the potential implications of the continuance for the credit union’s members;
2. whether members have been given adequate notice and information to make an informed decision; and
3. the possible impact of the continuance on the broader B.C. credit union system and its depositors.

These factors are not intended to be exhaustive and are not mutually exclusive; certain facts and issues may be relevant to one or more of these factors. In all cases, the Superintendent and CUDIC are guided by their mandate to safeguard confidence and stability within the B.C. credit union segment.

Where two or more credit unions apply for continuance into the federal regime to amalgamate with one another or any other purpose, each credit union must separately apply for consent from the Superintendent and CUDIC. However, the Superintendent and CUDIC will consider each application separately, and also together, taking into account the broader context that the credit unions will be exiting the B.C. segment together for the purposes of amalgamation.

(a) Member Interests

The decision to apply for consent to the continuance is a decision of the credit union’s Board of Directors (CU Board). Given the limited precedent for credit union continuance out of B.C., BCFSA expects that in making the decision to continue, the directors will, as part of their due diligence and in accordance with their fiduciary duty consider all factors relevant to the determination that continuance is in the best interests of the credit union and its members, including the factors set out in this Statement (such as the potential impact on members and the risks associated with continuance) and strategic alternatives to continuance or continuance for the purposes of amalgamation (including merging with other provincially-regulated credit unions).

In considering the application for consent, the Superintendent and CUDIC will not conclude affirmatively whether the proposed continuance is in members’ interests or in the interests of any single member or group of members. Rather, the Superintendent and CUDIC will consider whether there are reasons to believe that the continuance would be contrary to members’ interests. Considerations may include members’ continued access to banking services in the communities the credit union currently operates in, the existence of satisfactory transitional arrangements, the existence of any impediments to members switching to a different service provider, and whether the process to obtain member approval is fair and transparent (see below regarding informed consent).

Although the Superintendent and CUDIC may consider the interests of members in relation to all services that are provided by the credit union, the primary focus of the Superintendent and CUDIC will generally be on the impact to deposit-taking services.

(b) Informed Consent

Continuance requires member authorization via a special resolution. The Superintendent and CUDIC will consider whether the credit union’s members have been provided with adequate notice and sufficient information to enable members to make an informed decision.

At minimum, member communication materials should include a clear and thorough discussion of:

• the continuance process (and if continuance will be followed by amalgamation with another credit union, the amalgamation process);
• how continuance will affect each member individually and the credit union generally, including:

• key benefits and risks of continuance, including whether the CU Board has considered all other options to achieve the intended benefits, including merging with other provincially-regulated credit unions;
• any post-continuance expansion plans or strategies (e.g. if continuing federally, how the credit union intends to make strategic use of being under federal jurisdiction and how soon these plans will be executed);
• the impact of the continuance on:
  • accounts, services, branch locations, employees, the ownership of and investments in the credit union (including voting rights);
  • deposit insurance coverage; and
  • the governance of the credit union;
• the opportunity to redeem membership or additional equity shares;
• key provisions of the proposed bylaws under the new regime;
• key provisions of the amalgamation agreement (if applicable);
• costs directly attributable to the continuance including disclosure of management incentives and all potential employee severance costs; and

• how voting will be conducted under the CUIA and the credit union’s Rules; and
• instructions to members should they wish to request additional information.

Continuance may also have a significant impact on the credit union’s employees. The Superintendent and CUDIC therefore expect a high level of engagement and transparency between the credit union and its employees.

In connection with the above, credit unions should submit all materials related to member and employee engagement to BCFSA and CUDIC for review prior to such materials being sent or otherwise provided to its members and employees. See “Special Resolution Process” section below for examples of materials that should be submitted.

Submitted materials will be reviewed through the lens of whether they comply with statutory requirements and facilitate informed consent. It is ultimately the responsibility of the credit union to ensure that the information in its materials is accurate, timely, and complete. This includes ensuring that the commitments articulated in its member communications do not contradict the credit union’s business case or future business plans.

(c) Impact on Credit Union Segment and Depositors

As part of their mandate to ensure segment safety and soundness, the Superintendent and CUDIC will each consider whether the continuance will negatively impact the B.C. credit union segment or depositors. Relevant factors that they will consider may include:

• segment impact (for example in terms of system liquidity, concentration or significant impact on key segment infrastructure or liquidity providers);
• impact on the deposit insurance fund including consideration for concentration risk of the fund (both near-term and longer-term);
• impact on the credit union’s proposed operations in B.C. and the availability of banking services in local communities; and
• longer-term dynamism and resilience of the credit union segment, including recovery and resolution options for credit unions under the Financial Institutions Act (FIA).

Where the proposed continuance may have a negative impact on the segment or its depositors, the credit union may be asked to demonstrate that it has fully considered other means of achieving the desired business outcomes. For example, BCFSA and CUDIC may require the credit union to provide detailed analysis or reports as to why continuance is the best option for the credit union and why other options would not achieve the desired results.

Although the focus of the Superintendent and CUDIC in considering this criterion will be on the safety of deposits within the segment and the factors described above, a credit union may also be asked to provide detailed analysis on the economic impact of the proposed continuation, as this may have ramifications for the credit union segment more broadly and on the public interest. Examples of required analysis may include identification of affected communities and assessment of impact on jobs, investment, and local services.

The Superintendent and/or CUDIC may refuse to consent to the continuance application where the impact is adverse and significant and cannot be adequately mitigated, whether by mitigation strategies put forward by the credit union and/or by the imposition of conditions by the Superintendent.

Process

1. Initiate Dialogue with BCFSA

It is best practice for a credit union seeking to continue to another jurisdiction, either independently or for the immediate purpose of amalgamating, to communicate its intentions to BCFSA at the earliest opportunity. It is important to leave sufficient time for dialogue with BCFSA as each application is unique and BCFSA and OSFI (or other applicable regulator)’s timelines may not be aligned. Early dialogue facilitates transparency and manages expectations of both applicant and decision-makers.

Section 15.2 of the CUIA makes the consent of the Superintendent and CUDIC a pre-requisite for any formal application to the proper officer of another jurisdiction for an instrument of continuation. In practice, engagement with BCFSA and CUDIC will likely occur in parallel with the credit union’s engagement with OSFI (or relevant regulator of the other jurisdiction). The credit union should keep BCFSA apprised of all major developments that may occur during its engagement with OSFI or other regulators. Credit unions should be aware that, in the administration of the Acts for which BCFSA is responsible, BCFSA may also discuss the credit union’s application with OSFI (or relevant regulatory authority) to identify any supervisory or other relevant concerns.

In general, due to the complicated nature of continuance applications, credit unions should expect a lengthy review period, regardless of whether the credit union is continuing independently, or continuing for the purposes of amalgamating with an existing federal credit union.

At this pre-application stage, BCFSA and CUDIC may request initial documents and information relating to the proposed continuance. This may include:

• copies of all CU Board-related approvals with respect to the continuance application, and all materials presented to the CU Board at the time of its decision to proceed to a member vote on continuance, including any materials showing the CU Board’s consideration of other strategic options;

• information about legal requirements regarding aspects of the proposed continuance and/or compliance with other regulatory regimes;

• analysis as to why continuance is viewed as the best option for the credit union, including comparative analysis showing why other strategic options (such as merging with other provincially regulated credit unions) do not yield the intended result (see “Impact on Credit Union Segment and Depositors” section above);

• information on the credit union’s member engagement strategy, how the voting will be administered, and how the results of the vote on the special resolution will be communicated to members; and

• an explanation of the requirements or expectations of OSFI (or other relevant regulator) including a copy of OSFI’s Expectations Letter (setting out OSFI’s views and expectations regarding the credit union’s proposed business plan), if applicable.

In addition, for applications relating to federal continuance for the purpose of amalgamation with another credit union, BCFSA and CUDIC may require:

• information on the credit union’s business case to support the proposed transaction;

• the OSFI-approved form of amalgamation agreement (if any, or such other agreement setting out the proposed amalgamation or business combination with another credit union in connection with the continuance); and
• information on the due diligence performed by the credit union, including whether any material issues or concerns were identified and whether the CU Board reviewed and approved the due diligence reports.

BCFSA and CUDIC may, at this stage, also require information listed in the “Application Submission” section below, if considered necessary or expedient, as well as any other information or documents it considers relevant to the application.

Given the significant time and resources required for the review of a continuance application, BCFSA may request the credit union provide a written undertaking to cover a portion of the costs of such review. The amount requested will depend on factors such as the expected complexity of the application and the estimated resources required to complete the review.

A credit union must ensure that it is not subject to any outstanding orders or requirements under the CUIA or the FIA and should not have any amounts owing to BCFSA or CUDIC before it makes its application for continuance.

2. Special Resolution Process

As discussed in the “Informed Consent” section above, the credit union should submit to BCFSA and CUDIC all materials related to the members’ special resolution, and member and employee engagement generally, prior to providing such materials to its members and employees.

Such materials include:

• the Special Resolution;
• notice of Special Resolution including time and manner of voting, and notices respecting any call of equity shares and/or requirement to redeem equity shares on request;
• the member voting package, which in the case of federal continuance includes (but is not limited to):
  • a CU Board statement, including its rationale for recommending federal continuance and consideration of alternatives to achieve the intended business outcomes (including merging with other provincially regulated credit unions);
  • notice under the federal Disclosure on Continuance Regulations (Federal Credit Unions);
  • information on the regulatory consents and processes involved in making a federal continuance application (including discussion of the matters described in the “Informed Consent” section above); and
• any other communications planned for members or employees.

The credit union should also provide to BCFSA and CUDIC confirmation that the CU Board has reviewed and approved all member communication materials.

Given the significance of the special resolution for the credit union and its future, BCFSA and CUDIC expect member engagement to include one or more meetings (in person and/or electronic), before voting closes, at which the special resolution is considered and members are given the opportunity to ask questions.

The results of the vote should be promptly communicated to the members of the credit union.

After the vote, the credit union should provide to BCFSA and CUDIC:

• a statement of vote results, including a statement from the vote administrator verified by the CU Board Chair; and
• a summary of voter engagement efforts and communications through the vote campaign.

3. Application Submission

No specific application form is required to seek the consent of the Superintendent and CUDIC under section 15.2 of the CUIA. Nonetheless, any application for consent should be made in a written submission and include the following (or include references to the following, where previously submitted):

a) the business case for continuing to another jurisdiction, including:

1. rationale for continuance, supported by a comprehensive list of risks and benefits to the credit union and its members;
2. detailed analysis of why continuance is the best option for the credit union and comparative analysis of alternatives to continuance;
3. the plans or strategy for the credit union as a credit union under federal jurisdiction (or other jurisdiction it is continuing to), including a discussion of opportunities, target markets, key business lines, and how soon these plans will be executed;
4. discussion on how the credit union will conduct itself in the B.C. marketplace as a credit union under federal jurisdiction (or other jurisdiction it is continuing to), including its proposed name;
5. discussion on impacts to members’ rights and services, including any service interruptions;
6. discussion of all key continuance risks and mitigation of these risks; and
7. expected costs to be incurred during the continuance process and costs that are anticipated in preparation for continuance (e.g., costs incurred to meet federal requirements while still a B.C. credit union);

(b) a contingency plan, including:

1. planning and risk management for capital and liquidity risk; and
2. planning and risk management in the event the credit union does not receive regulatory approval for continuance (including management of liquidity, capital, member confidence, employee attrition and confidence in the broader B.C. credit union segment);

(c) discussion on why the credit union believes it will be successful in obtaining the approval of the other jurisdiction to continue and why it will be successful as a credit union under federal jurisdiction (or other jurisdiction it is continuing to) and anticipated effective date (if known);

(d) discussion as to how the credit union’s continuance will impact the B.C. credit union segment (including, if required, analysis as to the economic impact); and

(e) where the credit union is continuing for the purposes of amalgamating with a federal credit union:

1. a high-level integration plan for the combined entity; and
2. financial projections for the combined entity over a three-year forecast horizon including capital and liquidity projections and key assumptions (evidencing that the combined entity will be able to comply with all relevant federal regulatory requirements).

The above is not intended to be exhaustive. BCFSA and CUDIC staff may request additional information or documents from the credit union to appropriately assess the application.

On the date that BCFSA and CUDIC staff acknowledge a complete application from a credit union, a notice will be posted on the BCFSA and CUDIC websites notifying the public that the credit union has applied for consent for continuance. The public will have 30 days to provide comments and feedback directly to BCFSA and CUDIC, which may be considered in the recommendations put forward to the Superintendent and CUDIC Board.

4. Review and Decision

BCFSA and CUDIC staff will assess the application in accordance with this Statement and any other considerations and information deemed relevant.

Following the review, staff will present recommendations to the Superintendent and the CUDIC Board regarding the credit union’s application. The Superintendent and the CUDIC Board may request additional information and may request that a credit union make submissions to the Superintendent and/or CUDIC Board.

The Superintendent may consent to the continuance, refuse consent, or provide consent subject to conditions. If the Superintendent intends to refuse consent or impose conditions, the Superintendent will provide prior notice to the credit union pursuant to section 95(1) of the CUIA [Hearing requirements] and will provide a summary of reasons as to why it intends to refuse consent or impose conditions. The credit union will then have 14 days to request a hearing before the Superintendent.

If the CUDIC Board intends to refuse consent, it will provide written notice to the credit union so that the credit union will have the opportunity to make submissions.

Consent for continuance may be subject to a time limitation, or other conditions. For example, the consent may be conditional on the credit union receiving Letters Patent (or applicable continuance documents issued by the appropriate authority in the other jurisdiction) to continue by a specified date. Conditions may also be required to ensure that the essential services credit unions rely on will continue to be available in the BC credit union segment with minimal disruption.

Upon continuance, the credit union may be refunded the unearned portion of BCFSA’s assessment for the year² in which it continues, where applicable.

Instructions

For questions or to request a meeting with BCFSA staff, please contact Statutory Approvals at statapprovals@bcfsa.ca or at (604) 398-5034.

All notices, information or documentation referenced in this Statement may be submitted via the Integrated Regulatory Information System (IRIS), a secure portal through which credit unions may provide information to BCFSA. Instructions for the IRIS Platform | BCFSA are available on BCFSA’s website.

Legislation

CUIA, ss. 15.2, 84.15, 93-97
FIA, ss. 101, 261
Transfer of Powers and Duties (Financial Institutions) Regulation, s. 3(c)

Copies of the legislation are available from www.bclaws.gov.bc.ca.

Regulatory Statements issued by BC Financial Services Authority (BCFSA) establish the form, content, or timing of a regulatory submission; prescribe the manner of meeting or enforcing a requirement existing in an enactment; and/or provide the BCFSA’s interpretation of the laws that BCFSA administers. Accordingly, BCFSA expects regulated entities (and others where applicable) to use the form or process, and/or to comply with the requirements set out in a Regulatory Statement. Regulatory Statements may refer to law, practice, or background existing at the time of publication. If relying on the legal information contained in a Regulatory Statement, confirm that any references to the law, including enabling legislation, are up to date and obtain independent legal advice, when needed. Regulatory Statements are effective on the date of their publication, unless stated otherwise. 

[1] Although section 15.2(1)(b) of the CUIA refers to the consent given by “the Authority”, the power to grant such consent rests with the Superintendent, pursuant to section 3(c) of the Transfer of Powers and Duties (Financial Institutions) Regulation.

[2] BCFSA fiscal year.