Regulatory Statement

Purpose 

This Regulatory Statement (Statement) sets out the position of BC Financial Services Authority (BCFSA) with respect to a B.C. credit union issuing equity shares to a person who is not a member (a non-member).

In addition, the Statement provides an interpretation of the Credit Union Incorporation Act (CUIA) that recognizes digital or book entry shares.

Background Information

Although membership shares in a credit union are a distinct class of equity share, the CUIA explicitly provides that a credit union must not issue or permit the transfer of its membership shares to a non-member. A reference to an equity share in this Statement therefore does not include a membership share.

This Statement is not exhaustive of all possible requirements for credit unions to issue equity shares or security instruments. Separate requirements under the CUIA and Financial Institutions Act (FIA) apply. The Securities Act also applies to a credit union.

Requirements 

Credit Unions May Issue Equity Shares to Non-Members 

BCFSA interprets the CUIA as permitting credit unions to issue equity shares to non-members, subject to a credit union’s constitution and rules, and if all other requirements are met.

Credit unions provide financial services similar to those provided by a bank incorporated under the Bank Act (Canada). In contrast to banks, credit unions are often described as “member-owned.” No member of a credit union has more than one vote on a resolution or in an election of directors, with limited exceptions. A non-member who holds equity shares in the credit union is an auxiliary member. Auxiliary members cannot be directors of the credit union and are not generally entitled to vote.

In arriving at the view in this Statement, BCFSA considered:

• A credit union has the capacity and rights, powers and privileges of an individual of full capacity; 
• The credit union’s directors must supervise the management of the affairs and business of the credit union; 
• The CUIA provides that a credit union may issue an unlimited number of shares, subject to its constitution and rules; and 
• The participation of an auxiliary member in the governance of a credit union is limited and would not, at a high-level, dilute the “member-owned” difference of credit unions. 

Issuing securities, including equity shares, requires significant resources and an ongoing compliance program. Before issuing any securities, credit union Boards and management are urged to:

• Review the credit union’s constitution and rules;  
• Consider member feedback and identify new risks attracted by non-member/ auxiliary member shareholders; and  
• Engage legal counsel to advise the credit union about compliance with the CUIA and the Securities Act, and any other requirements.  

Share Certificates and Acceptable Alternative 

The CUIA provides that a credit union must issue share certificates evidencing equity shares. A share certificate issued by a credit union for equity shares must conspicuously state:

“NOT GUARANTEED BY THE CREDIT UNION DEPOSIT INSURANCE CORPORATION”.

Today, many shares are issued in digital or book entry form, or dematerialized. A physical certificate demonstrating the share is not always provided. The Superintendent of Financial Institutions (Superintendent) recognizes uncertificated equity shares, and provided that:

1. notice of the absence of a guarantee from the Credit Union Deposit Insurance Corporation, as required by section 60 [Entitlement to share certificate] of the CUIA; and

2. the particulars required by section 61 [Particulars of issue on share certificates] of the CUIA

are included in a written offering document that is received by the purchaser of an equity share before they become obligated to acquire the equity share, the Superintendent will consider the requirements of section 60(1)-(3) and 61(1) of the CUIA satisfied.

Where a credit union does not deliver a physical share certificate, a copy of the offering document providing the required disclosures must be submitted to BCFSA for our records. Such filing may consist of the disclosure statement, where required under section 62 [Security issue preconditions] of the CUIA. However, credit unions must still comply with section 62 and all other requirements.

Instructions 

To provide a copy of any offering document to BCFSA follow these steps:

1. Log into BCFSA’s Integrated Regulatory Information System (IRIS) and create a New Submission. 
2. Under Type, select Filing – Notice. 
3. Click Apply, then choose Equity Share Related Submission. 
4. Attach and submit the share certificate or offering document. 
5. As applicable, attach BC Securities Commission filing or disclosure statement. 

For detailed guidance, refer to Managing Submissions. For questions, contact your Relationship Manager at BCFSA.  

Legislation 

CUIA, ss. 12, 12.1, 44(6), 46, 51, 52, 54, Part 3, Division 2- Shares, 70, 82.3, 84.15 
Credit Union Disclosure Statement Exemptions Regulation 
FIA, ss. 65, 127(2), 139, 266 
Definitions Regulation 
Interpretation Act, ss. 8, 27(2), 28(1) 

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.