Regulatory Statement

Purpose

This Regulatory Statement (Statement) sets out BCFSA’s position with regards to the use of deposit agents by credit unions.

Background

In 2016, FICOM published Information Bulletin CU-16-001 ‘Use of Deposit Agents’ to clarify the legislative requirements surrounding the use of deposit agents. That Information Bulletin has since become outdated; additionally, in the past few years BCFSA has received several inquiries from the credit union segment regarding the use of deposit agents. This Statement is intended to up to date and clear information regarding BCFSA’s interpretation of the applicable legislation in the Financial Institutions Act (“FIA”) and Credit Union Incorporation Act (“CUIA”) as well as credit unions’ roles and responsibilities in their use of deposit agents.

Requirements

B.C. credit unions may use deposit agents subject to certain restrictions. Credit unions must adhere to the provisions of the FIA, the CUIA, and related regulations that pertain to the use of deposit agents. They must also ensure they do not use deposit agents in jurisdictions where they are prohibited or otherwise not authorized to conduct business. Additional legislation, including privacy legislation and anti-money laundering and anti-terrorism financing (AML/ATF) legislation, may also apply.

Considerations and Due Diligence

Deposit agents act on behalf of the credit union. It is therefore the credit union’s responsibility to ensure appropriate controls are in place and that its use of deposit agents complies with:

• the credit union’s rules;
• all applicable legislation; and
• BCFSA regulatory instruments as updated from time to time.

A list of relevant considerations for credit unions utilizing deposit agents follows. This list is intended to provide a starting point for the credit union’s own due diligence. While every effort has been made to identify relevant considerations, this list is not exhaustive and could be superseded by developments in law or practice. BCFSA may consider a credit union’s (lack of) compliance with legislation not administered by BCFSA as part of its supervision and regulation of the credit union. Credit unions are urged to obtain advice, including legal advice, tailored to their specific business and facts, and to update that advice at timely intervals.

Consideration	Discussion	Reference
Authorized business	Credit unions are responsible for ensuring the activities of deposit agents are permitted under their business authorization and/or by law.	FIA, s. 65 [Authorized business]
Extraprovincial business	Credit unions are responsible for ensuring they do not carry on business outside of B.C., except as permitted by law. BCFSA recommends that credit unions receiving deposits from beneficial owners through deposit agents and/or from outside of B.C. seek legal advice. Where business outside of B.C. is permitted, credit unions are responsible for compliance with extraprovincial laws, including registration requirements where applicable.	CUIA, s. 81 [Business outside British Columbia] Credit Union Extraprovincial Business of Subsidiaries Regulation (gov.bc.ca)
Membership	Credit unions are responsible for ensuring the deposit agent and/or client are eligible to make a deposit in the credit union.	FIA, s. 82 [Deposits in credit unions] Credit Union Deposit Acceptance Regulation (gov.bc.ca)
Financial assistance	Credit unions are responsible for ensuring that a credit union or its deposit agent does not knowingly provide financial assistance to enable the beneficial depositor to purchase equity shares of the credit union.	CUIA, s. 68 [Financial assistance for equity shares]
Account set up	Credit unions are responsible for ensuring that their AML/ATF and member due diligence practices are applied to accounts held in the name of and/or controlled by deposit agents (including as trustee – see below). Additional requirements for recording deposits and/or determining control of a corporate depositor may apply.	FIA, s. 82 [Deposits in credit unions] Credit Union Deposit Acceptance Regulation (gov.bc.ca)
Trust business	As deposit agents are likely to hold deposits for another party in a relationship that amounts to one of trust, both credit unions and deposit agents are responsible for determining whether the deposit agent must hold a trust business authorization or whether an exemption applies.	FIA, s. 70 [Unauthorized trust business by corporation prohibited] Trust and Deposit Business Exemption Regulation (gov.bc.ca) Investment Fund Trustee Exemption Regulation (gov.bc.ca)
Deposit guarantee	Credit unions are responsible for ensuring they do not represent or hold out that any deposits are guaranteed unless those deposits are in fact guaranteed under the FIA. Payment out of the fund administered by the Credit Union Deposit Insurance Corporation (CUDIC) is not guaranteed for deposits by a savings institution or its subsidiary, or deposits in which those entities have a beneficial interest (with limited exception for a brokered deposit in which neither of those entities has any beneficial interest).	FIA, s. 266 (2.1) (2.2) [Guarantee of credit union deposits]; 274 [Fund protection symbol] Interpretation Act, s. 29 [Definitions] “savings institution” “bank”
Disclosure(s)	Credit unions must ensure that their deposit agents provide all required written disclosures, including to prospective members, in a timely manner.	FIA, Part 3, Division 6 -Marketing of Financial Products (ss. 91-96) CUIA, s. 14.2 [Corporate name to be displayed]
Advertising	Credit unions are responsible for ensuring that their deposit agents avoid any potentially misleading advertising of credit union products. This includes complying with the marketing restrictions applicable to products insured by CUDIC.	FIA, s. 274 FIA, Part 3, Division 6 -Marketing of Financial Products (ss. 91-96)
Coercive tied selling	Credit unions are responsible for ensuring that deposit agents do not place undue pressure on, or coerce, a person to obtain a product or service from another person (including but not limited to the credit union) as a condition of obtaining another product or service from the credit union.	FIA, s. 94 [Coercive tied selling prohibited]
Outsourcing	Credit unions retain accountabilities for all activities, regardless of whether they are outsourced or not. This includes accountability for the activities of any deposit agents.	Outsourcing Guideline
Confidentiality/ Privacy	Credit unions are responsible for ensuring that commercial confidentiality and personal privacy protections are applied to the information and records obtained and/or created by deposit agents. Records must remain accessible to the Superintendent.	FIA, s. 133 [Location of records] Information Security Guideline Personal Information Protection Act (see www.oipc.bc.ca for additional resources).

Legislation

FIA, ss. 65, 70, 82, 91–96, 133, 266 (2.1) and (2.2), 274
CUIA, ss. 14.2, 68, 81
Interpretation Act, s. 29
Personal Information Protection Act
Credit Union Deposit Acceptance Regulation
Credit Union Extraprovincial Business of Subsidiaries Regulation
Investment Fund Trustee Exemption Regulation
Trust and Deposit Business Exemption Regulation

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.