Modernizing the Credit Unions and Caisses Populaires Act

Consultation Document

PART V
CAPITAL AND LIQUIDITY

Adequate capital

      14.  (1)  This section sets out the criteria for determining if a credit union is maintaining adequate capital as required by section 84 of the Act.

      (2)  A class 1 credit union has adequate capital if its regulatory capital is at least 5 per cent of its total assets.

      (3)  A class 2 credit union has adequate capital for a financial year if the following conditions are satisfied:

           1.    Its regulatory capital expressed as a percentage of its total assets is at least 4 per cent for a financial year ending on or after January 1, 2009.

           2.    Its regulatory capital, expressed as a percentage of its risk weighted assets, is at least 8 per cent.

Total assets

      15.  (1)  The total assets of a credit union is the amount calculated using the formula,

A – B

in which,

       “A”    is the amount of all the credit union’s assets, and

       “B”    is the sum of the following amounts as they would appear in the financial statements of the credit union prepared as of the date of the calculation:

                          i.    Goodwill.

                         ii.    Identified intangible assets other than goodwill that have been purchased directly or acquired in conjunction with or arising from the acquisition of a business, including, but not limited to, trademarks, core deposit intangibles, mortgage servicing rights and purchased credit card relationships.

                       iii.    Income tax recoverable that cannot be realized through a loss carry-back to earlier years.

                        iv.    Deferred tax debits that will not be realized in the following fiscal year. 

                         v.    Investments in subsidiaries that are financial institutions. 

                        vi.    Any other amounts set out in the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires. 

      (2)  For the purposes of subsection (1), the following rules apply:

           1.    The amount of an asset is its value as it would appear in the financial statements of the credit union prepared as of the date of the calculation.

           2.    Provisions or allowances for losses of a general nature must be deducted from the most closely applicable class of assets.

           3.    An investment in the shares of a subsidiary must be calculated using the equity method of accounting described in the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires.

           4.    Cash deposits in a financial institution must be offset against overdrafts with the same financial institution.

Regulatory capital

      16.  (1)  The regulatory capital of a credit union is the amount calculated using the formula,

C + D

in which,

       “C”    is the amount of the credit union’s Tier 1 Capital as determined under subsection (2)

and “D”    is the amount of the credit union’s Tier 2 Capital as determined under subsection (3).

      (2)  The Tier 1 capital of a credit union is the amount calculated using the formula,

E - B

in which,

        “E”    is the sum of the following amounts as they would appear in the financial statements of the credit union prepared as of the date of the calculation:

                          i.    Membership shares.

                         ii.    Retained earnings.   

                       iii.    Contributed surplus. 

                        iv.    Patronage shares, other than patronage shares that are redeemable within the following twelve-month period.

                         v.    Qualifying shares described in subsection (4), other than qualifying shares that are redeemable within the following twelve-month period.

                        vi.    Accumulated net after tax unrealized loss on available-for-sale equity securities reported in Other Comprehensive Income. 

and “B”    has the same meaning as in subsection 15 (1).   

      (3)  The Tier 2 capital of a credit union is the lesser of the Tier 1 capital amount determined under subsection (2), and the sum of the following amounts as they would appear in the financial statement of the credit union prepared as of the date of the calculation:

           1.    Patronage shares that are redeemable within the following twelve-month period.

           2.    Qualifying shares described in subsection (4) that are redeemable within the following twelve-month period.

           3.    Subordinated indebtedness that,

                        (i)    cannot be redeemed or purchased for cancellation in the first five years after it is issued, and

                       (ii)    is not convertible into or exchangeable for a security other than a qualifying share. 

           4.    The amount of any general loan loss allowance, excluding any specific loan loss allowance up to a maximum of 0.75 percent of total assets and, if applicable, 1.25 per cent of risk weighted assets of the credit union.

           5.    Accumulated net after tax unrealized gain on available-for-sale equity securities reported in Other Comprehensive Income. 

           6.    Any other amount set out in the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires

      (4)  For the purposes of this section qualifying shares are fully paid shares other than membership shares and patronage shares issued by the credit union, but only if the following conditions are met:

           1.    Any rights or special rights as to the payment of dividends to the holders of the shares are non-cumulative.

           2.    Any rights or special rights, including the right to redeem the shares or call on the credit union to purchase or otherwise acquire the shares, are restricted so that the credit union is not required to redeem, purchase or otherwise acquire the shares of that class at a rate of more than 10 per cent of the outstanding shares during any one-year period. 

           3.    The shares cannot be redeemed or purchased for cancellation in the first five years after their issue. 

           4.    The shares do not give their holders the right to convert the shares into, or exchange the shares for, shares of any class of shares other than a class of shares described in paragraph 1, 2 or 3 that are issued to raise capital. 

Risk weighted assets of a credit union

      17.  (1)  The amount of a credit union’s risk weighted assets is the amount calculated using the formula,

A + B + C

in which,

       “A”    is the sum of all amounts each of which is calculated by multiplying the value of an asset of the credit union by the percentage described in subsection (2), (3), (4), (5), (6) or (7), as the case may be, that applies to that asset,

       “B”    is the amount of the credit union’s applicable operational risk as determined under subsection (8), and

       “C”    is the amount of the credit union’s applicable interest rate risk as determined under subsection (10).

      (2)  The percentage is zero per cent for the following types of assets:

           1.    Cash.

           2.    Claims against, or guaranteed by, the Government of Canada or an agency of the Government.

           3.    Claims against, or guaranteed by, the government of a province or territory of Canada

           4.    Claims fully secured by collateral consisting of cash or securities issued by the Government of Canada or the government of a province or territory of Canada.

           5.    Residential mortgage loans described in paragraph 2 of section 54.

           6.    The portion of a residential mortgage loan described in paragraph 3 of section 54, to the extent that the benefits payable under the policy insuring the loan have a backstop guarantee provided by the Government of Canada. 

           7.    Mortgage-backed securities that are guaranteed by the Canada Mortgage and Housing Corporation and secured against residential mortgages.

           8.    Investments in bodies corporate that are accounted for in the credit union’s financial statements using the equity method.

           9.    Any deductions from regulatory capital, including goodwill.

         10.    Deposits in a league, Central 1 Credit Union or La Fédération des caisses Desjardins du Québec.

         11.    Interest rate contracts with a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec, a financial institution or another equivalent entity approved in writing by the Corporation. 

      (3)  The percentage is 20 per cent for the following types of assets:

           1.    Cheques and other items in transit.

           2.    Claims against or guaranteed by a municipality in Canada.

           3.    Claims against or guaranteed by a school board, university, hospital or social service provider in Canada that receives, as its primary source of funding, regular government financial support.

           4.    Deposits in a bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada), a corporation registered under the Loan and Trust Corporations Act or a corporation to which the Trust and Loan Companies Act (Canada) or similar legislation of another province or territory of Canada applies.

           5.    Commercial paper, bankers’ acceptances, bankers’ demand notes and similar instruments guaranteed by a bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada), a corporation registered under the Loan and Trust Companies Act or a corporation to which the Trust and Loan Companies Act (Canada) or similar legislation of another province or territory of Canada applies.

           6.    The value attributed to any off balance sheet exposure relating to assets of the credit union listed in paragraphs 1 to 5, as calculated in accordance with the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires

      (4)  The percentage is 35 per cent for the following types of assets:

           1.    Residential mortgage loans described in paragraph 1 of section 54 that are not 90 days or more past due.

           2.    Mortgage-backed securities that are fully and specifically secured by residential mortgage loans, other than mortgage-backed securities described in paragraph 7 of subsection (2).

           3.    The value attributed to any off balance sheet exposure relating to assets of the credit union listed in paragraphs 1 and 2, as calculated in accordance with the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires

      (5)  The percentage is 75 per cent for the following types of assets:

           1.    Personal loans.

           2.    Agricultural loans.

           3.    Commercial loans made to a person where the sum of all commercial loans made to that person and to any connected persons does not exceed the lesser of 0.035 per cent of the credit union’s total assets and $1.25 million.

           4.    The value attributed to any off balance sheet exposure relating to assets of the credit union listed in paragraphs 1 to 4, as calculated in accordance with the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires
.
      (6)  The percentage is 100 per cent for the following types of assets:

           1.    Commercial loans, other than commercial loans described in paragraph 3 of subsection (5).

           2.    All assets not described in subsection (2), (3), (4) or (5).

           3.    Residential mortgage loans described in paragraph 1 of section 54 that are 90 days or more past due. 

           4.    The portion of a residential mortgage loan described in paragraph 3 of section 54 that does not have a backstop guarantee provided by the Government of Canada, if the insurer does not have a credit rating described in the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires.

           5.    The value attributed to any off balance sheet exposure relating to assets of the credit union listed in paragraphs 1 and 2, as calculated in accordance with the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires. 

      (7)  If a person to whom a commercial loan described in paragraph 1 of subsection (6) is made has a credit rating described in the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires, the percentage determined in accordance with that Guideline applies, instead of the percentage specified in subsection (6), in respect of the commercial loan.

      (8)  If an insurer who insures a residential mortgage loan described in paragraph 3 of section 54 has a credit rating described in the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires, the percentage determined in accordance with that Guideline applies, instead of the percentage specified in subsection (6), in respect of the portion of the loan that does not have a backstop guarantee by the Government of Canada. 

      (9)  Unless another amount is approved by the Corporation, a credit union’s applicable operational risk is the amount calculated using the formula,

D/0.08

in which,

       “D”    is the amount of the credit union’s capital charge for operational risk as determined under subsection (9).

      (9)  A credit union’s capital charge for operational risk is the amount calculated using the formula,

in which,

        “E”    is the greater of,

                       (a)    the amount of the credit union’s interest income less its interest expenses for its most recently ended financial year plus all of its other non-interest income for its most recently ended financial year, and

                       (b)    zero,

        “F”    is the amount that would be determined under the definition of “E” if that definition applied to the credit union’s second most recently ended financial year,

       “G”    is the amount that would be determined under the definition of “E” if that definition applied to the credit union’s third most recently ended financial year, and

       “H”    is the greater of,

                       (a)    the number of years in which the amounts determined under the definitions of “E”, “F” and “G” exceed zero, and

                       (b)    one.

      (10)  Unless another amount is approved by the Corporation, a credit union’s applicable interest rate risk is the amount calculated using the formula,

J/0.08

in which,

        “J”    is the amount of the credit union’s capital charge for interest rate risk as determined under subsection (11).

      (11)  A credit union’s capital charge for interest rate risk is the amount calculated using the formula,

K × 0.15

in which,

       “K”    is the amount of the credit union’s exposure, determined in accordance with the techniques referred to in paragraph 2 of subsection 70 (1), to interest rate risk.

Forming of groups relating to capital requirements
      18.  (1)  The following are requirements for an agreement under subsection 84 (3) of the Act for credit unions and a league to form a group for the purposes of assisting the credit unions in satisfying the requirements of section 84 of the Act relating to capital:

           1.    The agreement must provide that if an order is issued under clause 86 (1) (a) of the Act against a credit union that is in the group, the league will, within forty-five days after the order is issued, invest sufficient monies in the credit union, by purchasing preferred shares or subordinated debt of the credit union, so that the credit union satisfies the requirements of section 84 of the Act relating to capital.

           2.    The agreement must provide that the credit unions that are in the group agree to jointly and severally indemnify the league for the amount invested under paragraph 1.

           3.    The agreement must provide that a credit union can withdraw from the group only on eighteen months notice to the league and the other credit unions in the group and only if all the credit unions in the group have satisfied the requirements of section 84 of the Act relating to capital throughout the twelve month period preceding the withdrawal.

      (2)  The following are prescribed grounds for the Corporation to revoke its approval under subsection 84 (4) of the Act:

           1.    The league that is in the group fails to comply with the obligation set out in paragraph 1 of subsection (1).

           2.    The league that is in the group fails to comply with an order of the Corporation under subsection 85 (4), 86(1), 187 (1), 189 (4), 191 (2), 197.0.1 (1), 200 (1), 200 (2), 200 (3), 200 (4), 200 (5), 201.1 (2), 202.1 (1), 204 (7), 231 (2), 234 (1), 235 (1) or 240 (1) of the Act.

           3.    The league that is in the group is subject to an order under subsection 279 (1) or 294 (1) of the Act.

Adequate liquidity for class 1 credit unions

      19.  (1)  This section sets out the requirements for adequate liquidity for class 1 credit unions under section 84 of the Act.

      (2)  A class 1 credit union shall maintain eligible assets for adequate liquidity whose value is at least 7 per cent of the total deposits and borrowings of the credit union, except as provided under subsection (3).

      (3)  The percentage specified in subsection (2) shall be 5 percent instead of 7 per cent if the credit union has a line of credit that satisfies the following:

           1.    The line of credit is with a financial institution, Credit Union Central of Canada, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or La Caisse centrale Desjardins du Québec.

           2.    The line of credit is for an amount that is equal to or more than 2 per cent of the credit union’s deposits.

           3.    The line of credit is revocable only after at least 30 days notice to the credit union.

           4.    The terms of the line of credit are set out in writing.

      (4)  For the purposes of subsection (2), the following are eligible assets for adequate liquidity:

           1.    Cash.

           2.    A deposit that matures in 100 days or less that is with,

                          i.    a bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada),

                         ii.    a corporation registered under the Loan and Trust Corporations Act,

                       iii.    a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or La Caisse centrale Desjardins du Québec, or

                        iv.    Credit Union Central of Canada.

           3.    A treasury bill or other debt obligation issued by the government of Canada or a province that matures in 100 days or less.

           4.    A bankers’ acceptance or discounted note issued by a bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada), a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada, if,

                          i.    the acceptance or note matures in one year or less, and

                         ii.    the acceptance or note has a rating of at least A (low), as classified by the Dominion Bond Rating Service or an equivalent rating as set out in the Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires.

           5.    A debt obligation of a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec, La Caisse centrale Desjardins du Québec or Credit Union Central of Canada that matures in 100 days or less.

           6.    A debt obligation of the Corporation.

      (5)  If an employer has deducted an amount from the pay of a member to be remitted to the credit union and the credit union has credited the amount to the member’s account but has not yet received the amount from the employer, an amount equal to the amount that is in the process of being remitted to the credit union shall be deemed to be an eligible asset for adequate liquidity for the purposes of subsection (2).

Adequate liquidity for class 2 credit unions

      20.  (1)  This section sets out the requirements for adequate liquidity for class 2 credit unions under section 84 of the Act.

      (2)  A class 2 credit union shall establish and maintain prudent levels and forms of liquidity that are sufficient to meet its cash flow needs, including depositor withdrawals and all other obligations as they come due.

      (3)  An asset shall not be used to satisfy the requirements for adequate liquidity for a class 2 credit union unless the asset is authorized for that purpose under the capital and liquidity policies of the credit union established under section 85 of the Act.

Encumbered asset

      21.  An encumbered asset shall not be used to satisfy the requirements for adequate liquidity unless the asset is encumbered only by a security interest in favour of the Corporation.

Failure to meet requirements for adequate liquidity
      22.  (1)  The following apply if, for a period of five consecutive days (excluding Saturdays, Sundays and holidays), a credit union does not meet the requirements for adequate liquidity under section 84 of the Act:

           1.    The credit union shall not make a loan or an investment until the credit union again meets the requirements for adequate liquidity.

           2.    The credit union shall immediately submit to the Superintendent and to the Corporation a report addressing the following matters:

                          i.    the circumstances that led to the failure to meet the requirements for adequate liquidity,

                         ii.    the steps the credit union has taken to meet the requirements for adequate liquidity, and

                       iii.    when the credit union will again meet the requirements for adequate liquidity.

      (2)  For the purposes of paragraph 1 of subsection (1), changing the terms and conditions of a loan or refinancing a loan in any other way shall be deemed to be making a loan.

Provision for doubtful loans and required reserves

      23.  (1)  For the purposes of section 90 of the Act, the prescribed monthly provision for doubtful loans is the provision required by the Corporation in its by-laws.

(2)  For the purposes of section 90 of the Act, the prescribed reserves are those required by By-law No. 6 of the Corporation.

PART VI
GOVERNING THE CREDIT UNION

Mandatory by-laws

      24.  The following are prescribed for the purposes of subsection 105 (2) of the Act as matters required to be governed by the by-laws of every credit union, to the extent the matters are not provided for by the Act or the regulations or set out in the articles of the credit union:

           1.    Admission to membership in the credit union and any fees for admission.

           2.    Withdrawal, suspension or expulsion from membership in the credit union.

           3.    The allotment of shares, including the maximum number that may be allotted to a member, the payment for shares, the redemption or transfer of shares and the recording of information about these matters.

           4.    The procedure for deciding how to distribute the profits of the credit union.

           5.    If the credit union is a member of a league and assesses its own members to pay for the cost of membership in the league, the procedure for assessing credit union members’ annual assessment to be paid to the league.

           6.    The language or languages in which the credit union will carry on business.

           7.    Mandatory procedures governing the operation of the credit union.

           8.    The types of loans that the credit union is authorized to make.

           9.    The time, place and notice to be given for a members’ meeting, the record date for determining who is entitled to vote at such a meeting, and the quorum for such a meeting.

         10.    The time, place and notice to be given for a board meeting.

         11.    The time for, and manner of, electing directors and committee members.

         12.    The term of office of directors and of committee members, and the procedure for setting their remuneration.

         13.    The appointment and removal of officers and employees of the credit union, any security that they are required to give the credit union and the procedures for establishing their remuneration.

Frequency of board meetings

      25.  The board of a credit union shall meet at least quarterly during each financial year of the credit union.

Duties of audit committee

      26.  The following are prescribed for the purposes of section 126 as duties of the audit committee of a credit union:

           1.    Review and make recommendations to the board about the terms of the engagement letter and the remuneration of the auditor.

           2.    Review with the auditor the scope and plan of an audit.

           3.    Discuss with the auditor the audit findings, any restrictions on the scope of the auditor’s work and any problems that the auditor experienced in performing the audit.

           4.    Review and make recommendations to the board about any management letters, recommendations and reports by the auditor about the business or financial statements of the credit union and any response to them by management of the credit union.

           5.    Report to the board on any conflict between the auditor and management that the committee is unable to resolve within a reasonable time.

           6.    Review the annual audited financial statements and make such recommendations to the board as the committee considers appropriate.

           7.    Review the audited financial statements of each subsidiary of the credit union.

           8.    Review the effectiveness of the credit union’s internal audit practices and make recommendations to the board to address any deficiencies.

           9.    Review the organization and assess the degree of independence of the credit union’s internal auditors, if any, including their mandate, work plans and any problems that they experience or issues they raise relating to the performance of audits.

         10.    Review findings and recommendations of the internal auditors concerning the accounting practices and internal control practices and review the responses by the management of the credit union to any significant or material deficiencies.

         11.    Report to the board any significant changes in the accounting principles and practices followed by the credit union.

         12.    Recommend to the board arrangements to safeguard the credit union’s assets, to ensure the timeliness, accuracy and reliability of accounting data, to maintain adherence to the lending and investment policies and procedures and to provide for other matters concerning the financial policies of the credit union.

         13.    Review any report about the affairs of the credit union made by the Superintendent or the Corporation, monitor the implementation of any significant recommendations and report to the board on the progress of the implementation.

         14.    Review the credit union’s policies and procedures governing the way in which it meets the requirements under the Act and any other applicable legislation.

         15.    Review material legal proceedings to which the credit union is a party.

         16.    Assess whether the staff of the credit union is adequate to fulfil the credit union’s accounting and financial responsibilities.

         17.    Monitor the adherence of the credit union’s directors, officers and employees to the credit union’s standards of business conduct and ethical behaviour.

         18.    Review the credit union’s disaster recovery and business continuity plans.

         19.    Review, at least annually, the effectiveness of the committee in carrying out its duties.

      (2)  The report of the audit committee required under subsection 125 (9) of the Act must contain the following information for the year to which the report relates:

           1.    The number of meetings held by the committee during the year.

           2.    A summary of the significant activities undertaken by the committee during the year and a description of the actual and expected results.

           3.    Confirmation that the committee is conducting its affairs in accordance with the Act and the regulations.

           4.    Information on any failure of the credit union to implement or complete the implementation of any significant recommendation previously made by the audit committee.
 
           5.    Details of any other matter that is required to be disclosed pursuant to the Act or Regulations.

      (3)  The audit committee may, in its annual report, report on such other matters as the committee considers appropriate.

Remuneration reported in financial statements

      27.  (1)  For the purposes of subsection 140 (5) of the Act, the prescribed information about the remuneration paid during a year to the officers and employees of a credit union that must be disclosed in the credit union’s annual audited financial statements is the following information with respect to each officer and employee of the credit union whose total remuneration for the year was over $150,000:

           1.    The name of the officer or employee.

           2.    The title of the officer or position of the employee.

           3.    The total amount of salary received.

           4.    The total amount of bonuses received.

           5.    The monetary value of benefits received.

      (2)  Despite subsection (1), if there are more than five officers and employees of a credit union whose total remuneration for the year was over $150,000, subsection (1) only applies in respect of the five officers and employees with the highest total remuneration for the year.

      (3)  In this section,

“total remuneration” means, in respect of an officer or employee for a year, the total of the amounts described in paragraphs 3, 4 and 5 of subsection (1) for the year.

Bond for persons handling money

      28.  (1)  For the purposes of subsection 151 (2) of the Act, from the day this section comes into force, the minimum amount of the bond is the lesser of $1 million and the amount of the credit union’s total assets as shown on the audited financial statements of the credit union placed before the members at the most recent annual meeting.

      (2)  After December 31, 2009, the minimum amount of the bond is the lesser of $5 million and the amount of the credit union’s total assets as shown on the audited financial statements of the credit union placed before the members at the most recent annual meeting.

Bond
      29.  (1)  For the purposes of subsection 151 (2) of the Act, after December 31, 2009, the bond shall provide for coverage for dishonesty and shall satisfy all of the following conditions:

           1.    The bond shall provide coverage for the direct loss of property of the insured resulting from any dishonest or fraudulent act of any employee, director or committee member, committed alone or in collusion with others.

           2.    The coverage may be limited to a stated maximum amount and may exclude indirect or consequential losses but the coverage shall not exclude losses of interest other than accrued and unpaid interest.

           3.    If the bond requires the existence of manifest intent to cause a loss to be insured, it shall also provide that concealment of a dishonest or fraudulent act shall be deemed to be manifest intent for the purposes of the bond.

           4.    The period during which coverage may be terminated for an act of dishonesty or fraud is limited to the current policy period, including any extended discovery period during which a claim may be made under the bond.           

           5.         The insurer shall undertake to provide the Superintendent and the Corporation with copies of any notification sent to the insured concerning termination or potential termination of coverage.

 

PART VII
RESTRICTIONS ON BUSINESS POWERS

ANCILLARY BUSINESSES

Ancillary Businesses

      30.  For the purposes of subsection 174 (1) of the Act, credit union may engage in the following trades or businesses:

           1.    Operating a post office.

           2.    Operating a motor vehicle licence bureau.

           3.    Acting as an agent to receive payments for utility bills, realty tax, personal income tax and for similar transactions.

           4.    Providing facsimile transmission facilities.

           5.    Promoting merchandise and services to its members or the holder of any payment, credit or charge card issued by the credit union, its subsidiaries or affiliates.

           6.    Engaging in the sale of,

                          i.    tickets, including lottery tickets, on a non-profit, public service basis in connection with special, temporary and infrequent non-commercial celebrations or projects that are of local, municipal, provincial or national interest,

                         ii.    transit fares, and

                       iii.    tickets in respect of a lottery sponsored by the federal government or a provincial or municipal government or an agency of any such government.

Financial Services

Prohibition re financial services

      31.  For the purposes of subsection 174 (3) of the Act, a credit union shall not directly provide the following financial services:

           1.    Services provided by a factoring corporation described in subsection 67 (2).

           2.    Services provided by an investment counselling and portfolio management corporation described in subsection 67 (5).

           3.    Services provided by a mutual fund corporation described in subsection 67 (6).

           4.    Services provided by a mutual fund distribution corporation described in subsection 67 (7).

           5.    Services provided by a securities dealer described in subsection 67 (10).

Same

      32.  (1)  For the purposes of subsection 174 (3) of the Act, a credit union or subsidiary must not enter into a financial lease agreement or a conditional sales agreement unless the agreement meets the following requirements:

           1.    The agreement concerns personal property,

                          i.    selected by the lessee or purchaser and acquired by the credit union or subsidiary at the request of the lessee or purchaser, or

                         ii.    previously acquired by the credit union or subsidiary under another financial lease agreement or conditional sales agreement.

           2.    The primary purpose of the agreement is to extend credit to the lessee or purchaser.

           3.    The agreement is for a fixed term.

      (2)  A credit union or subsidiary must not direct a customer or prospective customer to particular dealers for the sale of personal property under a conditional sales agreement.

      (3)  A financial lease agreement or conditional sales agreement must yield,

         (a)    a reasonable rate of return; and

         (b)    a return that at least equals the investment by the subsidiary in the property that is the subject of the agreement, taking into account in the case of a financial lease agreement,

                        (i)    rental charges payable or paid by the lessee,

                       (ii)    tax benefits to the credit union or subsidiary, and

                     (iii)    the guaranteed purchase or resale price, if any, for the property at the expiry of the agreement or the lesser of the estimated residual value of the property and 25 per cent of the original acquisition cost to the credit union or subsidiary.

      (4)  The financial lease agreement or conditional sales agreement must set out the responsibilities of the credit union or its subsidiary respecting the benefit of the warranties, guarantees and undertakings made by the manufacturer or supplier of the property.

      (5)  The aggregate estimated residual value of all property held by a credit union and its subsidiaries under financial lease agreements must not exceed 10 per cent of the aggregate original acquisition cost.

      (6)  This section does not apply with respect to agreements in which the credit union or its subsidiary is the lessee or conditional purchaser.

Networking

Networking

      33.  (1)  Subject to sections 34 to 42, for the purposes of subsection 174 (4) of the Act, the following are the prescribed persons or entities in respect of which a credit union may act as agent:

           1.    A financial institution.

           2.    The Corporation.

           3.    Credit Union Central of Canada.

           4.    Central 1 Credit Union.

           5.    La Fédération des caisses Desjardins du Québec or La Caisse centrale Desjardins du Québec. 

           6.    A financial leasing corporation described in subsection 67 (3), whether or not it is a subsidiary of the credit union.

           7.    A mutual fund corporation described in subsection 67 (6), whether or not it is a subsidiary of the credit union.

           8.    A mutual fund distribution corporation described in subsection 67 (7), whether or not it is a subsidiary of the credit union.

      (2)  A credit union may act as agent for the Corporation only with respect to the administration of deposits under a deposit administration agreement.

      (3)  For the purposes of subsection 174 (4) of the Act, a credit union may refer its members to a person or entity listed in paragraphs 1 to 8 of subsection (1), a syndicating credit union or a syndicating league for the purpose of obtaining a syndicated loan referred to in section 55.

Authorized Types of Insurance

Authorized Types of Insurance

      34.  (1)  For the purpose of subsection 176 (1) of the Act, a credit union may administer any of the following types of insurance policies offered by insurers that are licensed to carry on business offering that type of insurance policy:

           1.    Insurance related to a credit card or charge card issued by the credit union.

           2.    Creditors’ disability insurance.

           3.    Creditors’ life insurance.

           4.    Creditors’ insurance for loss of employment.

           5.    Creditors’ vehicle inventory insurance.

           6.    Export credit insurance.

           7.    Group accident and sickness insurance.

           8.    Group life insurance.

           9.    Mortgage insurance.

         10.    Travel insurance.

      (2)  A credit union that, on March 1, 1995, administers an insurance policy other than one authorized under subsection (1) may continue to administer the policy with respect to a person to whom coverage is provided on that date.

      (3)  For the purposes of subsection (1), “insurance related to a credit card or charge card” refers to a policy of an insurer that provides the types of insurance described in this subsection to the holder of a credit card or charge card as a feature of the card without request and without an individual assessment of risk.  The policy may provide insurance against the loss of, or damage to, goods purchased with the card.  The policy may also provide insurance against any loss arising from a contractual liability assumed by the holder when renting a vehicle, if the rental is paid for with the card.  The policy may also provide for the extension of a warranty provided by the manufacturer of the goods purchased with the card.

      (4)  For the purposes of subsection (1), “creditors’ disability insurance” refers to a group insurance policy that will pay to the credit union all or part of the amount of a debt owed to the credit union by a debtor.  Payment will be made only in the event of bodily injury to or the illness or disability of,

         (a)    the debtor or his or her spouse, if the debtor is an individual;

         (b)    an individual who is a guarantor of all or part of the debt;

         (c)    a director or officer of a debtor that is a body corporate; or

         (d)    an individual who is essential to the ability of a debtor that is an entity to meet the debtor’s financial obligations to the credit union.

      (5)  For the purposes of subsection (1), “creditors’ life insurance” refers to a group insurance policy that will pay to the credit union all or part of the amount of a debt owed to the credit union by a debtor or all or part of the amount of the credit limit under a line of credit for a debt relating to a small business, a farm, a fishery or a ranch.  Payment will be made only in the event of the death of,

         (a)    the debtor or his or her spouse, if the debtor is an individual;

         (b)    an individual who is a guarantor of all or part of the debt;

         (c)    a director or officer of a debtor that is a body corporate; or

         (d)    an individual who is essential to the ability of a debtor that is an entity to meet the debtor’s financial obligations to the credit union.

The small business must be a business that is or, if it were incorporated, would be a small business corporation within the meaning of subsection 248 (1) of the Income Tax Act (Canada).  The line of credit must be a commitment to lend amounts up to a predetermined limit that does not involve a predetermined repayment schedule.  The credit limit must not exceed the reasonable credit needs of the debtor or the lending limits of the credit union.

      (6)  For the purposes of subsection (1), “creditors’ insurance for loss of employment” refers to a policy of an insurer that will pay to the credit union all or part of the amount of a debt owed to the credit union.  The insurance policy will be made without an individual assessment of risk.  Payment will be made only in the event that,

         (a)    the debtor becomes involuntarily unemployed, if the debtor is an individual; or

         (b)    an individual who is a guarantor of any portion of the debt becomes involuntarily unemployed.

      (7)  For the purposes of subsection (1), “creditors’ vehicle inventory insurance” refers to a policy of an insurer that provides insurance against direct and accidental loss or damage to vehicles held in stock for display and sale purposes by a debtor of the credit union.  Some or all of the vehicles must have been financed by the credit union.

      (8)  For the purposes of subsection (1), “export credit insurance” refers to a policy of an insurer that provides insurance to an exporter of goods or services against a loss incurred by the exporter because goods or services are not paid for.
.
      (9)  For the purposes of subsection (1), “group accident and sickness insurance” refers to a group insurance policy between an insurer and the credit union.  The policy provides accident and sickness insurance severally for persons who individually hold certificates of insurance.  The insurance must be restricted to the credit union’s employees, its members and the employees of its subsidiaries.

      (10)  For the purposes of subsection (1), “group life insurance” refers to a group insurance policy between an insurer and the credit union.  The policy provides life insurance severally for persons who individually hold certificates of insurance.  The insurance must be restricted to the credit union’s employees, its members and the employees of its subsidiaries.

      (11)  For the purposes of subsection (1), “mortgage insurance” refers to a policy of an insurer that provides insurance to the credit union against a loss caused by a default under a loan by the credit union secured by a mortgage on real estate or an interest in real estate.  The debtor must be an individual.

      (12)  For the purposes of subsection (1), “travel insurance” refers to either of the following:

           1.    A policy of an insurer that provides the types of insurance described in this paragraph to an individual in respect of a trip by him or her away from the place where he or she ordinarily resides.  The insurance is provided without an individual assessment of risk.  The policy may provide insurance against a loss that results from the cancellation or interruption of the trip.  It may provide insurance against the loss of or damage to personal property that occurs while the individual is on the trip.  It may provide insurance against a loss caused by the delayed arrival of personal baggage while the individual is on the trip.

           2.    A group insurance policy that provides the types of insurance described in this paragraph to an individual in respect of a trip by him or her away from the province in which he or she ordinarily resides.  The policy may provide insurance against expenses incurred during the trip that result from the individual’s illness or disability that occurs during the trip.  It may provide insurance against expenses incurred during the trip that result from bodily injury to or the death of the individual caused by an accident during the trip.  It may provide insurance against expenses incurred by the individual for dental care required as a result of an accident during the trip.  It may provide insurance in the event that the individual dies during the trip, against expenses incurred for the return of his or her remains to the place where he or she ordinarily resided before death, or for travel expenses incurred by a relative who must travel to identify the remains.  The policy may provide that the insurer undertakes to pay money in the event of the individual’s illness or disability that occurs during the trip or bodily injury to or the death of the individual caused by an accident during the trip.

Group insurance policy

      35.  (1)  A credit union may administer a group insurance policy described in section 34 only for its members, its employees or the employees of its subsidiaries.

      (2)  A group insurance policy is a contract of insurance between an insurer and the credit union that provides insurance severally for a group of identifiable persons who individually hold certificates of insurance.

Advice about insurance

      36.  (1)  A credit union may provide advice about an authorized type of insurance.

      (2)  A credit union may provide advice in respect of another type of insurance only if,

         (a)    the advice is general in nature; and

         (b)    the advice is not about a specific risk, a particular proposal respecting life insurance or a particular insurance policy, insurer, agent, broker or service.

      (3)  A credit union may provide services in respect of an authorized type of insurance.

      (4)  A credit union may provide services in respect of another type of insurance only if the credit union does not refer a person to a particular insurer, agent or broker.

Restrictions on Insurance

Restrictions on Insurance

      37.  A credit union shall not underwrite insurance.

Same

      38.  (1)  A credit union shall not act as an agent for any person in the placing of insurance.

      (2)  A credit union shall not lease or provide space in its head office or any other of its offices to a person placing insurance.

Separate and distinct premises

      39.  (1)  A credit union that carries on business in premises adjacent to an office of an insurer, agent or broker shall clearly indicate to its customers that the credit union’s premises are separate and distinct from the premises of the insurer, agent or broker.

      (2)  The premises of the credit union must be separate and distinct from the premises of the insurer, agent or broker.

Telecommunications device

      40.  A credit union shall not provide a telecommunications device that is primarily for the use of its customers to link a customer with an insurer, agent or broker.

Promotion of insurer

      41.  (1)  A credit union shall not promote an insurer, agent or broker unless,

         (a)    the insurer, agent or broker deals only in authorized types of insurance; or

         (b)    the promotion takes place outside the head office and any other office of the credit union, and is directed to,

                        (i)    all of the holders of credit cards or charge cards issued by the credit union to whom statements of account are mailed regularly,

                       (ii)    all of the credit union members who are individuals and to whom statements of account are mailed regularly, or

                     (iii)    the general public.

      (2)  A credit union shall not promote an insurance policy of an insurer, agent or broker, or a service provided in respect of such a policy, unless,

         (a)    the policy is of an authorized type of insurance or the service is in respect of such a policy;

         (b)    the policy is to be provided by a corporation without share capital (other than a mutual insurer or a fraternal benefit society) that carries on business without pecuniary gain to its members and the policy provides insurance to an individual in respect of the risks covered by travel insurance;

         (c)    the service is in respect of a policy described in clause (b); or

         (d)    the promotion takes place outside the head office of the credit union and any other office of the credit union, and is directed to,

                        (i)    all of the holders of credit cards or charge cards issued by the credit union to whom statements of account are mailed regularly,

                       (ii)    all of the credit union members who are individuals and to whom statements of account are mailed regularly, or

                     (iii)    the general public.

      (3)  A credit union may exclude the following persons from a promotion described in clause (1) (b) or (2) (d):

           1.    Persons in respect of whom the promotion would contravene an Act of Parliament or of the legislature of a province.

           2.    Persons who have notified the credit union in writing that they do not wish to receive promotional material from the credit union.

           3.    Persons who hold a credit card or charge card issued by the credit union in respect of which the account is not in good standing.

Sharing of information with insurer

      42.  (1)  Except as permitted by this section, a credit union shall not directly or indirectly give an insurer, agent or broker information about,

         (a)    a member of the credit union;

         (b)    an employee of the member;

         (c)    if the member is an entity with its own members, a member of the entity; or

         (d)    if the member has partners, a partner of the member.

      (2)  A credit union shall not permit its subsidiary to give directly or indirectly to an insurer, agent or broker information that the subsidiary receives from the credit union.

      (3)  A credit union shall not permit a subsidiary that is a loan or trust corporation to give directly or indirectly to an insurer, agent or broker information about,

         (a)    a customer of the subsidiary;

         (b)    an employee of the customer;

         (c)    if the customer is an entity with members, a member of the customer; or

         (d)    if the customer has partners, a partner of the customer.

      (4)  A credit union or a subsidiary that is a loan or trust corporation may give information to an insurer, agent or broker if,

         (a)    the credit union or subsidiary has established procedures to ensure that the insurer, agent or broker does not use the information to promote himself, herself or itself or an insurance policy or services respecting an insurance policy; and

         (b)    the insurer, agent or broker has given an undertaking to the credit union or subsidiary, in a form acceptable to the Superintendent, that he, she or it will not use the information for such a purpose.

      (5)  In this section,

“loan or trust corporation” means a loan or trust corporation incorporated under an Act of the Legislature of a province.

Fiduciary Activities

Fiduciary Activities

      43.  For the purposes of section 177 of the Act, the only fiduciary activity a credit union may undertake is acting as a trustee with respect to,

         (a)    deposits under registered retirement savings plans, registered retirement income funds and registered education savings plans under the Income Tax Act (Canada);

         (b)    trust funds established under the Cemeteries Act (Revised) or any other funds in respect of which a credit union is expressly permitted or required, under an Act or regulation, to act as a trustee; and

         (c)    loan proceeds and security under loan participation agreements and syndication agreements.

Guarantees

Guarantees

      44.  For the purposes of subsection 178 (3) of the Act, the following are the prescribed conditions and restrictions on a guarantee:

           1.    The guarantee must have a fixed term.

           2.    The credit union shall not guarantee an obligation, other than its own obligation or one of its subsidiary, unless the credit union has received security at least equal to the amount of the obligation guaranteed.

Limit on amount of guarantee

45.  For the purposes of subsection 178 (4) of the Act, the prescribed percentage is 10 per cent.

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