Modernizing the Credit Unions and Caisses Populaires Act

Consultation Document

PART VIII
INVESTMENT AND LENDING

Interpretation

Interpretation

      46.  For the purposes of this Part, regulatory capital shall be determined under section 16 using the audited financial statements of the credit union that were placed before its members at the most recent annual meeting. 

Security Interests in Credit Union Property

Security interests in credit union property

      47.  (1)  This section sets out, for the purposes of section 184 of the Act, the circumstances in which a credit union may create a security interest in property of the credit union.

      (2)  A credit union may create a security interest in personal property of the credit union if the property, together with any other property of the credit union subject to a security interest under this subsection, has an aggregate value of less than the greater of

         (a)    $25,000; and

         (b)    one per cent of the credit union’s total assets, as set out in the audited financial statements of the credit union that were placed before its members at the most recent annual meeting.

      (3)  A credit union may create a security interest in property of the credit union if the following conditions are satisfied:

           1.    The security interest is granted to secure a debt, including any obligation of the credit union to an entity listed in paragraph 2 that is a member of the Canadian Payments Association to settle for payment items of the credit union in accordance with the by-laws and rules of the Canadian Payments Association, which together with other debts for which the credit union has granted a security interest does not exceed 15 per cent of the credit union’s total assets, as set out in the audited financial statements of the credit union that were placed before its members at the most recent annual meeting.

           2.    The debt is owed to,

                          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 or La Fédération des caisses Desjardins du Québec, or

                        iv.    Credit Union Central of Canada.

           3.    The security agreement under which the security interest is granted provides that the security interest is granted over specifically identified assets and does not create a general charge against the business and undertaking of the credit union. 

           4.    The security interest is limited by its terms to property with a value, together with the total value of all property subject to a security interest under this subsection, that does not exceed 25 per cent of the value of the credit union’s total assets as set out in the audited financial statements of the credit union that were placed before its members at the most recent annual meeting. 

           5.    The security agreement under which the security interest is granted provides that if the value of the property subject to a security interest under this subsection exceeds at any time the limit established in paragraph 4, the security interest does not apply to the portion of the property, or to the portion of the proceeds from the sale of the property, that exceed the limit, regardless of whether the debt in respect of which the security was granted has been repaid in full at that time. 

      (4)  A credit union may create a general security interest in property of the credit union, except property required to satisfy the requirements of adequate liquidity under section 84 of the Act, if the following conditions are satisfied:

           1.    The debt is owed to,

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

                         ii.    Credit Union Central of Canada.

           2.    The security agreement under which the security interest is granted provides that if the Corporation orders the credit union to be subject to administration under section 294 of the Act or the Corporation is appointed as liquidator of the assets of the credit union, the Corporation may require that the security agreement be assigned to the Corporation, if the Corporation delivers one of the following to the secured party: 

                          i.    Payment in full of the outstanding balance, as of the close of business on the day of the assignment, of the indebtedness of the credit union secured by the agreement.

                         ii.    A guarantee of payment for the outstanding balance, as of the close of business on the day of the assignment, of the indebtedness of the credit union secured by the agreement. 

                       iii.    Partial payment of the outstanding balance of the indebtedness of the credit union secured by the agreement and a guarantee of payment for the portion of the outstanding balance not paid as of the close of business on the day of the assignment. 

      (5)  A guarantee of payment made under subparagraph ii or iii of paragraph 2 of subsection (4) must provide the following:

           1.    The Corporation shall pay the outstanding balance of the indebtedness, including interest at the interest rate provided for in the debt instrument that forms a part of the security agreement prior to any default under that instrument, by the fifth anniversary of the guarantee, or such earlier date as the Corporation may designate.

           2.    The secured party is not required to exhaust its right to recourse against the credit union or any other person before being entitled to payment or performance by the Corporation under the guarantee.

           3.    The obligations of the Corporation under the guarantee are continuing, unconditional and absolute, and will not be released, discharged, diminished, limited or otherwise affected by a change affecting the credit union. 

      (6)  A credit union may create a security interest in property of the credit union in favour of the Corporation without satisfying the requirements of subsection (2), (3) or (4).

      (7)  If on the day this section comes into force, a credit union has indebtedness that is subject to a security interest that, if created after this section comes into force, would not comply with this section, the credit union shall,

      (a)  pay the outstanding balance of the indebtedness and discharge the security interest within 90 days or such longer period as the Corporation considers appropriate; or

      (b)  amend the terms of the security agreement so as to comply with this section within 90 days or such longer period as the Corporation considers appropriate. 

Classes of Loans

Classes of loans

      48.  The following are prescribed as classes of loans:

           1.    Agricultural loans.

           2.    Bridge loans.

           3.    Commercial loans.

           4.    Institutional loans.

           5.    Personal loans.

           6.    Residential mortgage loans.

           7.    Syndicated loans.

           8.    Loans to unincorporated associations.

Agricultural loan
      49.  An agricultural loan is a loan that is made for the purposes of financing,

         (a)    the production of cultivated or uncultivated field-grown crops;

         (b)    the production of horticultural crops;

         (c)    the raising of livestock, fish, poultry or fur-bearing animals; or

         (d)    the production of eggs, milk, honey, maple syrup, tobacco, wood from woodlots or fibre or fodder crops.

Bridge loan

      50.  A bridge loan is a loan to an individual made under the following circumstances:

           1.    The loan is for the purchase of residential property in which the purchaser will reside.  

           2.    The term of the loan is not greater than 120 days.

           3.    The funds from the sale of another residential property owned by the individual will be used to repay the loan.

           4.    The credit union must receive a copy of the executed purchase and sale agreement for both properties before the loan is made.

           5.    The conditions of each of the purchase and sale agreements must be satisfied before the loan is made.

           6.    The loan is fully secured by a mortgage on the residential property being sold or, before the loan is made, the borrower’s solicitor has given the credit union an irrevocable letter of direction from the borrower stating that the funds from the sale of the residential property being sold will be remitted to the credit union.

Commercial loan

      51.  (1)  A commercial loan is a loan, other than any of the following types of loans, that is made for any purpose:

           1.    An agricultural loan, a bridge loan, an institutional loan, a personal loan, a residential mortgage loan.

           2.    A loan to an unincorporated association.

           3.    A loan that consists of deposits made by the credit union with a financial institution, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada.

           4.    A loan that is fully secured by a deposit with,

                          i.    a financial institution, including the credit union making the loan,

                         ii.    Central 1 Credit Union or La Fédération des caisses Desjardins du Québec, or

                       iii.    Credit Union Central of Canada.

           5.    A loan that is fully secured by debt obligations that are guaranteed by,

                          i.    a financial institution other than the credit union making the loan,

                         ii.    Central 1 Credit Union or La Fédération des caisses Desjardins du Québec, or

                       iii.    Credit Union Central of Canada.

           6.    A loan that is fully secured by a guarantee of,

                          i.    a financial institution other than the credit union holding the loan,

                         ii.    Central 1 Credit Union or La Fédération des caisses Desjardins du Québec, or

                       iii.    Credit Union Central of Canada.

           7.    An investment in a debt obligation that is,

                          i.    fully guaranteed by a financial institution other than the credit union making the loan,

                         ii.    fully secured by deposits with a financial institution, including the credit union making the loan, or

                       iii.    fully secured by debt obligations that are fully guaranteed by a financial institution other than the credit union making the loan.

           8.    An investment in a debt obligation issued by the Government of Canada, the government of a province or territory of Canada or a municipality or by an agency of such a government or municipality.

           9.    An investment in a debt obligation guaranteed by, or fully secured by securities issued by, the Government of Canada, the government of a province or territory of Canada or a municipality or by an agency of such a government or municipality.

         10.    An investment in a debt obligation issued by a league, Central 1 Credit Union or La Fédération des caisses Desjardins du Québec.

         11.    An investment in a debt obligation that is widely-distributed.

         12.    An investment in shares or ownership interests that are widely-distributed.

         13.    An investment in a participating share.

         14.    An investment in shares of a league, Central 1 Credit Union or La Fédération des caisses Desjardins du Québec.

      (2)  A commercial loan includes the supply of funds for use in automated bank machines that are not owned and operated by the credit union. 

Institutional loan

      52.  An institutional loan is a loan given to,

         (a)    the Government of Canada;

         (b)    the government of a province or territory of Canada;

         (c)    an agency of the Government of Canada;

         (d)    an agency of the government of a province or territory of Canada;

         (e)    a municipality or an agency of one;

          (f)    a school board; or

         (g)    an entity funded primarily by the Government of Canada, the government of a province or territory of Canada or a municipality.

Personal loan

      53.  A personal loan is a loan given to,

         (a)    an individual for personal, family or household use; or

         (b)    an individual or an entity for any other use if the loan does not exceed $25,000 and if the total outstanding amount of such loans to him, her or it and to connected persons does not exceed $25,000.
 
Residential mortgage loan

      54.  A residential mortgage loan is a loan that is secured by a mortgage on residential property that is occupied by the borrower and to which any of the following apply:

           1.    The amount of the loan, together with the amount then outstanding of any mortgage having an equal or prior claim against the residential property, does not exceed 80 per cent of the value of the property when the loan is made.

           2.    The loan is insured under the National Housing Act (Canada), or guaranteed or insured by a government agency.

           3.    The loan is insured by an insurer licensed to undertake mortgage insurance. 

Syndicated loan

      55.  A syndicated loan is a loan including any related credit facilities made under a syndicated loan agreement by a credit union, a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada acting as the syndicating credit union where:

           1.    The parties to the syndicated loan agreement are the borrower, the syndicating credit union and one or more of the following:

                          i.    Another credit union or its subsidiary or affiliate.

                         ii.    A league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada. 

                       iii.    A financial institution other than a securities dealer.

           2.    Each of the parties to the syndicated loan agreement, other than the borrower, agrees to contribute a specified portion of the loan and to be bound by the terms and conditions of the syndicated loan agreement.

           3.    The syndicating credit union contributes at least 10 per cent of the loans, including any related credit facilities, and underwrites, disburses and administers them on behalf of the parties to the syndicated loan agreement.

Loan to an unincorporated association
      56.  A loan to an unincorporated association is a loan to an unincorporated association or organization,

         (a)    that is not a partnership registered under the Business Names Act; and

         (b)    that is operated on a non-profit basis for educational, benevolent, fraternal, charitable, religious or recreational purposes.

Lending Limits

Lending limits to a person or connected persons

      57.  (1)  A class 1 credit union whose total assets, as set out in the audited financial statements of the credit union that were placed before its members at the most recent annual meeting, are described in a row in Column 1 of the Table to this section shall not make a loan to a person if, as a result of making the loan, the total amount of all outstanding loans made by the credit union to the person and any connected persons would exceed the amount of the total lending limit set out in the same row of Column 2 of the Table.

      (2)  Subject to subsections (3) and (4), a class 2 credit union shall not make a loan to a person if, as a result of making the loan, the total amount of all outstanding loans made to the person and any connected persons would exceed 25 per cent of the credit union’s regulatory capital.

      (3)  If the person to whom the loan is to be made is listed in clause 52 (c), (d) or (f), the class 2 credit union shall not make the loan if, as a result of making the loan, the total amount of all outstanding loans made to the person and any connected persons would exceed 50 per cent of the credit union’s regulatory capital.

      (4)  If the person to whom the loan is made is listed in clause 52 (a) or (b), the lending limit set out in subsection (2) does not apply.

      (5)  For the purposes of this section, the total amount of all outstanding loans made by a credit union to a person and any connected persons excludes the portion, if any, of a loan that,

         (a)    is insured under the National Housing Act (Canada) or by an insurer licensed to undertake mortgage insurance;

         (b)    is guaranteed by,

                        (i)    a federal, provincial or territorial government of Canada,

                       (ii)    an agent of a government described in subclause (i), or

                     (iii)    the Corporation.

         (c)    is secured by deposits of the borrower with the credit union.

      (6)  For the purposes of this section, changing the terms and conditions of a loan or refinancing a loan in any other way shall be deemed to be making a loan.

Table
Lending Limits to a person or connected persons — Class 1 Credit Unions


Column 1

Column 2

Total assets of credit union

Total lending limit to a person or connected persons

Less than $500,000

Greater of 100% of regulatory capital and $60,000

$500,000 or more but less than $1 million

Greater of 100% of regulatory capital and $100,000

$1 million or more but less than $2 million

Greater of 80% of regulatory capital and $125,000

$2 million or more but less than $3 million

Greater of 80% of regulatory capital and $155,000

$3 million or more but less than $5 million

Greater of 70% or regulatory capital and $185,000

$5 million or more but less than $10 million

Greater of 60% of regulatory capital and $235,000

$10 million or more but less than $20 million

Greater of 50% of regulatory capital and $295,000

$20 million or more but less than $50 million

Greater of 30% of regulatory capital and $400,000

Limits on loans of same class to a person
      58.  (1)  A class 1 credit union shall not make a loan to a person if, as a result of making the loan, the total amount of all outstanding loans of the same class, as set out in Column 1 of the Table to this section, made by the credit union to the same person and any connected persons would exceed the amount calculated by multiplying the percentage set out in the same row of Column 2 of the Table by the credit union’s total lending limit as determined under section 57.

      (2)  A class 2 credit union shall establish prudent lending limits for each class of loans that it is authorized by its by-laws to make.

      (3)  For the purposes of this section and for the purposes of the lending limits established by a class 2 credit union,

         (a)    a loan in an amount that exceeds the lending value of any property that is given as security for the loan, as determined in accordance with the credit union’s lending policies, is an under-secured loan;

         (b)    a loan in an amount that does not exceed the lending value of the property that is given as security for the loan, as determined in accordance with the credit union’s lending policies, is a fully secured loan; and

         (c)    a loan to a person includes a loan to two or more persons for which they are jointly and severally liable.

      (4)  For the purposes of this section, the total amount of outstanding loans to a person and any connected persons does not include the portion, if any, of a loan that,

         (a)    is insured under the National Housing Act (Canada), guaranteed by a government agency or insured by an insurer licensed to undertake mortgage insurance; or

         (b)    is secured by the borrower’s deposits with the credit union.

      (5)  For the purposes of this section, changing the terms and conditions of a loan or refinancing a loan in any other way shall be deemed to be making a loan.

Table
Limits on loans of same class — Class 1 Credit Unions


Column 1

Column 2

Class of loan

Percentage of total lending limit

Agricultural loan

0%

Bridge loan

100%

Institutional loan

50%

Loan to unincorporated association or organization

5%

Personal loan, fully secured

20%

Personal loan, unsecured or under-secured

6%

Residential mortgage loan

100%

Loan under a syndicated loan agreement

0%

Eligible Investments

Eligible investments for class 1 credit unions

      59.  (1)  The following types of securities and property are prescribed, for the purposes of section 198 of the Act, as the types of securities and property that a class 1 credit union may invest in or hold, subject to the conditions indicated:

           1.    Debt obligations that are fully guaranteed by,

                          i.    a financial institution other than the credit union,

                         ii.    Central 1 Credit Union or La Fédération des caisses Desjardins du Québec, or

                        iii    Credit Union Central of Canada.

           2.    Debt obligations that are fully secured by deposits with,

                          i.    a financial institution other than the credit union,

                         ii.    Central 1 Credit Union or La Fédération des caisses Desjardins du Québec, or

                       iii.    Credit Union Central of Canada.

           3.    Debt obligations that are fully secured by other debt obligations that are fully guaranteed by,

                          i.    a financial institution other than the credit union,

                         ii.    Central 1 Credit Union or La Fédération des caisses Desjardins du Québec, or

                       iii.    Credit Union Central of Canada. 

           4.    Debt obligations issued by the Government of Canada, the government of a province or territory of Canada, an agency of the Government of Canada or the government of a province or territory, a municipality or a local board or agent of a municipality.

           5.    Debt obligations that are guaranteed by, or fully secured by securities issued by, the Government of Canada, the government of a province or territory of Canada, an agency of the Government of Canada or the government of a province or territory, a municipality or a local board or agent of a municipality.

           6.    Debt obligations issued by a school board or by a municipality for the purposes of a school board.

           7.    Derivative instruments that the credit union purchases to manage interest rate risk.

           8.    Debt obligations that are widely distributed.  

           9.    Debt obligations of a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada.

         10.    Mortgages upon improved real estate in Canada.

         11.    Improved real estate in Canada, but only if the credit union occupies or intends to occupy the real estate for its own use.

         12.    Improved real estate in Canada acquired,

                          i.    to protect the credit union’s investment in a mortgage on the real estate, or

                         ii.    in satisfaction of debts contracted in the course of the credit union’s business.

         13.    Securities that are secured by mortgages.

         14.    Shares of a body corporate or ownership interests in an unincorporated association that are widely distributed. 

         15.    Participating shares of a body corporate.

         16.    Shares of a league, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada. 

         17.    Fully-paid shares or units of a mutual fund or corporation incorporated to offer participation in an investment portfolio.

         18.    Loans that consist of deposits made by the credit union with a financial institution, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada. 

         19.    Loans that are fully secured by a deposit with a financial institution, Central 1 Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada.

         20.    Loans that are fully secured by debt obligations that are guaranteed by,

                          i.    a financial institution other than a credit union holding the loan, or

                         ii.    Central1Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada.

         21.    Loans that are fully secured by a guarantee of,

                          i.    a financial institution other than a credit union holding the loan, or

                         ii.    Central1Credit Union, La Fédération des caisses Desjardins du Québec or Credit Union Central of Canada.

         22.    Investments not authorized under paragraphs 1 to 21 and not prohibited under any other provision of the Act or this regulation, so long as the total book value of those investments does not exceed 25 per cent of the credit union’s regulatory capital. 

      (2)  Paragraph 22 of subsection (1) does not apply so as to,

         (a)    enlarge the authority conferred under the Act or this regulation to invest in mortgages or to lend on the security of real estate; or

         (b)    affect the limits established under the Act or this regulation on investments in real estate.

      (3)  A class 1 credit union shall not make a direct investment in, or purchase of, any commodity including metals, food and grain, that trades on a commodity exchange. 

      (4)  The total book value of all investments by a class 1 credit union in improved real estate in Canada must not exceed 100 per cent of the credit union’s regulatory capital.

      (5)  For the purposes of subsection (4), the total book value does not include the book value of real estate acquired by the credit union,

         (a)    to protect its investment in a mortgage on the real estate; or

         (b)    in satisfaction of debts previously contracted in the course of the credit union’s business.

      (6)  The total book value of all investments by the credit union in shares referred to in paragraphs 14 and 15 of subsection (1) must not exceed 25 per cent of the credit union’s regulatory capital.

Eligible investments for class 2 credit unions
      60.  (1)  A class 2 credit union may hold as an investment any asset authorized by its investment policies, other than a prohibited investment, subject to the conditions set out in the Act and this regulation.

      (2)  A class 2 credit union shall not invest in a derivative instrument unless it is purchased for the purposes of managing interest rate risk.

      (3)  A class 2 credit union shall not make a direct investment in, or purchase of, any commodity including metals, food and grain that trades on a commodity exchange. 

      (4)  The total book value of all investments by a class 2 credit union in the following types of shares must not exceed 70 per cent of the credit union’s regulatory capital:

           1.    Shares of a body corporate or ownership interests in an unincorporated association that are widely distributed.

           2.    Participating shares of a body corporate. 

      (5)  The total book value of all investments by a class 2 credit union in improved real estate in Canada must not exceed 100 per cent of the credit union’s regulatory capital. 

      (6)  For the purposes of subsection (5), the total book value does not include the book value of real estate acquired by the credit union,

         (a)    to protect its investment in a mortgage on the real estate; or

         (b)    in satisfaction of debts previously contracted in the course of the credit union’s business.

Prescribed conditions re improved real estate
      61.  (1)  For the purposes of section 198 of the Act, the following are prescribed conditions that must be satisfied if a credit union invests in improved real estate, either by purchasing it or by way of a loan secured by a mortgage on it:

           1.    The amount advanced on a mortgage plus all outstanding mortgages with an equal or prior claim against the real estate must not exceed the lending value of the real estate.

           2.    Despite paragraph 1, the amount may exceed the lending value of the real estate if the loan secured by the mortgage is approved or insured under the National Housing Act (Canada).

           3.    Despite paragraph 1, the amount may exceed the lending value of the real estate,

                          i.    if the excess amount is guaranteed or insured through an agency of the Government of Canada or of the government of a province or territory of Canada, or

                         ii.    if the excess amount is insured by an insurer licensed to undertake mortgage insurance.

      (2)  If a credit union or a subsidiary acquires or has the right to possess or sell real estate for either of the following purposes and then sells it and takes back a mortgage on the sale, the investment in the mortgage need not meet the requirements of subsection (1):

           1.    To protect its investment in a mortgage on the real estate.

           2.    In satisfaction of debts previously contracted in the course of the credit union’s business,

      (3)  Subsection (1) does not apply with respect to a mortgage taken back by the credit union on the sale of property held by the credit union for its own use.

      (4)  A credit union shall not retain real estate acquired under circumstances described in subsection (2) for more than two years without obtaining the approval of the Corporation.

      (5)  For the purposes of subsection (1),

“lending value” means, in respect of real estate, 80 per cent of the market value of the real estate but, if the credit union considers a lesser percentage appropriate in the circumstances under its investment and lending policies, the lending value is that lesser percentage of the market value of the real estate.

Definition
      62.  For the purposes of sections 59, 60 and 61,

“improved real estate” means real estate,

         (a)    on which there exists a building capable of being used for residential, financial, commercial, industrial, educational, professional, institutional, religious, charitable or recreational purposes,

         (b)    on which such a building is being built or is about to be built,

         (c)    on which farming operations are being conducted, or

         (d)    that is vacant land restricted by law to being used for commercial, industrial or residential purposes.

Prescribed conditions re body corporate
      63.  (1)  For the purposes of section 198 of the Act, it is a prescribed condition that a credit union not directly or indirectly invest in the shares of a body corporate if, as a result of the investment,

         (a)    the voting rights attached to the aggregate of any voting shares of the body corporate beneficially owned by the credit union and by any entities it controls would exceed 30 per cent of the voting rights attached to all of the outstanding voting shares of the body corporate; or

         (b)    the aggregate of any shares of the body corporate beneficially owned by the credit union and by any entities it controls would represent ownership of more than 30 per cent of the shareholders’ equity of the body corporate.

      (2)  Subsection (1) does not apply to a credit union in respect of an investment in the shares of a body corporate described in paragraphs 1 to 15 of subsection 67 (1),

         (a)    if, after the investment is made, all the voting rights attached to the voting shares of the body corporate would be owned by credit unions; or

         (b)    if the Corporation approves the credit union’s investment before the investment is made.

      (3)  For the purposes of section 198 of the Act, it is a prescribed condition that a credit union not directly or indirectly invest in ownership interests in an unincorporated entity if, as a result of the investment, the aggregate of any ownership interests, however designated, into which the entity is divided that would be beneficially owned by the credit union and by entities it controls would exceed 30 per cent of all the ownership interests into which the unincorporated entity is divided.

Restriction on Single Investments

Restriction re single investments

      64.  For the purposes of section 198 of the Act, a credit union shall not directly or indirectly invest, by way of purchases from or loans to one person or more than one person that, to its knowledge, are connected persons, more than 25 per cent of the credit union’s regulatory capital. 

Exception to restriction re single investments
      65.  For the purposes of subclause 199 (1) (a) (iii) of the Act, the following are prescribed persons and entities for class 1 and class 2 credit union:

           1.    Credit Union Central of Canada.

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

           3.    Subsidiaries of the credit union.

Connected Persons

Connected persons

        66.  The following conditions are prescribed as conditions that, if satisfied, result in persons being connected persons for the purposes of the Act:

           1.    In relation to a person or entity, if another person or entity is one of the following:

                          i.    a body corporate in which the person or entity holds or beneficially owns, directly or indirectly, at least 35 per cent of the voting securities,

                         ii.    an affiliate of a body corporate described in paragraph 1,

                       iii.    a person or entity that has a 50 per cent interest in a partnership in which the person or entity also has a 50 per cent interest,

                        iv.    a partnership in which the person or entity is a partner,

                         v.    a trust or estate in which the person or entity has a substantial beneficial interest,

                        vi.    a trust or estate in respect of which the person or entity serves as a trustee or in a similar capacity,

                      vii.    a person or entity on whose financial resources the person or entity depends to repay a loan to the credit union,

                     viii.    a person or entity who provides security to the credit union for a loan to the person or entity.

           2.    In relation to an individual, if another individual is one of the following:

                          i.    a spouse of the individual who is financially dependent on the individual,

                         ii.    a relative of the individual or of the individual’s spouse who lives in the same home as the individual and who is financially dependant on the individual or spouse.

Investment in Subsidiaries

Investment in subsidiaries

      67.  (1)  For the purposes of subsection 200 (1) of the Act, the following are the prescribed subsidiaries:

           1.    A financial institution.

           2.    A factoring corporation.

           3.    A financial leasing corporation.

           4.    An information services corporation.

           5.    An investment counselling and portfolio management corporation.

           6.    A mutual fund corporation.

           7.    A mutual fund distribution corporation.

           8.    A real property brokerage corporation.

           9.    A real property corporation.

         10.    A service corporation.

         11.    A body corporate engaging in the activities of a securities dealer.

         12.    A corporation licensed as a mortgage brokerage under the Mortgage Brokerages, Lenders and Administrators Act, 2006.

         13.    A body corporate that engages in two or more of the businesses or activities carried on by corporations referred to in this subsection.

         14.    An entity that is limited to businesses and activities in which the credit union is permitted to engage.

         15.    A body corporate whose sole purpose is to hold all of the credit union’s shares in one or more of the  subsidiaries described in paragraphs 1 to 14.

      (2)  A factoring corporation is a body corporate that is restricted to acting as a factor in respect of accounts receivable, raising money for the purpose of acting as a factor and lending money while acting as a factor.

      (3)  A financial leasing corporation is a body corporate that is restricted to,

         (a)    engaging in financial leasing of personal property;

         (b)    entering into and accepting assignments of conditional sales agreements in respect of personal property;

         (c)    administering financial lease agreements and conditional sales agreements on behalf of a person; and

         (d)    raising money for the purpose of financing its activities and investing the money until it is used for those activities.

      (4)  An information services corporation is a body corporate that is primarily engaged in,

         (a)    collecting, manipulating and transmitting information that is primarily financial or economic in nature or that relates to the business of an entity referred to in subsection (1);

         (b)    providing advisory and other services in the design, development and implementation of information management systems; or

         (c)    designing, developing and marketing computer software.

Its ancillary activities may include the design, development, manufacture or sale of computer equipment that is not generally available and that is integral to the provision of financial services or information services related to the business of financial institutions.

      (5)  An investment counselling and portfolio management corporation is a body corporate whose principal activities are either of the following:

           1.    Offering advice or advising about investments.

           2.    Investing or controlling money, property, deposits or securities that it does not own and that are not deposited with it in the ordinary course of business.  This must involve the exercise of discretion and judgment.

      (6)  A mutual fund corporation is a body corporate restricted to investing its funds.  It may also be a body corporate that issues securities entitling the holder to receive, on demand or within a specified period, an amount computed by reference to the value of a proportionate interest in all or part of its net assets (including a separate fund or a trust account).

      (7)  A mutual fund distribution corporation is a body corporate whose principal activities are acting as an agent selling and collecting payment for interests in a mutual fund.  Purchasers must be told about the existence of any sales commission or service fee before buying an interest in the mutual fund.  The sales proceeds, less sales commissions and service fees, must be paid to the fund.

      (8)  A real property brokerage corporation is a body corporate that is primarily engaged in,

         (a)    acting as an agent for vendors, purchasers, mortgagors, mortgagees, lessors or lessees of real estate; and

         (b)    providing consulting or appraisal services with respect to real estate.

      (9)  A real property corporation is a body corporate that is primarily engaged in holding, managing or otherwise dealing with,

         (a)    real estate; or

         (b)    shares of another body corporate or ownership interests in an unincorporated entity, limited partnership or trust that is primarily engaged in holding, managing or otherwise dealing with real estate.

      (10)  A securities dealer is a body corporate that trades in securities in the capacity of principal or agent.  “Trade” has the same meaning as in the Securities Act.

      (11)  A service corporation is a body corporate that provides services exclusively to one or more of the following:

           1.    The credit union.

           2.    Subsidiaries of the credit union.

           3.    Financial institutions affiliated with the credit union.

Restriction on investment in subsidiaries

68.  For the purpose of subsection 200 (7) of the Act, the prescribed percentage of the credit union’s regulatory capital is 100 per cent.

PART IX

INTEREST RATE RISK MANAGEMENT

Interpretation

      69.  A credit union’s exposure to interest rate risk refers to the potential negative impact, expressed in dollars of changes in interest rates on a credit union’s earnings and net asset values when the dates of its payments of principal and interest and its receipts of principal and interest are not matched.

Policies and procedures
      70.  (1)  Every credit union shall establish, for the purposes of managing its exposure to interest rate risk, policies and procedures that address the following matters:

           1.    The limits on the credit union’s exposure to interest rate risk and on the impact of this exposure on its net interest income and surplus.  The limits must be clear and prudent.

           2.    The techniques to be used to calculate the amount of the credit union’s exposure to interest rate risk.

           3.    The internal controls to be implemented to ensure compliance with the policies and procedures.

           4.    The corrective action to be taken if the limits on the credit union’s exposure to interest rate risk are exceeded.

           5.    The content and frequency of reports to be made to the board of directors by the management of the credit union about the management of the credit union’s exposure to interest rate risk.

      (2)  The limits must take into account fluctuations in interest rates that might reasonably be expected to occur.

      (3)  For a class 1 credit union, the limits must limit changes in net income to changes that do not exceed 0.15 per cent of the credit union’s total assets.

      (4)  The policies and procedures must require the management of the credit union to submit a report to the board of directors and the Corporation if the credit union’s exposure to interest rate risk exceeds the limits established in the policies and procedures, and the report must be submitted within 21 days after the credit union takes steps to bring the amount of its exposure within the limits.

      (5)  A report required by subsection (4) must,

         (a)    describe the circumstances that led to the credit union’s exposure to interest rate risk exceeding the limits;

         (b)    describe the effect that this exposure has had, and may have, on net income;

         (c)    describe the steps taken to bring this exposure within the limits; and

         (d)    include a schedule indicating when the credit union will comply with its policies and procedures.

      (6)  The policies must be approved by the board of directors of the credit union.

Same
      71.  (1)  If a credit union’s exposure to interest rate risk exceeds the limits established in its policies and procedures, the credit union shall immediately take steps to bring its exposure within those limits.

      (2)  If a credit union’s exposure to interest rate risk exceeds the limits established in its policies and procedures for two consecutive quarters, the credit union shall promptly submit to the Corporation a plan approved by the board of directors that describes the steps the credit union intends to take to bring its exposure to interest rate risk within those limits.

Interest rate risk report

      72.  (1)  A credit union shall prepare a report at the end of each quarter of its fiscal year on its management of the credit union’s exposure to interest rate risk.

      (2)  The report must include all information about the management of interest rate risk that the credit union has filed with the Corporation.

      (3)  The report must be presented at the next board meeting immediately after it is prepared and the board shall review it.

PART X
RESTRICTED PARTY TRANSACTIONS

Interpretation

Application

      73.  This Part applies with respect to transactions entered into, renewed, extended or modified after March 1, 1995.

Definition of “restricted party”
      74.  (1)  For the purposes of the Act,

“restricted party” means, in relation to a credit union, a person who is or has been in the preceding 12 months,

         (a)    a director or officer of the credit union,

         (b)    a spouse of a director or officer of the credit union,

         (c)    a relative of a person described in clause (a) or (b), if the relative lives in the home of a person described in clause (a) and is financially dependent on a person described in clause (a) or (b),

         (d)    the auditor of the credit union, if the auditor is an individual,

         (e)    a corporation in which a director or officer of the credit union beneficially owns, directly or indirectly, more than 10 per cent of the voting shares,

          (f)    a corporation controlled by a person described in clause (a), (b), (c) or (d), or

         (g)    an affiliate of the credit union, other than a subsidiary.

      (2)  For the purposes of subsection (1),

“officer” includes a person who has not yet assumed the office. 

Definition of “transaction”
      75.  (1)  For the purposes of the Act,

“transaction”, as between a credit union and a restricted party, includes,

         (a)    a guarantee given by the credit union on behalf of the restricted party,

         (b)    an investment by the credit union in securities issued by the restricted party,

         (c)    a loan from the credit union to the restricted party,

         (d)    an assignment taken or acquisition made by the credit union of a loan made by a third party to the restricted party, and

         (e)    a security interest taken by the credit union in securities issued by the restricted party.

      (2)  The performance of a condition of a transaction forms a part of the transaction and does not constitute a separate transaction.

      (3)  The payment of dividends to a restricted party does not constitute a transaction between a credit union and the restricted party.

Permitted Transactions

Permitted transactions

      76.  A credit union may enter into a transaction with a restricted party if the value of the transaction is nominal or if the transaction is not material when measured by criteria established by the board.

Same
      77.  (1)  A credit union may issue to a restricted party shares that are fully paid for with money or that are issued,

         (a)    upon the conversion of other issued and outstanding securities of the credit union;

         (b)    as a share dividend;

         (c)    as a patronage return;

         (d)    in accordance with an amalgamation agreement;

         (e)    in exchange for shares of another body corporate; or

          (f)    in exchange for other property.

      (2)  A credit union may issue shares under clause (1) (e) or (f) only with the prior written approval of the Superintendent.

Same

      78.  (1)  A credit union or its subsidiary may enter into any of the following transactions with a restricted party if the transaction is authorized in advance by at least two-thirds of the members of the board of the credit union:

           1.    A written contract for the purchase of goods or services, other than management services, required by the credit union or the subsidiary to carry on business.  The term of the contract and of each potential renewal must not exceed five years.  The contract must state the consideration to be paid.

           2.    A written contract for the provision of management services to or by the credit union or subsidiary.  It must be reasonable that the credit union or subsidiary supply the services.  The amount to be paid must not exceed fair market value.

           3.    A written lease of personal property for the credit union or subsidiary to use in carrying on business.  The term of the lease and of each potential renewal must not exceed five years.  The amount to be paid must not exceed fair market value.

           4.    A written lease of real property for the credit union or subsidiary to use in carrying on business.  The term of the lease and of each potential renewal must not exceed 10 years.  The amount to be paid must not exceed fair market value.

           5.    A contract of employment with an officer of the credit union or a subsidiary.

           6.    A written contract for employment benefit plans and pension plans and for other reasonable commitments incidental to the credit union or subsidiary employing individuals.

           7.    A loan.  The credit union or subsidiary must be otherwise authorized under the Act to make the loan.  The terms of the loan must be no more favourable than those offered in the ordinary course of business by the credit union to its members.

      (2)  A credit union or a subsidiary may enter into any of the following transactions with a restricted party:

           1.    A contract of employment with an individual who is not a director or officer of the credit union or subsidiary.

           2.    A deposit made by the credit union for clearing purposes with a financial institution that is a direct clearer or a group clearer member under the by-laws of the Canadian Payments Association.

           3.    A contract to borrow money from the restricted party.

           4.    The receipt of deposits from the restricted party.

           5.    The issuance of debt obligations to the restricted party.

      (3)  The by-laws of the credit union may require the transactions described in subsection (2) to be authorized by a process specified in the by-laws.

      (4)  A credit union may make residential mortgage loans or personal loans to directors or officers of the credit union on terms more favourable than those offered in the ordinary course of business by the credit union to its members if two-thirds of the members of the board have approved the policies and procedures governing the making of such loans.

Restricted Party Transaction Procedures

Restricted party transaction procedures

      79.  (1)  A credit union shall establish procedures to ensure that it complies with the restrictions governing restricted party transactions.

      (2)  The procedures form part of the investment and lending policies and procedures of the credit union for the purposes of section 189 of the Act.

      (3)  The procedures must include review and approval procedures to be followed by directors, officers and employees.

      (4)  The procedures must require that a restricted party disclose to the credit union, in writing, the party’s interest in a transaction or a proposed transaction with the credit union or its subsidiary.

      (5)  The disclosure to be made by a director or officer must be made in the manner set out in sections 146 and 147 of the Act, with necessary modifications.

PART XI
MEETINGS

First Meeting

First Meeting

      80.  (1)  The first meeting of a credit union must be convened by a majority of the incorporators.

      (2)  Written notice of the meeting must be mailed or sent by electronic means to each incorporator at least seven days before the date of the meeting.

      (3)  The notice must state the date, time, place and purpose of the meeting.

Quorum
      81.  At the first meeting of a credit union, a majority of the incorporators constitutes a quorum.

Business to be dealt with
      82.  The following business must be transacted at the first meeting of a credit union:

           1.    The directors must be elected.

           2.    The mandatory by-laws required under subsection 105 (2) of the Act must be enacted.

           3.    The members of the audit committee must be elected, if the articles require an election.

           4.    The members of the credit committee, if any, must be elected.

           5.    The auditor must be appointed.

Financial Statements
Financial statements
      83.  (1)  For the purposes of subsection 213 (1) of the Act, the prescribed matters to be shown on the financial statements of a credit union are:

           1.    The amount and composition of Tier 1 and Tier 2 capital and the percentage of regulatory capital held for determining compliance to the capital adequacy requirements of section 14.

           2.    The amount of each type of asset held for liquidity purposes as determined under section 20.

           3.    The amount of outstanding loans in each of the loan classes described in section 48.

           4.    The amount of impaired loans, the allowance for impairment and the charge for impairment.

           5.    The value of investments in marketable securities that are held to maturity, available for sale and designated as held for trading.

      (2)  The following time periods are prescribed, for the purposes of subsection 213 (1) of the Act, as the time periods to which the prescribed matters must relate:

           1.    The most recently completed financial year.

           2.    The financial year immediately before the most recently completed financial year.

PART XII
RETURNS, EXAMINATIONS AND RECORDS

Document retention

      84.  (1)  A credit union shall keep and maintain the following in accordance with section 231 of the Act:

           1.    A copy of its articles of incorporation and any amendments to them or, if applicable, its other incorporating document and any amendments to it.

           2.    A copy of its articles of continuance, if applicable.

           3.    The by-laws and resolutions, including special resolutions, of the credit union.

           4.    The register of members, shareholders and security holders required by section 230 of the Act to be kept by the credit union.

           5.    A register of the directors, members of the audit committee and any other committees established by the board and all officers of the credit union, setting out their names, residential addresses, including the street and number, if any, their occupations and the several dates on which they have become or ceased to be a member of the board or committee.

           6.    A register of all securities held by the credit union.

           7.    Books of account and accounting records of the credit union.

           8.    The minutes of all proceedings at meetings of members, shareholders, directors and committees.

           9.    The audited financial statements of the credit union placed before the members at the most recent annual meeting.
 
      (2)  Despite paragraph 8 of subsection (1), a credit union may dispose of minutes of committee proceedings that were held more than six years before the disposition.

Maximum fee for by-laws

      85.  For the purpose of subsection 233 (2) of the Act, the prescribed amount is $25.

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