Summary of consultation on Approval or Authorization of Business and Investment Activities Guidance | Financial Services Regulatory Authority of Ontario

Overview – Guidance:

The Financial Services Regulatory Authority of Ontario’s (“FSRA”) guidance relating to the Approval or Authorization of Business and Investment Activities under the Credit Unions and Caisses Populaires Act, 2020 (“Guidance”) sets out:

the approach that FSRA will take when considering applications made by Ontario credit unions, caisses populaires, federations and centrals (“CUs”) for the approval or authorization of business and investment activities, variations and extensions (“Transactions”) under the Credit Unions and Caisses Populaires Act, 2020 (“CUCPA 2020”) and
the principles and criteria that FSRA will apply, and information that FSRA may request, when considering such applications and exercising its discretion under the CUCPA 2020

The Guidance is intended to provide clarity, transparency and certainty with respect to the criteria and principles that FSRA will consider when reviewing Transactions that require FSRA’s approval or authorization under the CUCPA 2020.

The Guidance identifies various Transactions which require FSRA’s approval or authorization under the CUCPA 2020. FSRA will take a holistic and principles-based approach to the review of proposed Transactions, and work closely with CUs to ensure that their applications are processed in a timely manner, consistent with the CUCPA 2020, FSRA’s statutory objects and the principles articulated in the Guidance.

Outcome of consultation:

Based on the feedback received during the consultation period, FSRA has amended the consultation draft of the Guidance to:

clarify that, for the purposes of the Guidance, “associated approvals” means approvals by FSRA and/or other regulators which may be required under statutes in addition to the CUCPA 2020; however, such applications will be reviewed holistically and in a timely manner by FSRA
clarify that information is not “required” by FSRA through the Guidance; rather, the onus is on CUs to consider what information is required in order to present FSRA with a comprehensive business case in support of a proposed Transaction, consistent with the criteria and principles set out in the Guidance and
combine assessment criteria 5 and 6 relating to the risks associated with a proposed Transaction

Feedback from stakeholders:

FSRA received three submissions from stakeholders during the consultation period (February 17, 2022 to March 31, 2022). These submissions are available on FSRA’s website.

FSRA would like to thank all stakeholders that took the time to review and comment on the consultation draft of the Guidance. FSRA carefully considered all comments before finalizing the Guidance.

Stakeholders

The following stakeholders provided their written comments to FSRA during the consultation period:

CU/Association	Representative
1. Canadian Credit Union Association (“CCUA”)	Andrei Belik
2. Desjardins Group (“Desjardins”)	Bernard Brun
3. Libro Credit Union (“Libro”)	Stephen Bolton

Subject	Stakeholders	Summary of Stakeholders’ Feedback	FSRA’s Response
Support for FSRA’s Principles-Based Approach	CCUA Libro	Stakeholders expressed their appreciation for FSRA’s principles-based approach to the application process described in the Guidance. They also expressed the hope that the Guidance would provide greater flexibility and open the door to additional business opportunities for CUs, thereby strengthening the CU sector and meeting consumers’ needs for new financial services.	FSRA would like to thank stakeholders for their support of the Guidance and FSRA’s principles-based approach to reviewing and approving Transactions.
Scope of Transactions	CCUA	A stakeholder expressed concern that the Guidance does not list every transaction requiring FSRA’s approval, leading to uncertainty for CUs. Clarity was requested as to when FSRA’s approval is required; alternatively, FSRA was asked to provide guidelines, identifying when its approval is not required in the context of a transaction or business activity.	FSRA has identified 13 Transactions in the Guidance that require FSRA’s approval or authorization in accordance with the CUCPA 2020. FSRA intends to exercise its discretion to approve or authorize these Transactions in a principles-based, outcomes-focused manner, consistent with its statutory mandate. FSRA notes that its authority to approve or authorize Transactions is rooted in the CUCPA 2020, and that it will not impose unnecessary or unduly burdensome requirements on CUs. CUs are encouraged to contact FSRA (e.g., through their Relationship Manager) if they have any questions as to whether a proposed business activity or course of action requires FSRA’s approval.
Associated Approvals	CCUA Desjardins Libro	Stakeholders expressed their concern that requiring more than one approval per Transaction could result in burden and inefficiency. They noted that a “siloed” approval process would likely create unnecessary administrative work for both CUs and FSRA. Stakeholders recommended that applications be reviewed holistically, and that all approvals be granted as part of the application process to ensure efficiency and timeliness of approvals.	FSRA will review applications holistically and make every effort to ensure that Transactions are approved in a timely manner. As noted in the Guidance, CUs are encouraged to meet with FSRA prior to submitting an application, to help ensure that the application process is completed in a timely manner. Approvals may also be required by other regulators or under statutes in addition to the CUCPA 2020 (e.g., with respect to new trade names). To the extent that these other approvals are required, CUs should proactively seek to obtain such approvals in a timely manner in order to expedite FSRA’s review of the proposed Transaction. The Guidance has been amended to clarify that an application may contain multiple transactions that require approval under the CUCPA 2020 or by another regulator or entity under a different statute. FSRA will work with CUs to ensure that Transactions are reviewed and approved in a holistic and timely manner.
Associated Approvals – Annual Transactions and Recovery Plans	Desjardins	A stakeholder requested clarification with respect to FSRA’s approval process in the context of proposed Transactions that occur on an annual basis or more than once per year, and whether a separate application would need to be submitted each year or multiple times per year. The stakeholder also inquired whether FSRA would authorize a purchase or sale transaction described in s. 174 of the CUCPA 2020 in the context of a CU’s recovery plan.	FSRA expects to receive an application in respect of each proposed Transaction; however, it will work with a CU to ensure efficiency and reduce duplication. With respect to a CU in recovery, FSRA will work closely with the CU at that stage to determine the best course of action. FSRA’s position with respect to a potential transaction under s. 174 of the CUCPA 2020 would depend on the specific circumstances.
Service Standards	CCUA Libro	A stakeholder expressed its appreciation for FSRA’s commitment to acknowledge applications within two business days, but concerns were expressed that FSRA could rely on the 30-day service standard each time additional information is requested by or presented to FSRA, resulting in delays. A stakeholder requested that FSRA consider adopting a “proportionate” approach to less complex applications and engage with CUs in “robust early discussions” to avoid multiple 30-day review cycles. Another stakeholder recommended that FSRA commit to a concrete timeline with a “final” decision date in the context of a proposed Transaction.	FSRA will continue to work with CUs to ensure that their proposed Transactions are reviewed and approved in a timely manner. The 30-day service standard is not intended to delay Transactions, but to ensure that FSRA has sufficient time to review the information and documents provided by CUs to support their proposed Transactions. FSRA intends to work with CUs to meet or exceed its service standard, particularly if a proposed Transaction is of an urgent nature and the CU has provided FSRA with all of the relevant information in a timely manner. FSRA will take a “proportionate” approach to Transactions, as appropriate, and engage with CUs in robust discussions with respect to their proposed Transactions in order to ensure efficiency and timeliness for both parties.
Compliance with CUCPA 2020	CCUA Desjardins Libro	Stakeholders expressed concern with the requirement for applications to identify the relevant CUCPA 2020 provisions and demonstrate compliance with them. According to those who have commented, this would likely require CUs to obtain a legal opinion, adding to CUs’ burden and costs. They requested that the principle of proportionality be applied by FSRA, such that a legal opinion would not be required for less complex transactions or it would only be required if FSRA identified an area of non-compliance by a CU. Some stakeholders also expressed the hope that early discussions with FSRA and FSRA’s own legal review might help resolve any issues with respect to compliance with the CUCPA 2020.	A CU’s application should demonstrate that the provisions of the CUCPA 2020 associated with the proposed Transaction have been considered. CUs should satisfy themselves that they are complying with the CUCPA 2020. A legal opinion is not necessarily required to demonstrate compliance; however, a CU may choose to obtain a legal opinion if it determines it to be necessary or beneficial in the context of a specific Transaction. For less complex Transactions, a legal opinion would not likely be necessary; however, for more complex Transactions, a legal opinion may serve to expedite the approval process and give the CU comfort that it is in compliance with the CUCPA 2020. In all cases, CUs are encouraged to engage in early discussions with FSRA to identify and address any potential issues associated with a proposed Transaction in order to ensure that an application is reviewed and approved in a timely manner.
Application Assessment Criteria	CCUA Libro	Stakeholders recommended that assessment criteria 5 and 6 be combined, and reduced to a single requirement, namely, that CUs conduct a robust risk-based analysis and review within an application. Stakeholders also requested that FSRA provide clarity with respect to the intersection between criterion 7 (“the CU’s financial performance and condition are satisfactory for the purposes of the Transaction”) and the new Risk Based Supervisory Framework (“RBSF”) for CUs. In particular, the hope was expressed that FSRA would adopt a proportionate approach to initial RBSF scores for the purposes of criterion 7. Finally, a stakeholder requested clarification with respect to criterion 9 (“full compliance with the CUCPA 2020, its Regulations, and FSRA Rules”). The stakeholder expressed concern that “full compliance” could be interpreted to mean that there were no findings or concerns identified during an examination of a CU, potentially jeopardizing FSRA’s approval of an application.	The assessment criteria are intended to transparently advise CUs of the criteria that FSRA will apply when assessing whether an application satisfies the principles set out in the Guidance. Criteria 5 and 6 both address risk; however, criterion 5 requires a CU to comprehensively assess risk and develop a risk mitigation plan; whereas, criterion 6 requires the applicant to demonstrate that the proposed Transaction will not result in any unacceptable increase in risk to the CU or FSRA. To avoid the perception of duplication, FSRA has amended the Guidance to combine criteria 5 and 6. With respect to criterion 7, the importance of financial condition, performance and RBSF ratings will always be considered in the context of a proposed Transaction to the degree that they are relevant. FSRA will consider the totality of the circumstances in determining a CU’s compliance with the CUCPA 2020, its Regulations and FSRA’s rules for the purposes of a proposed Transaction, and engage in discussions with a CU to the extent that any requirements or recommendations relevant to that Transaction have been communicated to the CU.
Due Diligence and Assurances	CCUA Libro	Stakeholders requested clarity with respect to the “assurances” that FSRA will seek that appropriate levels of analysis and due diligence have been conducted by a CU. Stakeholders also expressed concern that such assurances may require a third-party legal opinion, which would impose additional costs on a CU. In addition, a stakeholder asked what other “assurances” FSRA might seek in order to avoid delays and understand all potential upfront costs involved in an application. Another stakeholder suggested that FSRA should conduct its own due diligence prior to requesting additional assurances from CUs (e.g., legal opinions) in order to reduce costs and delays.	While FSRA will seek assurances that the appropriate level of analysis and due diligence have been conducted, a legal opinion is not necessarily required in support of a proposed Transaction. If a CU has sought a legal opinion on a legal or transactional issue, the legal opinion could be requested by FSRA with the goal of resolving such issues and expediting the approval of the proposed Transaction. The legal opinion could be provided by the CU’s in-house lawyer or legal department, rather than a “third party”, depending on the nature of the issue and complexity of the proposed Transaction. The types of assurances that FSRA would seek would vary, depending on the nature of the proposed Transaction and its relative importance to the CU. FSRA will adopt a flexible and proportionate approach to such assurances, and conduct its due diligence in a timely manner. Examples of “assurances” that FSRA could seek include, but are not limited to, board resolutions, members’ resolutions and meeting minutes. CUs should refer to the application guide, once published, for examples of documents that they may consider including in their applications. The application guide is intended to assist CUs in preparing their applications.
Application Guide	CCUA Desjardins Libro	Stakeholders expressed concern that they have not had an opportunity to review and comment on the application guide referenced in the Guidance. They indicated that the inclusion of “further processes and details” in the application guide makes it difficult for them to assess the impact on CUs seeking approvals from FSRA in the context of the Guidance. Stakeholders expressed the hope that FSRA would provide the CU sector with an opportunity to review and comment on the application guide before the finalization of the Guidance.	The application guide is intended to be a resource for CUs that will assist them in preparing their applications, not a document that will impose additional processes or requirements on CUs. It will assist CUs in determining what information would best support their applications in light of the criteria listed in the Guidance. FSRA is not planning a public consultation on the application guide, as it is intended only as an aid to CUs. However, FSRA may revise it in the future based on any stakeholder feedback received. To clarify that information is not “required” by FSRA via the application guide or the Guidance itself, the Guidance will be amended to delete references to information “requirements” and instead refer CUs to the criteria and principles that will guide FSRA in its review of their applications.
Dispute Resolution	CCUA Libro	Stakeholders requested that FSRA adopt an independent dispute resolution process for resolving disagreements resulting from a decision or request for information by FSRA or an issue arising in the context of an application. The goal of such a process is for CUs to have the “option to appeal decisions” by FSRA.	The CUCPA 2020 requires that FSRA approve or authorize the 13 Transactions set out in the Guidance. Some of these Transactions (e.g., establishing or acquiring a subsidiary) require FSRA’s CEO to issue an order if the proposed Transaction is denied or the approval is revoked. In such cases, a CU may appeal such an order to the Financial Services Tribunal (“FST”). If the CUCPA 2020 does not require FSRA to issue an order in respect of a proposed Transaction, there is no such right to appeal FSRA’s decision to the FST or any other independent dispute resolution body. FSRA has no legislative authority to establish such a process in the context of the proposed Transactions. However, FSRA will work closely with CUs during the application process to ensure that any issues are resolved well in advance of its decision with respect to a proposed Transaction.
Regulatory Sandbox Opportunities	CCUA Libro	Stakeholders recommended that a “regulatory sandbox discussion” be available for applications that are not approved by FSRA but may have merit within a testing environment. The benefit of such an approach would be that “great ideas can live on and be considered through a new lens and environment”, spurring innovation and growth for CUs and their members.	One of FSRA’s statutory objects with respect to CUs is to foster innovation. The CUCPA 2020 authorizes FSRA to exempt CUs from any requirements imposed by the CUCPA 2020, its Regulations or a FSRA Rule; however, it may only do so if the specific requirement is set out in a regulation. Until such regulations are made, FSRA has no statutory authority to exempt CUs from any statutory requirements with respect to their proposed Transactions; however, FSRA encourages CUs to approach its Innovation Office with respect to proposed Transactions that could be considered in the regulatory sandbox context.
Publication of Approval Decisions	Libro	A stakeholder expressed its appreciation for FSRA’s commitment to transparently working with the CU sector to develop criteria for publicly sharing approval decisions. The stakeholder noted that the publication of such decisions could highlight innovation in the sector, and help CUs understand FSRA’s processes. It also acknowledged the importance of protecting confidential information in this context.	FSRA thanks the stakeholder for its support and interest in helping to develop criteria for publicly sharing decisions relating to the Transactions identified in the Guidance. FSRA is committed to transparency and working with the CU sector to determine the appropriate criteria associated with any publication of approval its approval decisions in the context of the Transactions identified in the Guidance.