Purpose of consultation:

The Credit Union Market Conduct Framework Interpretation and Approach Guidance (the Guidance) aims to:

  • Protect members and depositors;
  • Improve standards and best practices; and
  • Enhance confidence in the sector.

The Guidance outlines FSRA’s interpretation of the existing Standards of Sound Business and Financial Practices (By-Law No. 5) and section 102 of the Credit Unions and Caisses Populaires Act, 2020, once proclaimed to come into force.

It clarifies that credit unions must have a market conduct framework (MCF) in place that meets specified minimum standards. It also sets out FSRA’s supervisory approach to assessing a credit union’s implementation of its MCF, and whether it’s effective based on unique factors such as overall risk profile.   

The Canadian Credit Union Association (CCUA) has created a Market Conduct Code (MCC) to standardize conduct and protect member interests. The CCUA MCC satisfies the requirements outlined in the Guidance. Credit unions that adopt and implement the CCUA MCC will complete an annual self-assessment of compliance with the MCC and report on the results to their boards. 

Credit unions who choose to adopt a different MCF than the CCUA MCC are required to ensure it aligns with FSRA’s interpretation of statutory requirements, as set out in the Guidance. 

Outcome of consultation:

As a result of the consultation, the following changes have been reflected in the final version of the Guidance:

  • Although the Guidance applies to credit union subsidiaries, it does not apply to credit union subsidiaries that are subject to comparable market conduct regimes which are administered by other regulatory authorities and not directly supervised by FSRA. Credit unions who have such subsidiaries should contact their Relationship Managers to determine whether the Guidance would apply.   
  • The guidance now clarifies that the required outcomes in the Interpretation section apply to all topics addressed in a credit union’s market conduct framework.
  • Although a credit union’s code of market conduct is to be overseen by their board’s Audit Committee, the Guidance now clarifies that this role may also be carried out by another committee of the board that has a similar focus and objective.   
  • A credit union is required to minimize risks to members and/or customers from fraudulent practices. The guidance now clarifies that this obligation relates specifically to conduct activities that are under the purview of the credit union, including activities of third parties that provide products or services on behalf of the credit union.

Feedback from the sector:

FSRA received five submissions with feedback on the draft Guidance during the consultation period, June 28, 2021 to August 12, 2021. The submissions and comments are also available on FSRA’s website.

FSRA thanks all commenters. FSRA carefully considered all comments before finalizing and issuing the Guidance. 

Contributors:

The following stakeholders took the time to share their perspectives with FSRA: 

 

Organization

Commenter

1

Canadian Credit Union Association

Nick Best

2

Alterna Savings

José Gallant

3

Meridian Credit Union

Brigitte Catellier

4

Libro Credit Union

Stephen Bolton

5

Consumer Advisory Panel

Consumer Advisory Panel

Subject

Commenters

Summarized Comment

FSRA Response

Support for Guidance

  • Alterna Savings
  • Canadian Credit Union Association
  • Libro Credit Union
  • Meridian Credit Union

Most of the commenters indicated support for the Guidance.

 

Commenters noted: 

  • The Guidance will enhance consumer protection.
  • The Guidance provides flexibility that will deliver positive outcomes for members. 
  • Support for FSRA principles-based Guidance and the regulatory model.

FSRA thanks stakeholders for their support.

Review Period

  • Canadian Credit Union Association
  • Libro Credit Union

Some commenters proposed that changes to the Guidance should only be considered after a minimum of three years. They cited this will provide credit unions adequate time to address concerns in their market conduct framework.

This proposal is consistent with the proposed Guidance. 

 

The Guidance indicates that it will be reviewed no later than three years after it has come into force. This review period will also be used to consider changes to the Guidance resulting from any potential legislative changes. 

Regulatory Duplication

  • Alterna Savings

A commenter requested that the Guidance be revised to state that it does not apply to a credit union subsidiary that is regulated by another entity (i.e., Financial Consumer Agency of Canada).

FSRA has revised the Guidance to reflect that the Guidance would not apply to a subsidiary that is subject to a comparable market conduct regime administered by another regulatory body.   
Credit unions with such subsidiaries should contact their Relationship Manager to determine whether the Guidance would apply.

  

Balancing Business and Consumer Interests

  • Alterna Savings

A commenter requested that language in the Guidance recognize the balance between the interest and rights of consumers and the need of the credit union to efficiently manage their business operations.

FSRA will apply its supervision in a proportional manner as it relates to balancing the interests of members/consumers and business operations. 

 

As stated in the guiding principles set out in the Guidance, FSRA will consider proportionality in the application of the requirements of the guidance, including the structure, size, complexity and risk profile of the credit union, taking into consideration the nature and extent of risks to members, mitigating actions taken by credit unions, and past supervisory findings.

 

FSRA has statutory objects in the Financial Services Regulatory Authority of Ontario Act, 2016 (section 3b and 4b) to protect the rights and interests of consumers and promote and otherwise contribute to the stability of the credit union sector in Ontario with due regard to the need to allow credit unions to compete effectively while taking reasonable risks. FSRA will consider these objects when supervising a credit union against its market conduct framework.

Implementation

  • Alterna Savings
  • Libro Credit Union

Some commenters requested clarification on the timing of implementation.

FSRA will provide a transition period after the Guidance comes into effect. FSRA will require that credit unions adopt and implement a market conduct framework by March 31, 2022 and complete their first round of self-assessment by March 31, 2023. Credit unions should be prepared to provide progress updates to FSRA during this transition period if requested.

 

Credit unions are not required to regularly submit their self-assessments to FSRA but should report their self-assessment to their boards. Self-assessment programs will be reviewed by FSRA on a risk basis, on demand or as part of scheduled supervision activity. 

Attestation

  • Libro Credit Union

A commenter requested clarification on the frequency of attestation to FSRA.

Credit unions are not required to submit an attestation to FSRA. Credit unions must maintain evidence that they have adopted a market conduct framework and conduct regular self-assessments. 

 

FSRA expects that self-assessments are frequent enough to ensure/demonstrate good governance. 

DICO By-Law No. 5

  • Meridian Credit Union

A commenter highlighted that the interpretation section in the Guidance introduces a new requirement under DICO By-Law No. 5, which may become effective prior to the CUCPA 2020 coming into force.

FSRA’s interpretation of By-Law No. 5 does not create new requirements, but rather provides an interpretation of requirements that already exist. The proposed Guidance ensures that FSRA’s interpretation of By-Law No. 5 (section A (1): Corporate Governance) is transparent and explicit. Section 102 of the CUCPA 2020, once proclaimed into force, will create an explicit requirement for credit unions to adopt and adhere to codes of market conduct. FSRA will supervise credit unions in accordance with its interpretation of requirements under By-Law No. 5 (section A (1): Corporate Governance) until such a time as section 102 of the CUCPA 2020 is proclaimed into force.

Corporate Governance

  • Meridian Credit Union

A commenter expressed concern with the introduction of a corporate governance requirement in the Guidance. Their view is that corporate governance requirements should be under the Standards of Sound Business and Financial Practices Rule and the new Risk-Based Supervisory Framework.

The Guidance does not create new corporate governance requirements but instead clarifies and makes more explicit that DICO By-Law No. 5 and the new proposed Standards of Sound Business Practices Rule cover market conduct related matters.

Audit Committee

  • Meridian Credit Union
  • Libro Credit Union

Some commenters suggested that a credit union’s Audit Committee may not always be the body responsible for oversight of a credit union’s market conduct framework. As such, they proposed that the Guidance provide flexibility so that oversight of the market conduct framework may be conducted by another board committee with a similar focus and mandate.

FSRA has adjusted the Guidance to clarify that oversight of the market conduct framework can be provided by either a credit union’s Audit Committee or another board committee with a similar objective.

Fraudulent Practices

  • Meridian Credit Union

A commenter expressed that FSRA’s interpretation that a code of market conduct should minimize risks to members or customer that will be harmed by deceptive or fraudulent practices, could extend to practices by external parties beyond those related to the conduct activities of the credit union. 
The commenter recommended that the wording be clarified to conduct activities that are under the purview of the credit union.

FSRA will adjust the wording in the guidance to clarify that the risks referred to do not include those beyond the credit union’s control. For greater clarity, a credit union is responsible for complying with By-Law No. 5 and section 102 of the New Act, as interpreted by this Guidance, even if the credit union uses one or more third parties to provide all or any part of the credit union’s products or services.

    

Complaints Handling

  • Consumer Advisory Panel 

A commenter proposed that FSRA bolster its complaint-handling requirements for credit unions in the Guidance. The commenter proposed that in the Interpretation portion of the Guidance and in FSRA’s supervisory plan, FSRA specify that credit unions’ complaint-handling processes should be accessible, fair, timely, transparent, and effective. The commenter noted that the principles should be included in Guidance to avoid a gap, given that not all CUs may elect to adopt the CCUA’s Market Conduct Code.

FSRA agrees with the principles that have been highlighted in this submission, and they are consistent with the intent of the Guidance.  The Guidance sets out required outcomes and FSRA’s supervisory approach for credit union market conduct frameworks, which is intended to ensure that the five elements identified in the submission are captured. 

 

Being principles-based and outcomes-focused, the Guidance is intended to set out high-level outcomes that credit unions must achieve, but not intended to set detailed standards for the various topics that a credit union’s market conduct framework addresses. The detailed standards and processes implemented in order to achieve the required outcomes will be set out in a credit union’s market conduct framework.    

 

The Interpretation portion of the Guidance sets out that a credit union’s market conduct framework must, at minimum, address a number of important subjects, including complaints handling, access to deposits, mis-selling, tied selling, misrepresentation of information to customers, disclosure, conflicts of interest, and protection of customer information.  
The Interpretation further sets out that a credit union’s market conduct framework should be designed in such a manner so as to (A) prevent a credit union from delivering poor or unfair outcomes for members or customers that will harm their interests, or result in a loss of confidence in the credit unions and (B) minimize risks to members or customers that they will be harmed by deceptive or fraudulent practices or activities, or by unacceptable standards of business conduct.  Both A and B are required outcomes that would apply to all of the topics addressed in a credit union’s market conduct framework, including complaints handling. In the specific context of complaints handling, processes that are accessible, fair, timely, transparent, and effective would be necessary in order to ensure that the processes meet the outcomes described above and would need to be captured in a credit union’s market conduct framework.  As we finalize the guidance, we will adjust the language used in the Interpretation to further clarify that these required outcomes apply to all topics addressed in a credit union’s market conduct framework. 

 

Further to the requirements set out in a credit union’s own market conduct framework, section 116 of O. Reg. 237/09 under the CUCPA provides specific legally-binding requirements relating to complaints handling that further ensure the proposed standards would be addressed. 

 

Finally, in accordance with the Approach portion of the Guidance and FSRA’s new Risk-Based Supervisory Framework (currently under development), FSRA will assess the extent to which credit unions have effectively implemented complaints-handling processes that meet the required outcomes. FSRA will publish the Risk-Based Supervisory Framework to provide transparency of its assessment methodology. FSRA will begin examining credit unions using the new integrated RBSF in April 2022, which includes both prudential and market conduct.