The Canadian Bankers Association (CBA) is pleased to have the opportunity to present the views
of the banking industry as part of the review of both the Financial Institutions Act (FIA) and the
Credit Union Incorporation Act (CUIA).
The CBA works on behalf of 60 domestic banks, foreign bank subsidiaries and foreign bank
branches operating in Canada and their 280,000 employees. The CBA advocates for effective
public policies that contribute to a sound, successful banking system that benefits Canadians and
Canada's economy. The Association also promotes financial literacy to help Canadians make
informed financial decisions and works with banks and law enforcement to help protect customers
against financial crime and promote fraud awareness.
The CBA believes that a strong financial system, based on sound internal risk management and an
effective prudential policy, supervisory and regulatory framework, is vital to the Canadian economy.
The credit union system is an important part of Canada’s dynamic financial sector, contributing to
the choice and competition available to consumers.
As the global financial crisis demonstrated, disruption to the financial sector can spread quickly,
even to institutions that would consider themselves immune. As a result, it is important that all
financial institutions, credit unions as well as banks, operate within a robust prudential policy,
supervisory and regulatory framework to ensure the continued safety and soundness of Canada’s
financial system as a whole.
As British Columbia is home to the largest credit union system in Canada outside of Quebec,
prudential policy, supervisory and regulatory framework for credit unions is particularly important to
the province. Credit unions play a significant and systemically important role in the province of
British Columbia with assets over $60 billion and deposits exceeding $54 billion1. The province is
also home to some of the largest credit unions in the country, with three credit unions ranking in the
top 10 nationally by asset size and representing about 60% of all credit union assets in the
Credit Union Sector
Credit Union Growth and Complexity
Credit unions are increasingly evolving into complex institutions that offer a wide array of products
and services that are supported by operations that resemble those of banks. According to B.C.’s
Superintendent of Financial Institutions, “credit unions are getting into more bank-like businesses,
offering mezzanine financing, large-scale commercial lending, (and) venture-capital lending”2.
Given the increase in size and complexity of some credit unions, both the Bank of Canada and the
International Monetary Fund (IMF) have raised the importance of a robust framework for these institutions, particularly as they opt to perform more complex transactions, take on riskier “bank-like”
activities or become large enough to pose systemic risks3.
Some changes have been made to manage the growing complexity and size of credit unions. An
obvious example is the 2008 merger between the Credit Union Central of British Columbia and the
Credit Union Central of Ontario to create Central 1 Credit Union in order to provide appropriate
liquidity and funding services, technology and payments processing, government relations and
trade association activities. There have also been discussions regarding additional mergers with
other Centrals to support credit unions with scalable solutions that are available on a national basis.
Central 1 is somewhat unique compared to other provincial centrals as its primary regulator is in the
Financial Institutions Commission of British Columbia (FICOM), yet it is also accountable to the
Deposit Insurance Corporation of Ontario (DICO). Indeed, Central 1 has grown so important given
its role in today’s market as the primary liquidity manager and payments processor for the two
provinces, FICOM recently identified Central 1 Credit Union as a domestic systemically important
financial institution (D-SIFI). FICOM recognized that the failure of Central 1 could cause significant
disruption to the wider financial system and consequently took steps to enhance supervision and
Prudential Policy, Supervisory and Regulatory Framework
Given the growing complexity and size of credit unions, and in order to ensure the safety and
soundness of Canada’s financial system as a whole, the CBA believes that the credit union
movement should operate within a robust prudential policy, supervisory and regulatory framework
consistent with that of federally regulated financial institutions. Such a robust framework would
include, for example, the large number of initiatives that have been implemented by the federal
government and its financial agencies since the global financial crisis. These initiatives include
Basel III reforms on capital adequacy and liquidity guidelines, enhanced disclosure, mortgage
underwriting practices, corporate governance, and recovery and resolution planning.
The IMF stressed the importance of a robust framework in its 2014 Financial Sector Assessment
Program (FSAP), when it remarked that as provincial deposit takers become large enough to pose
systemic risks, they should also be subject to the same level of rigorous supervision and regulation
as other major depository institutions in Canada4. Furthermore, the Deputy Governor of the Bank
of Canada indicated that, if provincial governments and regulators fail to adopt requirements such
as Basel III and credible recovery and resolution plans, their credit unions are at risk of being
labelled shadow banks5.
In the March 2014 Report on Credit Union Supervision by the Auditor General of British Columbia,
several key issues including the importance of pursuing international industry standards were
identified. It is encouraging to note that the report recognized that FICOM is working toward meeting the international industry standards outlined by the Basel Committee Banking Supervision
(BCBS) guided by a principled, risk-based approach. This being said, for some of the standards,
the Auditor General acknowledged that FICOM has gone as far as it can within the existing
legislation. The provincial government has the opportunity to use this current review of the FIA and
the CUIA to provide FICOM with the necessary powers to fully meet the international industry
standards outlined by the Basel Committee6.
If FICOM chooses not to pursue a similar framework as that of federal regulated financial
institutions, these variations should be publicly identified along with an explanation as to why these
standards were not applied.
It is also important to ensure there is an appropriate level of supervisory oversight and expertise
with the regulator. The IMF’s FSAP for Canada noted that some large credit unions require
provincial supervisors to have the capacity, on a standalone basis, to effectively supervise them
and for the respective provinces to have the fiscal resources to backstop depositors and resolve
any nonviable ones in an orderly fashion. Yet this can be challenging because of the wide
dispersion of supervisory talent across the provinces7. The Auditor General’s report highlighted this
challenge in British Columbia by noting that FICOM is significantly constrained due to a shortage of
staff, particularly in more senior and specialized roles, that is leading to supervisory work being
scaled back and stalling the effectiveness of its work8. This could lead to a situation where
worsening circumstances at a credit union may not be detected in time to address and reduce the
risk of failure.
The importance of a strong provincial policy, supervisory and regulatory framework has taken on
more significance in light of changes with respect to federal oversight and support of provincial
regulated financial institutions. The federal government has taken steps to clarify its mandate with
respect to provincially regulated financial institutions which include:
- Ceasing joint supervision of provincial credit union centrals by the Office of the
Superintendent of Financial Institutions (OSFI);
- Eliminating possible recourse of provincial deposit protection agencies to Canada Deposit
Insurance Corporation (CDIC) loans; and,
- Granting access to the Bank of Canada’s Emergency Lending Assistance (ELA) program
only to those Centrals and credit unions whose provinces have agreed to provide an
indemnity to the Bank of Canada for any losses that may occur as a result of that
assistance, as well as having a credible recovery and resolution plan.
As a result of these actions, provincial governments should ensure that they have an appropriately
robust prudential policy, supervisory and regulatory framework for credit unions in place as well as
the resources to maintain that framework.
Recommendation: Credit unions should operate within a robust prudential policy,
supervisory and regulatory framework harmonized with that of the regime for federally
regulated financial institutions. Where provincial supervisors and regulators do not adopt
elements of this prudential framework, they should provide an explanation as to why they
were not adopted.
Deposit Insurance Guarantee
An important element of a robust prudential policy, supervisory and regulatory framework is a
suitably designed deposit insurance system. A deposit insurance system should strike an
appropriate balance between depositor protection and market discipline while promoting financial
According to the International Association of Deposit Insurers (IADI), the level and scope of
coverage should sufficiently protect the majority of depositors and leave a meaningful proportion of
the value of the deposits uninsured9. The Financial Stability Board (FSB) has recognized the
CDIC’s $100,000 guarantee of federally-regulated deposit taking institutions as an example where
that balance has been struck between depositor protection and market discipline. The FSB noted
that, as of 2010, while CDIC covers an estimated 97% of eligible deposit accounts, this represents
only 35% of the total value of deposit liabilities10. The total value of deposit liabilities covered by
CDIC has been declining since 2010, with insured deposits representing approximately 30% of the
total value of deposit liabilities as of 201411.
In contrast, British Columbia is one of the provinces that the FSB considered when it stated that
unlimited deposit coverage through the complete protection of eligible deposits should be avoided
because it could lead to greater risk-taking and adversely affect deposit insurance system
The effectiveness of coverage offered by an unlimited deposit guarantee is undermined by moral
hazard which is present when depositors and institutional investors do not hold financial institutions’
risky actions accountable because they believe they are protected from losses in the event of
failure. The IADI noted that excessive risk taking can lead to increased losses to the deposit insurer
or taxpayer and a misallocation of economic resources13.
In an unlimited deposit guarantee environment, the guarantee typically attracts wholesale deposits
that can be volatile and can destabilize institutions if withdrawn quickly. Furthermore, there are no
uninsured deposits to bear the brunt of a failure. If a provincially-regulated deposit taking financial
institution were to fail, the provincial government and ultimately British Columbia taxpayers would
be responsible for ensuring that those obligations are met. This obligation is material and growing.
The amount of insured credit union deposits in British Columbia as a proportion of the provincial
government’s taxpayer-supported revenues is approximately 120% − up from 96% in 2008, just
prior to the increase of the unlimited deposit guarantee limit. To put this growth into perspective,
while insured deposits covered by CDIC has grown by 36% since 2008, insured deposits in British
Columbia has grown by 49%. To address this issue, placing limits on the amounts insured is an
effective means of mitigating moral hazard and lowering the provincial government’s risk exposure.
The unlimited deposit guarantee, and the moral hazard that accompanies it, should also be
examined within the Canadian context. Deposit insurance regimes in Canada are characterized by
competitive distortions that reduce the overall effectiveness of financial stability. Indeed, the
justification given for British Columbia’s implementation of the unlimited deposit guarantee was a
concern that volatile market conditions might direct some deposits into neighbouring provinces
which offered full deposit guarantees14. In other words, as a result of regulatory arbitrage with the
three other western provinces that offered an unlimited deposit guarantee, policymakers in B.C. felt
it necessary to adopt a coverage limit that moved the province away from what is considered
international best practice and CDIC’s coverage level of $100,000. The adoption of the unlimited
deposit guarantee in B.C. increased the diversity of Canada’s deposit insurance regimes. From a
depositors’ perspective, this heterogeneity of deposit insurance coverage levels may create
uncertainty and confusion15. This uncertainty and confusion could also be accentuated by the FIA’s
“home and host principal regulator” option where depositors in different provinces may be covered
by differing coverage levels depending on whether a reciprocal agreement has been signed.
Since the financial crisis, governments internationally have reduced the level of deposit insurance
coverage that was instituted during the financial crisis in conjunction with improvements in other
areas of prudential policy, supervision and regulation. The same actions should occur in Canada,
particularly for provinces with unlimited deposit guarantees such as British Columbia. And while
FICOM is taking steps to implement international standards as outlined by the BCBS, an unlimited
deposit guarantee is incongruent with best practices as laid out by the IADI and highlighted by the
Furthermore, when reducing the level of deposit insurance coverage, the heterogeneity of deposit
insurance guarantees should also be addressed. Given both the prevalence of CDIC-insured
deposits in the Canadian financial system (the CBA estimates that CDIC-insured deposits amount
to almost 75% of total federally- and provincially-insured deposits) and the balance that it has struck
between depositor protection and market discipline in the promotion of financial stability, coverage
levels in the provinces should be uniform and consistent with that of CDIC16. This would improve
transparency and credibility, mitigate moral hazard, and reduce uncertainty and confusion. It is also
consistent with the CBA’s previous recommendation that provincial policy, supervisory and
regulatory frameworks be aligned with those of federally regulated financial institutions (including
federal credit unions). In reducing deposit guarantee levels, British Columbians can be assured by
the Auditor General’s observation that an effective deposit insurance guarantee can still be achieved by covering most, but not all depositors and a significant value of deposits should not be
Recommendation: Deposit insurance coverage for credit unions should be limited and harmonized with that of the CDIC.
Federal Credit Union Regime
Another acknowledgement of the growing size and complexity of credit unions is the federal credit
union regime, which was created at the request of credit unions and established in 2012. The CBA
strongly supported the development of the federal credit union regime and continues to do so.
The regime enables growth, consumer choice and seamless expansion of the Canadian credit
union system across provincial boundaries within an appropriate prudential framework that protects
the safety and soundness of Canada’s financial system whilst recognizing the unique cooperative
elements of credit unions. In order to support credit unions’ transition to the federal credit union
regime, the federal government last year committed to provide temporary transitional support to
eligible credit unions that have provincial government acceptance to move to federal regulation.
The CBA believes that the federal credit union regime is a much more preferable option than the
“home and host principal regulator” approach allowed under the B.C. FIA. To date, British
Columbia is the only province that has implemented such a legislative framework, while two other
provinces still require regulations. Credit unions utilizing this approach would subject their business
strategies to the legislative and regulatory priorities and schedules of other provinces. In contrast,
credit unions considering chartering under the federal credit union framework would benefit from
the streamlined regime already in place and applicable across the country.
The federal credit union regime would best address many of the issues raised in the Consultation
Paper and the Auditor General’s report regarding credit unions, particularly those that are large and
systemically important. As credit unions continue to consolidate, the ability to grow and expand
across provincial borders through a federal framework would provide a safer means by which they
could achieve economies of scale and scope, as well as benefit from greater risk diversification.
Credit unions would benefit from the same prudential policy, supervisory and regulatory regime as
banks, strengthening B.C.’s financial system.
Recommendation: Credit unions, particularly those that are large and systemically
important, should be encouraged to transition to the federal credit union regime.
Insurance Retailing and Licensing Exemptions
Banks in Canada are committed to providing their customers’ with financial products and services
that best suit their customers’ needs. Many of these customers depend on the financial assistance
that bank-offered insurance products such as credit insurance, creditors’ disability insurance, and
creditor’s loss of employment insurance, provide. These types of insurance products help ensure
that customers continue to meet their financial obligations during times of crisis and allow
customers to more easily focus on themselves and their families.
The assumption in the Consultation Paper that exempted sellers will act in a good faith manner with
regard to these types of insurance to maintain the business relationship with the consumer certainly
holds true when the seller is a bank. Banks generally have long standing relationships with their
customers across a broad range of products (credit cards, mortgages, deposit accounts, etc.).
Maintaining long-term, favourable relationships with customers is thus extremely important to banks
and insurance is not sold by banks in the context of a one-time transaction relationship.
The CBA continues to believe that the federal regulatory regime that applies to authorized
insurance products offered by banks is robust and provides all of the consumer protections that are
needed. For example, under the Bank Act banks are prohibited from coercive tied selling, while
under the Cost of Borrowing Regulations (Banks) banks are required to disclose pertinent details
relating to credit insurance, and consumers are afforded cancellation, and refund rights18. In
addition, banks in Canada have committed to the CBA Code of Conduct for Authorized Insurance
Activities that, among other requirements, establishes training and complaint procedures19. The
banks’ federal consumer regulator, the Financial Consumer Agency of Canada (FCAC), oversees
the banks’ compliance with these obligations.
In summary, there are strong policy reasons for continuing to exempt banks from the requirement to
hold an insurance agent license while acting in connection with credit insurance. Duplicative
regulatory regimes do not provide additional protection to consumers and may create unnecessary
burdens that may impact the banks’ ability to effectively offer these important insurance products to
Recommendation: The CBA strongly supports maintaining the existing exemption for banks
in the British Columbia Insurance Licensing Exemptions Regulation.
Regulatory Framework for Trust Companies and Regulation of Trust Business
The changes to the legal framework and marketplace beginning in the 1980s that resulted in more
integration in the financial sector have benefited consumers. In particular, allowing financial
institutions to offer more products and services than were traditionally permitted has enabled them
to organize themselves in the most cost effective way to deliver these products and services.
Further changes are needed in this area. In particular, “core” fiduciary activities are still limited to
trust companies. While the CBA continues to believe that banks should be permitted to participate
in such trust activities directly, this is not currently permitted. As a result, federally regulated banks
carry out these activities through their federally incorporated trust and loan company subsidiaries.
It is important to note that the federal Trust and Loan Companies Act (Act) already establishes
obligations in connection with fiduciary duties applicable to such companies. In particular, section
422(1) of the Act provides that a trust and loan company must keep money and other assets
acquired or held in trust by the company “separate and distinct from its own assets” and must “keep
a separate account for each trust”. Compliance with this obligation, along with others, is overseen
by OSFI. Further fiduciary obligations have also been established and refined by the courts over
many years through carefully considered, and fact specific, case law. Enforcement of the law
relating to trusts and fiduciary duties is therefore rightly the primary responsibility of the courts, not
the British Columbia Ministry of Finance by way of the British Columbia Financial Institutions Act.
As the Consultation Paper points out, the British Columbia government has received very few
complaints about trust companies and most of the deposit-taking trust companies in British
Columbia are federally incorporated. Concerns with potential conflicts of interest between federally
regulated financial institutions and their federally incorporated trust companies would therefore
appear to be misplaced.
It is our understanding that only one concern in particular was raised about a potential conflict of
interest in respect of the amount of interest paid in connection with un-invested cash balances in
registered accounts (e.g., RRSPs) held at bank-owned trust company subsidiaries. In response to
this concern, we would like to draw your attention to the following points:
- un-invested cash balances held in registered accounts are not meant to be long-term,
interest bearing accounts, but rather short-term, temporary accounts that generally hold
small amounts of cash to be re-invested;
- engaging an agent other than a bank-owned subsidiary to set the interest rate to be paid
would result in less efficiency and increased costs and would not be in the best interest of
consumers (especially when the attributes of the un-invested cash balances are taken into
- consumers remain free to move such balances to other, higher interest bearing accounts if
Recommendation: In light of the foregoing, the CBA strongly believes that federally
incorporated trust companies and the banks that own them should only be subject to federal
legislation and regulation, and recommends that any twofold oversight structures be
removed. In addition, individuals that carry on trust businesses that are not regulated, or
that work for corporate entities that are not regulated, should be regulated, as should nonregulated
associations. Regulation is required in these cases to ensure consumers are
protected and to mitigate the risks associated with carrying on this type of business.
Banks and other financial institutions in Canada have a role to play in helping to strengthen
financial literacy. The CBA and its members are helping British Columbians improve their financial
literacy in a number of ways, including working with targeted groups such as students and seniors,
assisting customers and community initiatives and contributing to government initiatives to develop
and implement a financial literacy strategy.
The CBA has provided financial literacy programs to young people for over 15 years through its
Your Money Students seminars. In British Columbia, local bankers have volunteered to deliver
close to 1,200 free seminars to 36,000 young people in the classroom over that time, teaching them
the basics of budgeting, saving, investing, using credit wisely and fraud prevention.
The CBA also recently launched a financial literacy program for seniors, Your Money Seniors, to
assist retirees and those who are entering retirement in managing their finances and avoiding
financial abuse and fraud.
Banks in Canada are an active and essential part of the daily life of most Canadians – 96 per cent
of Canadians have an account with a financial institution, and millions turn to banks every day for
services and advice to help them save, plan for retirement, start businesses and buy homes. As a
result, banks already provide their customers and potential customers with a wealth of educational
material, information, tools and services geared to helping them make the best financial choices.
Banks are also leaders in supporting financial literacy activities and initiatives in communities
across Canada. There are many community organizations delivering financial literacy to vulnerable
groups across Canada and many of these programs are supported by banks and individual
The banking industry also contributed to the federal government’s Task Force on Financial Literacy,
and strongly supported many of the recommendations it delivered. As a result of the Task Force,
the federal government appointed its first Financial Literacy Leader and participated in multiple
consultations to develop the National Strategy for Financial Literacy – Count Me In. The CBA sits on the National Steering Committee that has been charged with implementing the National
Strategy. The National Strategy identifies three goals that will help Canadians strengthen their
financial literacy: managing money and debt wisely, planning and saving for the future; and
preventing and protecting against fraud and financial abuse.
Recommendation: The CBA recommends that British Columbia continue to raise awareness
of, and promote, existing programs and services that seek to strengthen the financial
literacy of British Columbians consistent with the goals of the National Strategy for Financial
Literacy – Count Me In.
Reporting Financial Abuse
The banking industry has long been a leader in assisting in the reporting of financial abuse,
particularly with seniors. The industry has advocated for changes to legislation that would enable
them to help prevent this financial abuse. This experience can help guide the provincial
government in drafting proposals for financial institutions under its jurisdiction.
Before the federal Personal Information Protection and Electronic Documents Act (PIPEDA) came
into force, bankers had a common law right (Tournier decision) that allowed disclosure without
consent when it was in the public interest. This was generally used by the banks to address
situations such as when a customer, particularly a senior, is withdrawing money under duress.
Following the coming into force of PIPEDA, the banking industry still felt a moral obligation to help
their customers avoid financial abuse, and families and seniors’ advocates still expected banks to
take action, but PIPEDA limited banks’ ability to assist their customers to instances related to a
contravention of a law.
In 2006, when the five-year review of PIPEDA began, the banking industry advocated for provisions
in the law that would allow organizations to disclose the personal information of their customers
without their consent for the purpose of preventing suspected financial abuse. On June 18, 2015,
the Digital Privacy Act received Royal Assent enabling banks and other organizations to disclose
personal information without the knowledge and consent of an individual only to governments, the
individual’s next of kin or authorized representative. This may only be done if there are reasonable
grounds to believe that the individual has been, is or may be the victim of financial abuse and solely
for purposes related to preventing or investigating the abuse.
The banks are currently working to develop and implement the procedures and training that will
allow bank staff to utilize this provision to assist their customers. Key considerations include: a)
wherever possible and appropriate, speaking first to the customer about their wishes; b) making all
reasonable efforts to ensure that, when reaching out to next of kin or other authorized
representatives, the bank does not tip off the abuser; and, c) releasing only the minimal amount of
personal information about the customer needed to prompt action by the receiving party.
Recommendations: We believe that provincially-regulated financial institutions would
similarly find it valuable to have the ability to disclose personal information to help their
customers avoid financial abuse, and recommend that the British Columbia government consider including in its legislation provisions allowing financial institutions to disclose
potential financial abuse to family members or other authorized representatives that the
financial institution reasonably believes are not involved in the suspected abuse.
The financial sector is undergoing a tremendous amount of change as a result of competition,
technology and the global financial crisis. As the financial sector changes, it is important that all
financial institutions operate within a robust prudential policy, supervisory and regulatory
framework. This type of regulatory oversight - which includes an appropriate deposit insurance
guarantee system, is essential, especially for credit unions that are growing to become large,
complex, and in some cases, systemically important financial institutions. As both the financial
sector and regulatory frameworks evolves with these changes, it is also important to avoid
unnecessary overlap between provincial and federal regulatory financial frameworks while ensuring
the continued safety and soundness of Canada’s financial system as a whole.
1 Credit Union Central of Canada, as at December 2014
2 B.C. Business, http://www.bcbusiness.ca/finance/credit-unions-eye-the-big-time, January 6th, 2014
3 Financial Sector Stability Assessment for Canada, International Monetary Fund (IMF), IMF Country Report No. 14/29, February 2014 and Canada’s Schembri Says Co-op Banks Need Better Risk Controls, Bloomberg News, October 7th, 2014
4 Financial Sector Stability Assessment for Canada, International Monetary Fund (IMF), IMF Country Report No. 14/29, February 2014.
5 Canada’s Schembri Says Co-op Banks Need Better Risk Controls, Bloomberg News, October 7th, 2014.
6 Jones, Russ. Office of the Auditor General of British Columbia, Credit Union Supervision in Canada, March 2014.
7 Financial Sector Stability Assessment for Canada, International Monetary Fund (IMF), IMF Country Report No. 14/29, February 2014.
8 Jones, Russ. Office of the Auditor General of British Columbia, Credit Union Supervision in Canada, March 2014.
9 Enhanced Guidance for Effective Deposit Insurance Systems: Deposit Insurance Coverage, International Association of Deposit Insurers (IADI), March 2013.
10 Thematic Review on Deposit Insurance Systems: Peer Review Report, Financial Stability Board (FSB), February 9th, 2012.
11 CDIC Annual Report 2015.
12 Thematic Review on Deposit Insurance Systems: Peer Review Report, Financial Stability Board (FSB), February 9th, 2012.
13 International Association of Deposit Insurers (IADI), Enhanced Guidance for Effective Deposit Insurance Systems: Mitigating Moral Hazard, May 2013.
14 Crisis Management and Bank Resolution Framework – Technical Note, Financial Sector Assessment Program for Canada, IMF Country Report no. 14/67, March 2014.
16 Financial Sector Stability Assessment for Canada, International Monetary Fund (IMF), IMF Country Report No. 14/29, February 2014
17 Jones, Russ. Office of the Auditor General of British Columbia, Credit Union Supervision in Canada, March 2014.
18 See section 16 of the Cost of Borrowing Regulations (Banks) for more information.
19 “CBA Code of Conduct for Authorized Insurance Activities” ,CBA Website, http://www.cba.ca/contents/files/misc/vol_20090000_authorizedinsuranceactivities_en.pdf.