How Ontario Credit Unions Are Regulated

DICO'S REGULATORY FRAMEWORK

Ontario credit unions are regulated through a comprehensive regulatory framework which involves the Ministry of Finance , the Financial Services Commission of Ontario (FSCO)  and the Deposit Insurance Corporation of Ontario (DICO).

The credit union sector is governed by the Credit Unions and Caisses Populaires Act, 1994 and Ontario Regulation 237/09. DICO has developed a number of By-laws, guidance notes, frameworks, guides and tools to assist insured institutions in complying with these requirements and DICO's regulatory framework (Click on the titles below for more detail):

REGULATORY FRAMEWORK

Ontario credit unions are regulated through a comprehensive regulatory framework which involves the Ministry of Finance , the Financial Services Commission of Ontario (FSCO)  and the Deposit Insurance Corporation of Ontario (DICO).

This regulatory framework includes:

The Ministry of Finance is responsible for developing and establishing the legislative and regulatory framework under which credit unions must operate. FSCO is responsible for ensuring that credit unions operate in accordance with the requirements of the Act and Regulations, particularly with respect to issues involving market conduct issues relating to members and the general public.

DICO is responsible for overseeing compliance with solvency rules and for providing deposit insurance protection for deposits held in Ontario credit unions up to prescribed limits. As part of this responsibility, DICO has the authority to issue by-laws to ensure that insured institutions operate in accordance with Sound Business and Financial Practices.

DIRECTOR TRAINING AND QUALIFICATIONS

Following industry consultation, including comments received at the second webinar, we are pleased to confirm final guidance (see table below) which incorporates minor changes to help improve clarity.

The Guidance Note

  • provides guidance on setting Board policy for director training and qualifications
  • outlines core competencies considered critical for directors to effectively fulfill their responsibilities
  • sets out expectations for minimum competency levels, training requirements, and time frame for the attainment of competency levels
  • summarizes the assessment criteria DICO will use in considering the adequacy of a credit union’s policy and practices relating to director training and qualifications
  • these requirements become effective for directors elected or appointed on or after July 1, 2012
Publication Highlights
Guidance Note: Director Training and Qualifications
  • Class 1 Credit Unions, March 2012
Guidance Note: Director Training and Qualifications
  • Class 2 Credit Unions, March 2012
 

The Application Guide describes the nine core competencies in detail

Note: While the minimum competency requirements remain unchanged (Class 1: Good; Class 2: Strong), the application guide now includes:

  • Class 1 Institutions: Basic, Good and Strong
  • Class 2 Institutions: Basic, Good, Strong and Expert
Publication Highlights
Application Guide: Director Competencies
  • Class 1 Credit Unions, March 2012
Application Guide: Director Competencies
  • Class 2 Credit Unions, March 2012
 

The Tools

DICO would like to thank the Director Training and Qualifications Working Group, the Directors Focus Group, CUSOURCE and Level Five for their time, effort and valuable assistance in developing and revising these guides and tools. DICO is pleased to present the following tools for consideration in the development of a credit union's Director Training and Qualification program:

  • Policies Development Guide
  • Director Candidate Information Guide
  • Director Self-Assessment Tool
Publication Highlights
Director Training and Qualifications
  • Letter explaining Updates to the Director Self-Assessment Tool, February 2015
Director Training and Qualifications
  • Modifications Table of the updates to the Director Self-Assessment Tool, February 2015
Director Training and Qualifications
  • Director Training Self-Assessment Tool, Updated February 2015
Director Training and Qualifications
  • Cover Letter, June 2012
Director Training and Qualifications
  • Policy Development Guide, June 2012
Director Training and Qualifications
  • Director Candidate Information Guide, June 2012, June 2012
Director Training and Qualifications
  • Letter, Director Self-Assessment Tool, June 2012
Director Training and Qualifications
  • Director Self-Assessment Tool, June and August 2012
Director Training and Qualifications
  • Frequently Asked Questions, August 2012
 

Sector Notice

This Sector Notice clarifies DICO’s expectations and assessment methodology regarding director training and qualifications requirements. It also provides a summary of implementation strategies being implemented by some institutions.

Publication Highlights
Accompanying Letter
  • Questions and considerations that directors may find helpful when reviewing implementation plans and supporting processes, November 2012
Sector Notice: Director Training and Qualifications
  • DICO’s expectations and assessment methodology
  • Summary of implementation strategies being implemented by some institutions
  • November 2012
 

ENTERPRISE RISK MANAGEMENT (ERM) - Class 2 Institutions (refer to table below)

DICO continually reviews emerging issues and risk management practices in other jurisdictions to ensure that Ontario standards reflect the most current industry best business practices.

DICO has worked closely with a number of larger institutions to develop an ERM framework, Application Guide and Guidance Note and industry best practices that would also be suitable for all Class 2 institutions for implementation over time.

DICO is phasing-in this requirement although early adoption is encouraged. Institutions with more than $250 million in assets need to address this requirement starting in 2012. All other Class 2 institutions will need to address this requirement in 2013.

Final versions of the Enterprise Risk Management (ERM) Framework, the Application Guide and the Guidance Note are available below. On Thursday, September 29, 2011 DICO hosted a webinar on this subject to review the concepts outlined in the documents, provide more clarification and address any questions from the sector. This webinar provides information on leveraging ERM to create business value while meeting regulatory requirements.

Class 1 institutions may also wish to review these documents to see if they may be helpful.

Guidance Note: Enterprise Risk Management (ERM)

This guidance note outlines the minimum requirements for an enterprise risk management program. It also identifies the typical features of this program and provides further information on the key responsibilities for the Board, Audit Committee and management and DICO's expectations and assessment criteria.

ERM Framework and ERM Framework Application Guide

DICO has been working with an industry working group to develop additional information and tools for help in setting up an ERM program. The ERM Framework document outlines basic objectives, concepts and structure of an effective ERM program while the ERM Application Guide provides an example of an ERM methodology for consideration. The ERM methodology and process adopted by a credit union will differ between credit unions based on their size and complexity.

We would like to take this opportunity to thank the industry working group for their valuable insight and hard work in developing these documents and to the sector members who sent us their comments helping us to further refine and improve these documents.

 
Publication Highlights
Enterprise Risk Management (ERM) Framework
  • September 2011
ERM Application Guide
  • September 2011
Guidance Note:Enterprise Risk Management (ERM) for Class 2 insured institutions
  • September 2011


COMMERCIAL LENDING TOOLS

By-law #5 - Commercial Lending Practices May 2005 (updated May 2008)

Commercial Lending Policy Development Guide (2014)


Publication Highlights
Commercial Lending Policy Development Guide--Cover Letter
  • February 2014
Commercial Lending Policy Development Guide
  • February 2014

Commercial Lending Practices May 2005 (updated May 2008)


An Industry Task Force of senior commercial lenders has developed this set of "tools" and guidelines to assist credit unions in the management of their commercial loan portfolios. These tools cover the following:

Credit Risk Ratings A computer assisted methodology for assigning a risk rating to each commercial loan.
Watch List Process A detailed description of recommended best practices to identify and manage this important Risk Management function.
Standard Industry Codes Standard Industry codes to be used for statistical reporting purposes and to identify / monitor portfolio risk concentrations.
 

These materials provide suitable guidance to credit unions engaged in commercial lending for compliance with DICO’s By-law No.5. We wish to thank the Members of the Industry Task Force: Bruce Rodrigues, Brian Lawson, Rob Adamson, Dan O’Connor, Al Brooks, Brian MacDonald, Peter Collins, Frank Hakimi, Frank Kennes, Ed Boere, Barry Roth, John Klassen and Roger Honsberger for allowing us to publish these tools on our website and encourage all credit unions that are active in commercial lending to consider adopting the methodologies outlined. DICO proposes to employ the Credit Risk Ratings and Standard Industry Codes in its commercial lending risk assessment programs and is currently updating the Reference Manual to incorporate these guidelines.

Watch List Accounts
Credit Risk Ratings
Industry Codes and Concentration Risk
Sample Risk Rating Model
Risk Rating Template
NEW! Risk Rating Template provided by Central
Watch List - Summary Update
Commercial Credit Facility by NAICS Code (Industry Concentration Report)

INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS (ICAAP) AND STRESS TESTING (refer to table below)

DICO has developed Guidance Notes on Stress Testing and on an Internal Capital Adequacy Assessment Process (“ICAAP”) which incorporates mandatory stress testing criteria. While there is an overlap between these processes, there are important distinctions.

These Guidance Notes outline DICO’s expectations with respect to a credit union’s ICAAP and stress testing program. It also reviews the criteria DICO will consider when evaluating and assessing inherent risks, the quality of risk management practices and the adequacy of capital and liquidity.

To assist insured institutions with the preparation of the required documents, DICO has developed an Application Guide which provides additional information regarding the ICAAP submission requirements, mandatory stress tests and summary key metrics report.

It is a mandatory requirement for credit unions with assets between $500 million and $1 billion with fiscal years ending on or after December 31, 2017, to submit their first ICAAP Report 270 days after their financial year end.

Publication Highlights
Sector Release #83 - Liquidity and Stress Testing Guidance Notes and Tools
  • May, 2017
Sector Release #76 - Implementation of ICAAP and Stress Testing for Credit Unions with assets in excess of $500 million
  • July 29, 2016
Guidance Note: Internal Capital Adequacy Assessment Process (ICAAP) for Class 2 Credit Unions
  • March 10, 2014
Application Guide: Internal Capital Adequacy Assessment Process (ICAAP) for Class 2 Credit Unions
  • March 10, 2014
Guidance Note: Stress Testing for Credit Unions with assets greater than $500 million
  • May, 2017
ICAAP Submission Template - Summary Key Metrics Report
  • March 31, 2014

 

GUIDANCE NOTES ON CORPORATE GOVERNANCE (refer to table below)

DICO has developed a set of three Corporate Governance Guidance Notes for the Board of Directors, the Audit Committee, and Management for immediate use.

The Guidance Notes are aligned with the governance standards of By-Law No.5 – Standards of Sound Business and Financial Practices and outline DICO’s expectations. In addition, three self-assessment workbooks have been created to provide minimum considerations for credit unions to evaluate their level of compliance.

These documents incorporate the comments and suggestions received from stakeholders during the consultation period.

Publication Highlights
Corporate Governance Accompanying Letter
  • March 2015
Guidance Note: Corporate Governance--Board of Directors
  • March 2015
Guidance Note: Corporate Governance--Audit Committee
  • March 2015
Guidance Note: Corporate Governance--Management
  • March 2015
Assessment Workbook--Corporate Governance--Board of Directors
  • March 2015
Assessment Workbook--Corporate Governance--Audit Committee
  • March 2015
Assessment Workbook--Corporate Governance--Management
  • March 2015
Summary of Comments Received from Corporate Governance Guidance Notes Consultation and DICO Response
  • March 2015

 

GUIDANCE NOTES ON LIQUIDITY AND STRESS TESTING (refer to table below)

DICO is releasing updated Liquidity and Stress testing Guidance Notes for implementation by credit unions. The Guidance Notes reflect the introduction of new metrics and best practices that are consistent with the guidance issued by Basel and OSFI as well as other credit union provincial regulators.

It is a mandatory requirement for credit unions with assets greater than $500 million to complete their first set of quarterly liquidity metrics: LCR, NSFR and NCCF, based on December 31, 2017 results and submit the metrics 21 days after the quarter end.

Publication
Sector Release #83 -Liquidity and Stress Testing Guidance Notes and Tools
  • May 2017
Guidance Note: Liquidity
  • May 2017
Guidance Note: Stress Testing
  • May 2017
Completion Guide: Liquidity Coverage Ratio
  • May 2017
Template: Liquidity Coverage Ratio
  • May 2017
Completion Guide: Net Cumulative Cash Flow
  • May 2017
Template: Net Cumulative Cash Flow
  • May 2017
Completion Guide: Net Stable Funding Ratio
  • May 2017
Template: Net Stable Funding Ratio
  • May 2017