OTTAWA—The Canadian government is considering enactment of a bill to create a federal licensing option for the nation's 427 credit unions. Canadian credit unions are currently regulated and licensed on a provincial basis and federal legislation would give credit unions the power to operate across provinces. However, a federal licensing option could also bring credit unions in closer alignment with the country's banks, a factor that concerns some credit union professionals and volunteers.
Federal licensing was one of several issues facing credit union representatives who participated in Canada's inaugural "hike the hill" lobbying efforts Nov. 17 in Ottawa, Ontario. The Parliament Hill visits were organized by Credit Union Central of Canada (CUCC), a World Council of Credit Unions (WOCCU) member organization. The effort netted credit union representatives meetings with 42 separate legislators from Canada's prime minister's office and parliament, a response that surprised and pleased participants.
"We were hoping for 20 to 25 appointments and were overwhelmed with the response from 42 parliamentarians wanting to meet with credit unions," said Daniel Burns, first vice chair of Credit Union Central of Canada and a WOCCU director. "We were extremely pleased with the results from our meetings and how receptive members of parliament were to our issues."
The proposed federal credit union legislation was a key topic of discussion, Burns said. Equally important in discussion were the issues of achieving a competitive balance with the government-run Farm Credit Canada and Business Development Canada and the need to ensure greater viability of the Interac card network in the face of new competitive threats from Visa and MasterCard.
During a Nov. 16 meeting of CUCC's Legislative Affairs Committee, chaired by Burns, participants discussed pros and cons of the federal licensing option. Amendments to the country's Bank Act could lead to the creation of federal credit union legislation, a move designed to encourage the development of what Canada's Department of Finance described as a strong second-tier banking system. However, the possible amending of the Bank Act to create cooperative banks, rather than allocating the legislative resources to amend the current Cooperative Credit Associations Act or create a new federal credit union act raises red flags for many Canadian credit unions.
If passed as initially drafted, the law would offer Canadian credit unions the option to be licensed as cooperative banks, enabling them to operate across provincial borders while still maintaining their credit union identities. Such credit unions would keep some of their existing powers as provincially licensed institutions, but now would become supervised by Canada's Office of the Superintendent of Financial Institutions and receive deposit insurance through the Canada Deposit Insurance Corporation, potentially blurring the distinction between commercial banks and member-owned and operated financial cooperatives. In August, CUCC distributed a consultation paper among its credit unions discussing the federal licensing option. The CUCC board is reviewing industry feedback and the proposal from the Department of Finance and will be announcing its initial position by the end of November.
In countries like the United States and India, multi-state branching similar to the options Canadian credit unions are facing under the proposed law has led to industry growth. However, caution is advised to make sure any new regulations result in better service to members, according to Dave Grace, WOCCU's vice president of association services, who participated in both the meeting and Parliament Hill visits.
"It's important to have legislative and regulatory options, but those options must be equal to or better than what is currently offered through provincial regulations," Grace said. "Strengthening Canada's credit unions is critical, but so is differentiating them from large national banks. The second service tier, as Canadian legislators call it, can help balance public risk and improve consumer service, especially in the face of global economic challenges like those recently affecting countries worldwide."
World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.
World Council has implemented more than 290 technical assistance programs in 71 countries. Worldwide, 57,000 credit unions in 105 countries serve 217 million people. Learn more about World Council's impact around the world at www.woccu.org.