Credit unions and caisses populaires are provincially regulated deposit taking financial institutions which operate on co-operative principles, are member owned, and are permitted to conduct business only with their members. They are incorporated and regulated under the Credit Unions and Caisses Populaires Act, 1994
The Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO) are jointly responsible for regulating credit unions and caisses populaires under the provisions of the CUCP Act and ensuring their compliance with its provisions. The statute establishes compliance requirements for capital, liquidity and exposure to interest rate risk.
- Twenty or more persons signed articles of incorporation are required. The articles must name at least five eligible persons to be the first directors.
- The application for incorporation, consisting of the proposed articles and proposed by-laws of the credit union or caisse populaire, is sent to the Superintendent of Financial Services (Superintendent) for review.
- The Superintendent examines the circumstances, sufficiency and regularity of the articles and the by-laws.
- The Superintendent is satisfied on the following matters specified in subsection 16.(2) of the CUCP Act:
- The plans for the conduct and development of the business of the credit union or caisse populaire are feasible and sound.
- The credit union or caisse populaire will be operated in accordance with co-operative principles.
- The credit union or caisse populaire will be operated in such a way that deposits will be safeguarded without the likelihood of a claim against the Corporation.
- The credit union or caisse populaire will be operated responsibly by individuals who, by virtue of their character, competence and experience are suited to operating a financial institution.
- The incorporation of the credit union or caisse populaire will serve the best interests of the co-operative financial system in Ontario.
A large part of the work in preparing the application for incorporation lies in developing the business plans and policies necessary to the success of the credit union or caisse populaire, and necessary to satisfy the Superintendent as to the matters outlined above. The work is divided into three phases, the feasibility phase, the business plan phase, and the policy development phase.
The feasibility phase determines the type and volume of demand for services from a new credit union, and the commitment of the community to its development. It encompasses commitment to support the credit union by giving it business, commitment to risk money to supply capital which will bear the cost of any losses, and commitment to providing unpaid volunteers to the board, committees, and possibly staffing of the credit union. This phase typically includes a survey of the community and makes preliminary financial assumptions and plans.
Business plan phase
Once feasibility is established, a detailed business plan must be developed for a five year period, with particular emphasis on the first two years of operation. This plan is based on the feasibility study and the numbers contained in the plan are measured within the context of attainability using comparison to statistics from comparable credit unions, and to norms (such as margins and rate projections in the financial marketplace).
The initial plan will be updated annually to provide a continuous plan throughout the life of the credit union against which its performance can be measured by its board, members and the regulators.
Policy development phase
The CUCP Act requires every credit union to have policies covering; lending and investment, interest rate risk management, and certain minimum standards as prescribed. In addition, the CUCP Act requires every credit union to comply with the standards of sound business practice established by DICO. Credit unions are required to have satisfactory policies in a number of other operational areas.
The reviews of the feasibility study, business plan and policies are conducted in consultation with DICO. Visit DICO’s website
for more information about deposit insurance.
It is highly desirable that those individuals who will form the first board of directors be closely involved in all three phases since, in this way, they will gain specific knowledge necessary to operate a credit union. Although a credit union is a deposit taking institution, many officers and employees of other types of deposit taking institutions such as banks are not exposed to concepts like management of interest rate risk and liquidity which officers and directors of credit unions must deal with on a regular basis. While consultants can assist in developing plans and policies, they cannot substitute for the ownership and understanding of underlying principles of officers and directors who will be responsible for putting these plans and policies into operation.