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 "CUCP Act").

A caisse populaire is a credit union which conducts its business principally in the French language.

As of March 31, 2003, the number of member institutions had declined to 274, as a result of further amalgamations. This compares to 296 at Q02. Ontario system assets increased by $370 million during 1Q03 and now stand at $18.3 billion.

FSCO is responsible for regulating credit unions under the provisions of the CUCP Act and ensuring their compliance with its provisions. The statute contains requirements and controls to ensure that the institutions are safe and sound, and operate under prudent investment and lending policies, and in accordance with standards of sound business practice. The statute establishes minimum levels for capital and liquidity and exposure to interest rate risk.

Credit union members' deposits up to $100,000 (but not their shares or other securities) are covered by deposit insurance by the Deposit Insurance Corporation of Ontario, (DICO) a schedule III agency of the Government of Ontario. FSCO staff work closely with DICO and with the credit union leagues in ensuring the stability of the system.

Credit unions range in size from $1.2 billion in assets to less than $1 million. The larger units offer a full spectrum of services and products comparable to the banks. These may include chequing, savings, term, and RRSP deposit products as well as making mutual funds available to their members. Many make personal, residential mortgage, agricultural and commercial loans. Credit card, direct debit and ATM services are commonly available, while some units offer telephone or Internet banking services.

Process for incorporating a new credit union

The process for incorporation of a new Ontario credit union is contained in sections 12 through 18 of the Credit Unions and Caisses populaires Act, 1994 as amended ("the Act").

Application

The procedural steps for application may be summarised as follows:

(A) Twenty or more persons sign articles of incorporation. The articles must name at least five eligible persons to be the first directors

(B) The application for incorporation, consisting of the proposed articles and proposed by-laws of the credit union is sent to the Minister

(D) The Minister of Finance directs the Superintendent of Financial Servicess to inquire into the circumstances, sufficiency and regularity of the articles and the by laws

(E) The Minister must be satisfied on the following matters specified in subsection 16.(2) of the Act:

1. The plans for the conduct and development of the business of the credit union are feasible and sound.
   
   
2. The credit union will be operated in accordance with co-operative principles.
   
   
3. The credit union will be operated in such a way that deposits will be safeguarded without the likelihood of a claim against the deposit insurer.
   
   
4. The credit union will be operated responsibly by individuals who, by virtue of their character, competence and experience are suited to operating a financial institution.
   
   
5. The incorporation of the credit union 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 plans and policies necessary to the success of the credit union and necessary to satisfy the Minister as to the matters outlined in steps E.(1) and E.(3) outlined above. The work is divided into three phases, the feasibility phase, the business plan phase, and the policy preparation phase.

Feasibility 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 in 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 Act requires every credit union to have policies covering lending and investment, and interest rate risk management, and prescribes certain minimum standards. In addition, to comply with the standards of sound business practice established by the Deposit Insurance Corporation of Ontario a credit union requires satisfactory policies in a number of other operational areas.

The reviews of the feasibility study, business plan and policies are conducted in consultation with the Deposit Insurance Corporation of Ontario.

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.

If you would like more information about deposit insurance, visit the Deposit Insurance Corporation of Ontario's website