Regulation - LGIC
Proposed Amendments to the General Regulation (O. Reg. 237/09) under the Credit Unions and Caisses Populaires Act, 1994 Regarding Deposit Insurance Premiums
Regulation Number(s):
O. Reg. 237/09
Instrument Type:
Regulation - LGIC
Bill or Act:
Credit Unions and Caisses Populaires Act, 1994
Summary of Decision:
The amendments to O. Reg. 237/09 were approved on June 5, 2019 and came into effect on June 8, 2019. Deposit insurance premiums will be determined according to the new calculation beginning January 1, 2020.
Analysis of Regulatory Impact:
These amendments will impose no new costs on businesses. FSRA will be responsible for calculating and invoicing deposit insurance premiums payable to individual credit unions, in accordance with section 105 of the General Regulation.
Further Information:
O. Reg. 237/09: GENERAL
Proposal Number:
19-MOF003
Posting Date:
March 25, 2019
Summary of Proposal:
• The Ministry of Finance is proposing to amend section 105 of the General Regulation (O. Reg. 237/09) under the Credit Unions and Caisses Populaires Act, 1994 (CUCPA) to change the calculation of a credit union's annual deposit insurance premium.
• The change is being proposed as a result of the proposed amalgamation of the Deposit Insurance Corporation of Ontario (DICO) and the Financial Services Regulatory Authority of Ontario (FSRA) under amendments (not yet proclaimed) to the Financial Services Regulatory Authority of Ontario Act, 2016.
• Currently, DICO collects deposit insurance premiums from credit unions and credits them to the Deposit Insurance Reserve Fund (DIRF). The DIRF may be used to pay for deposit insurance claims and the expenses of DICO, amongst other things. The expenses of DICO include costs of regulating the credit union sector.
• Following the proposed amalgamation, FSRA would be responsible for collecting deposit insurance premiums and managing the DIRF. FSRA will also have the authority to make rules relating to credit union sector assessments, which would be an additional cost to deposit insurance premiums paid by credit unions.
• Under FSRA's proposed Rule 2019-001: Assessments and Fees, FSRA would charge the credit union sector for its budgeted aggregate expenses and expenditures for the regulation of the sector separately from deposit insurance premiums in its second assessment period (beginning April 1, 2020). FSRA's proposed rule can be viewed at: https://www.fsrao.ca/en/consultations/assessment-and-fees.
• To align with the introduction of an assessment proposed by FSRA, a corresponding change is being proposed to section 105 of the General Regulation to reduce the amount of deposit insurance premiums payable by credit unions while also ensuring that the DIRF continues to grow at the current rate, using current estimates of expected loss targets and level of insured deposits.
• For greater clarity, following the proposed amalgamation, it is proposed that credit unions will pay two separate amounts in a fiscal year, effective January 1, 2020:
1. Deposit insurance premiums, which will be calculated in accordance with section 105 of the General Regulation; and
2. Assessments, which will be calculated in accordance with FSRA's proposed Rule 2019-001: Assessments and Fees.
• The Ministry of Finance is proposing to add a new factor "C", the DIRF Accumulation Factor, to the deposit insurance premium calculation in subsection 105(4.4) of the General Regulation.
• It is proposed that the amount of deposit insurance premiums currently payable under subsection 105(4.4) would be multiplied by an initial DIRF Accumulation Factor of 0.75.
• In consultation with DICO, it has been determined that 75% of the current total amount of deposit insurance premiums payable by credit unions would be required to continue funding the DIRF at the same rate in order to meet DICO's current target of 100 basis points of insured deposits by 2025. This estimate assumes current loan loss assumptions, level of insured deposits, and capital and corporate governance scores of credit unions, which may change over time and influence the funding target of the DIRF.
• Any future changes to the DIRF Accumulation Factor would require further amendments to the General Regulation.
• If approved, it is proposed that these changes would come into effect on January 1, 2020.
• The change is being proposed as a result of the proposed amalgamation of the Deposit Insurance Corporation of Ontario (DICO) and the Financial Services Regulatory Authority of Ontario (FSRA) under amendments (not yet proclaimed) to the Financial Services Regulatory Authority of Ontario Act, 2016.
• Currently, DICO collects deposit insurance premiums from credit unions and credits them to the Deposit Insurance Reserve Fund (DIRF). The DIRF may be used to pay for deposit insurance claims and the expenses of DICO, amongst other things. The expenses of DICO include costs of regulating the credit union sector.
• Following the proposed amalgamation, FSRA would be responsible for collecting deposit insurance premiums and managing the DIRF. FSRA will also have the authority to make rules relating to credit union sector assessments, which would be an additional cost to deposit insurance premiums paid by credit unions.
• Under FSRA's proposed Rule 2019-001: Assessments and Fees, FSRA would charge the credit union sector for its budgeted aggregate expenses and expenditures for the regulation of the sector separately from deposit insurance premiums in its second assessment period (beginning April 1, 2020). FSRA's proposed rule can be viewed at: https://www.fsrao.ca/en/consultations/assessment-and-fees.
• To align with the introduction of an assessment proposed by FSRA, a corresponding change is being proposed to section 105 of the General Regulation to reduce the amount of deposit insurance premiums payable by credit unions while also ensuring that the DIRF continues to grow at the current rate, using current estimates of expected loss targets and level of insured deposits.
• For greater clarity, following the proposed amalgamation, it is proposed that credit unions will pay two separate amounts in a fiscal year, effective January 1, 2020:
1. Deposit insurance premiums, which will be calculated in accordance with section 105 of the General Regulation; and
2. Assessments, which will be calculated in accordance with FSRA's proposed Rule 2019-001: Assessments and Fees.
• The Ministry of Finance is proposing to add a new factor "C", the DIRF Accumulation Factor, to the deposit insurance premium calculation in subsection 105(4.4) of the General Regulation.
• It is proposed that the amount of deposit insurance premiums currently payable under subsection 105(4.4) would be multiplied by an initial DIRF Accumulation Factor of 0.75.
• In consultation with DICO, it has been determined that 75% of the current total amount of deposit insurance premiums payable by credit unions would be required to continue funding the DIRF at the same rate in order to meet DICO's current target of 100 basis points of insured deposits by 2025. This estimate assumes current loan loss assumptions, level of insured deposits, and capital and corporate governance scores of credit unions, which may change over time and influence the funding target of the DIRF.
• Any future changes to the DIRF Accumulation Factor would require further amendments to the General Regulation.
• If approved, it is proposed that these changes would come into effect on January 1, 2020.
Contact Address:
Alexander Hopewell
Policy Advisor
Financial Services Regulation Modernization Secretariat
Financial Services Policy Division
Ministry of Finance
Frost North - 2nd Floor
95 Grosvenor Street
Toronto, ON M7A 1Z1
Alexander.Hopewell2@ontario.ca
Policy Advisor
Financial Services Regulation Modernization Secretariat
Financial Services Policy Division
Ministry of Finance
Frost North - 2nd Floor
95 Grosvenor Street
Toronto, ON M7A 1Z1
Alexander.Hopewell2@ontario.ca
Effective Date:
June 8, 2019
Decision:
Approved