Credit unions are getting the green light to expand across Canada, under new regulations that will let them grow beyond their own provincial borders.
Federal Finance Minister Jim Flaherty made the announcement Thursday with the release of proposed regulations that could lead to the creation of larger credit unions and caisses populaires in Canada to compete with the country’s banks.
The industry will have 30 days to comment on the proposed regulations, which were first contemplated in the 2010 federal budget. The changes involve putting credit unions under the oversight of the Office of the Superintendent of Financial Institutions.
“Credit unions are used by millions of Canadians for financial services similar to those offered by large banks,” Mr. Flaherty said in a statement. “The proposed regulations will give credit unions the flexibility they require to grow beyond their provincial borders....as a result of these changes, [they] will be able to improve the services they offer.”
Until now, credit unions have been regulated provincially, meaning the vast majority of them operate only in one province, or set up sister operations in neighbouring jurisdictions if they want to move beyond provincial boundaries.
Over the years some credit unions have pushed to have the choice to incorporate federally, which would make it easier for them to expand. For example, some of British Columbia’s largest credit unions have eyed the Alberta market as a way to increase their membership. Operating in multiple jurisdictions can sometimes add regulatory burdens to the credit unions.
That said, it is unclear whether these government changes will lead to a growth spurt of credit unions. One official in Ontario who asked to remain anonymous because his credit union has not yet fully analyzed the regulations, told The Globe and Mail that seeking a federal incorporation would add regulatory costs and complexity to the business that many credit unions may find unpalatable. For that reason, some favour operating as small operations within their own provincial borders.
However, some credit unions are large enough to present formidable competition for the major chartered banks in their respective regions, and would have the heft to expand to other provinces if they chose.
Credit unions are an alternative to the larger banks for many consumers. However products purchased from credit unions, such as mortgages, can be difficult to move from one province to the next, which can create problems if people want to cancel or refinance the loan if they move, industry watchers say. Incorporating federally under the proposed new regulations would solve that problem for the credit unions.
Sean Jackson, chief executive officer at Meridian, the largest credit union in Ontario, said the new regulations are good for the industry, since they will allow credit unions to establish a physical presence outside their own province.
“We believe that allowing credit unions to expand their businesses outside of provincial borders is a very positive move for the Canadian credit union system, and the co-operative movement overall,” Mr. Jackson said in a statement.