Legislative Innovation

Will BC credit unions truly get anything out of the current legislative review?

The credit union conferences have passed, those who attended have been entertained with the tales of digital disruption and organizational transformation.  Many presenters championed the need to ‘think differently’, to pivot, and to look for the new opportunities. More than one McKinsey or Harvard Business School slide paraded Einstein’s quote about the trap of conventional thinking.

But the references to legislation were all predictable.

There are presumptions of further consolidation, federal continuation, and the implementation of heavier regulatory burdens (and appropriations of ownership rights).  Analysis has been reactive. Because it is done somewhere else is not always a good thing.

How about some innovations?

  1. Why should we not have provision for new ‘start-up’ credit unions, to re-explore the creation of new credit unions in the context of our ‘sharing economy’ and our digitized economy.  Let’s eliminate some of the barriers to enable small limited scope credit unions, community development credit unions serving marginal communities, first nations credit unions, even virtual credit unions. In the US new credit unions are being created to serve under-served populations and there existence is a source of pride and leverage for all credit unions.  These ‘start-up’ credit unions could have limited business authorizations, lesser deposit insurance coverage, and might do things that stretch our conception of what a credit union really is.  In addition, new entrants ensure the vitality of the financial services marketplace.
  2. Let’s have a three tiered legislation: (1) start-up and special purpose credit unions, (2) traditional credit unions, and (3) large regional credit unions.  Regulatory requirements would be added at each level to reflect the nature of the increased risks, the costs of the mitigation measures, and the relative risk to the overall system.  Such an approach would not assume an ‘general standard’ is applicable to all credit unions, as it does now, unless the regulator backs off; the law would set out clear and transparent terms and conditions for each tier.
  3. Let’s argue harder for smart regulation rather than increasingly complex requirements, like BASEL III, and more powerful regulators.  Regulatory interventions could be targeted at systemically important players, and high risk operations.  Expanded legislative powers (e.g. rule making) affects all, it homogenizes credit unions and undermines innovations.  In addition, increasingly complex requirements have not prevented some exceptional collapses in other jurisdictions, in contrast the moderate approach to regulation in BC has proven itself well.
  4. Let’s ensure complete and transparent disclosure to credit union members when corporate reorganizations are proposed.  Members should be given a real business plan and business case that sets out the costs, the payback and the member/shareholder benefits (financial and non-financial).  Merger and continuance proposals should include market valuations of the companies, shareholder’s liquidation interest valuation, and an independent opinion on the business proposal.  Lets ensure there is fair disclosure.

Would you support any of these ideas?

2 thoughts on “Legislative Innovation

  1. Ross, great ideas. In regard #1 – I’d love to learn more about the pragmatic challenges of a hypothetical new BC credit union. Whether in terms of barriers to initiation, economies of scale, high efficiency operational models or local community need/benefit. If you have read – or indeed written – any related publications then please reach out. Likewise if have views on effective regulatory entity structures. Simply curious. Thanks again for the thought leadership.

  2. Yes, absolutely. It is too restrictive for new groups to start credit unions. Also, this is key for everyone to keep in mind at the negotiation table: “increasingly complex requirements have not prevented some exceptional collapses in other jurisdictions, in contrast the moderate approach to regulation in BC has proven itself well.”

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