Credit Union Burdens and Truths

The Ministry of Finance released it’s set of proposals for ‘revising’ the Financial Institutions Act and the Credit Union Incorporation Act back in March.   Credit unions and others were invited to comment.  I took part in some of the credit union system discussions and I think the ‘credit unions of BC’ provided a polite and respectful response.  But in the end, the process is wandering down a path that perverts free enterprise legislative conventions and avoids inconvenient truths.

The Ministry proposals include a more independent regulatory entity, a regulatory entity that has broad legislative, policing and quasi-judicial powers.  The model has several pitfalls, but the first one is how it plays fast and loose with conventions of Canadian administrative law and international principles of good governance.  It delegates broad powers with little accountability.  It proposes general tests as opposed to well-defined requirements.  It potentially sets up an arbitrary regulatory regime that is unfair to independent enterprises.

Further, the proposals seem to paradoxically assume that current provincial credit union growth trends will continue, while, simultaneously, it is clear that the province is almost encouraging large credit unions to migrate to federal jurisdiction.  The proposals are building a FICOM for a $200 billion dollar credit union system, but it is likely to be far smaller than that.  And the potential is there for the regulatory burden to crush those that try to stick it out.

In my submission to the Ministry I try to lay out the broad strokes:

• The policy approach is not consistent with good practice nor are the proposals fulfilling all the Ministry’s espoused policy objectives.
• The proposals seem to deny or duck the larger strategic issues facing BC credit unions: consolidation (/migration) and regulatory burden.

The Ministry says that it wants a framework where credit unions “grow and prosper”.  The proposals do not clearly lead there.

In large measure the discussions have been ‘not seeing the forest for the trees’.  We are walking through lists of smaller items, such as how many members should be required to requisition a members meeting or bring a formal proposal to the owner-members.  While the larger issue is that the control structures set out in the legislation have been outgrown by many of the larger BC credit unions.  But government and the system avoid that larger issue, principally because large credit unions do not want to be any more accountable to their member-shareholders.  Related to this, I questioned how the legislation might ensure member-owners get the information they should have related to a federal continuance proposal, and a chance to openly debate it, however, I got no support from others at the credit union system working group table.

Even though the official consultation period is now over, there will be plenty of opportunity for people to speak up and influence the Minister and her staff.  I think we need to think bigger; provincially based credit unions cannot afford to be passive.  I think we need to recognize ‘bifurcation’ in the law, we do have two very different kinds of credit unions.  I think we have to protect traditional (time tested) credit unions from interventionist regulation.  The case for adopting ‘international’ standards is weak; doing so essentially favours the very large and squeezes innovation out.  I also think we need to open the door to groups who want to form co-operative financial services organizations – the barriers to entry have been far too onerous.

Central 1 may have at one time been able to champion these kind of arguments, but that is no longer the case.  Central 1 is cautious and does not want to upset the monster credit unions that pay most of the freight.  These are the concerns of smaller credit unions, and small credit unions will have to marshal the efforts to get fair and supportive legislation.  Let me know if there is interest out there!