OTTOWA, Canada–In Canada, the challenge of stressing the importance of “proportionality” in regulation comes with the added challenge that it’s not a battle at the national level, but instead a battle in 10 provinces and three territories, according to one person. And that may not even be the biggest looming threat in the country.
Speaking to a World Council of Credit Unions’ webinar titled “Credit Unions & The G20: The Push for Financial Inclusion,” Michael Hatch, VP-government relations with the Canadian CU Association, said the real concern is over a future in which more CUs opt to be nationally regulated even though the regulator is largely unaware of what makes credit unions unique and why it’s important.
While many in CUs may believe the issues considered by the G20 to be irrelevant to them, leaders from around the world used the WOCCU webinar to stress that is not the case.
Officially, the G20 is an intergovernmental forum comprising 19 countries and the European Union that works to address major issues related to the global economy. But as is revealed by this CUToday.info series being presented during International Credit Union Week, unofficially the G20’s decisions and policies can often lead to undesirable outcomes for smaller organizations, including credit unions, when “proportionality” isn’t taken into account.
Hatch explained that of Canada’s approximate 200 credit unions, just two are currently regulated on the national level. The remainder are overseen by the province in which they do business. The result, he said, is different rules in British Columbia versus Ontario or Quebec, although there is a large degree of influence that comes from the national government.
And that national government is often influenced by the six national bank’s the control approximately 80% of the market in Canada.
‘Just Follow Suit’
“We are quite concentrated in this country, but often-times the provincial regulators will just follow suit on all sorts of different rules that come out of the federal government,” said Hatch. “We do have an interesting sort of patchwork in this country. There are examples where proportionality exists, where credit unions are regulated somewhat differently than the large federally regulated banks. However, this is still a key issue for us and it's still a huge issue for us, especially to the extent that more and more credit unions in the future may choose to be regulated by the federal government. It will become a bigger issue for us at the national level because right now, because of the way that our industry is structured from a regulatory standpoint at the national level, we run up against a combination of ignorance and, frankly, indifference, if I can use a bit of a strong term. Federal regulators are focused on the large banks that dominate the market here in Canada and they don't really know or don't appreciate the role credit unions play.
“So, we're constantly fighting against that to the extent that in the future more and more credit unions decide to be regulated by the national government and not their respective provinces,” Hatch continued. “That's going to become more of an issue.”
A Lesson From Pandemic
A recent example illustrates the point, he said, of the type of misunderstandings credit unions often confront at the national level. In the early days of the pandemic as the government was scrambling to get financial aid to its citizens, he said the national government focused only on the big six banks as points of distribution.
“They thought they could pull six levers and get money out to the people who needed it and move on, which, of course, was a huge problem for us, because depending on what part of the country you're in credit unions represent anywhere from 20% to 40% of the market,” Hatch related. “We had to fight, frankly, tooth and nail early in the pandemic to ensure credit unions were part of the mix with regards to delivering those pandemic relief program.”
Another area over which Canada’s credit unions are concerned and on which they are focused is the growth of open banking, with the government again giving its attention to the six national banks.
Open Banking Opens Can of Worms
“We haven't brought a regulatory regime to open banking in Canada yet. It's been a long process,” said Hatch. “The federal government is working on it but it's going to be interesting to see to what degree we can achieve some kind of proportionality, for lack of a better term, in the open banking space in Canada. It's very much expected that the six large, federally regulated banks are going to be obligated to participate in open banking just by virtue of their dominance of the market. But we want to make sure credit unions in Canada have the ability, but not the obligation, to participate, because as you can imagine, with 220 institutions in our membership, we run the gamut from very large, very sophisticated organizations to the very small. Not all of them are going to have the opportunity or the resources to be involved in the open banking framework. That’s going to be an interesting conversation over the next couple of years.”