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November 2, 2021 – Credit unions face urgent challenges in the digital revolution, including the need for large new investments in technology and room to expand, according to a new report from the C.D. Howe Institute. With the digital revolution underway, most credit unions outside of Quebec are falling behind when it comes to making the significant investments required for the next decade, states the report.

In “A Passport to Success: How Credit Unions Can Adapt to the Urgent Challenges They Face,” author David O’Neill Losier argues that with other Canadian financial institutions investing billions of dollars in digital transformation, credit unions must play catch-up if they are to continue to be important competitors in the sector.

Outside of Quebec, credit unions run their own operations on a myriad of different banking systems; serve their members through a wide range of partnerships, relationships and affiliates; and have their own by-laws, regulations, policies and guidelines that have been influenced by different provincial regulators.

Collectively credit unions have the capacity to scale up to make the necessary investments, however, they are constrained by the provincial regulatory system, writes Losier.

In 2012, the federal government enacted legislation allowing credit unions to become Federal Credit Unions, the only option currently for them to operate nationally. However, only two of 449 credit unions, representing 4 percent of credit union assets in 2020, have made this move – representing less than 1 percent of Canadian credit unions.

Losier argues that federal regulation just does not ‘fit’ most credit unions for a variety of reasons, including, but not limited to the unique features of cooperatives, the structure of their business models, and the investment required to shift.

“Most credit unions cannot shift from provincial to federal regulation and operate across the country, as permitted by 2012 legislation, and will be challenged to compete effectively as technology continues to grow. Is there a better way to adapt?” asks the author.

Instead, Losier suggests that a passport system, similar to the one used for banking in the Eurozone and in the securities industry in Canada, may be a better path to provide credit unions the scale they need to adapt far into the future.

As well, he also lays out what the implementation of such a system could look like – charting a path for Canadian provinces to “accomplish a goal European banking authorities tried to reach for the past 30 years, in roughly 10.”

“Moreover, a cooperative approach to oversight would give provinces the required resources to oversee this important second-tier financial services provider, pave the way for the harmonization of regulations, enhance oversight, improve their data gathering ability and may even lead to the merger of provincial deposit insurers,” according to Losier.

Read the Full Report

For more information contact: David O’Neill Losier, Principal at DOL Consulting; Lauren Malyk, Communications Officer, 416-865-1904 Ext. 0247, lmalyk@cdhowe.org

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.