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© Autorité des marchés financiers

Cooperatives and mutuals – some of the challenges for regulators

Mario AlbertPresident and CEO

October 11, 2012


THE ROLE OF THE AUTORITÉ DES MARCHÉS FINANCIERS (AMF)

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THE AMF’S MISSION

• To protect consumers of financial products and services

• To regulate Quebec’s financial sector:

• Solvency of institutions

• Stock market and clearing house activities

• Securities

• Distribution of financial products and services

• To implement protection and compensation programs for consumers of financial products and services

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COOPERATIVES AND MUTUALS IN QUEBEC

• Financial services cooperatives

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397 cooperatives that are members of a federation

41.2% of credit portfolio46.4% of personal deposits

1 caisse that is not a member of a federation

Non-material

39 property and casualty mutual insurance companies

10.4% of market share

26 life and health mutual insurance companies

3.1% of market share

• Mutual insurance companies


UNIQUE COOPERATIVE MODEL

Differs from the prevailing model in the following areas:

• Governance

• Financing

• Capitalization

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GOVERNANCE: A FEW DIFFERENCES

• Each caisse in the group has an independent structure

• Decentralization of power

• Support functions (risk management, finance, product development…) and regulation are centralized within the Federation

• Federation standards apply to the caisses, but certain policies are caisse-specific

• Elective model

• Legitimacy of the board, but challenges regarding the diversity of skills required

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IMPACT OF GOVERNANCE ON REGULATION

• Decentralization requires the Federation to supervise some of the practices of each caisse or component of the group

• Federations play more of a supportive and advisory role than a decision-making role (as is the case with corporations)

• To supervise the components of the group, the regulator initially uses the work performed by the federations

• Skills requirements are adapted to the elective context; emphasis is placed on access to expertise and training

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FINANCING: PRIMARY DIFFERENCES

• Challenges accessing non-local markets

• Less pressure to pay dividends

• Income is shared with client-members (dividends)

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CAPITALIZATION: PRIMARY DIFFERENCES

• Market restricted to members

• Deposit institutions: financial instruments designed to comply with the new Basel requirements

• Securities are eligible for the best class of capital

• Shareholders’ equity primarily consists of reserves

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THE CHALLENGES, IN A NUTSHELL

• Respecting the unique characteristics of cooperatives...

...while maintaining a regulatory framework similar to that used for banks and insurance companies

• This requires a great deal of effort and creativity from the regulator

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THANK YOU

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