Fédération des caisses Desjardins du Québec
Headnote
Process for Exemptive Relief Applications in Multiple Jurisdictions -- Fédération des caisses Desjardins du Québec -- relief from the requirements under a) National Instrument 51-102 to file its annual and interim financial statements and accompanying annual and interim management's discussion and analysis on the condition that it files annual and interim financial statements and accompanying management's discussion and analysis of Desjardins Group; b) National Instrument 52-109 in respect of filing of the chief executive officer and chief financial officer certificates that the Filer has to file as it currently prepares its own annual and interim financial statements and accompanying management discussion and analysis; c) National Instrument 44-101 to have, in at least one jurisdiction in which it is a reporting issuer, current annual financial statements, in order to meet one of the qualification criteria for use of the short form prospectus regime under National Instrument 44-101; and d) National Instrument 44-102 to have, in at least one jurisdiction in which it is a reporting issuer, current annual financial statements, in order to meet one of the qualification criteria for use of the shelf prospectus regime under National Instrument 44-102.
Applicable Legislative Provisions
National Instrument 51-102, Parts 4, 5, 8.
National Instrument 52-109, ss. 4.2 and 5.2.
National Instrument 44-101, Part 2.
National Instrument 44-102, Part 2.
April 23, 2021
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the "Jurisdictions") AND THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC (the "Filer")
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the "Decision Makers") has received an application (the "Application") from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") for the following relief (the "Exemption Sought"):
(a) the requirements set forth in Parts 4 and 5 of Regulation 51-102 respecting Continuous Disclosure Obligations, c. V-1.1, r. 24 ("Regulation 51-102") relating to the filing, on a stand-alone basis, of annual and interim financial statements (the "Filer Financial Statements"), along with the accompanying annual or interim management's discussion and analysis (the "Filer MD&As");
(b) the requirements of Part 8 of Regulation 51-102 to (a) determine whether an acquisition or probable acquisition is a significant acquisition with reference to the Filer Financial Statements, and (b) present historical and pro forma financial statements in a business acquisition report using the Filer Financial Statements;
(c) the requirements of sections 4.2 and 5.2 of Regulation 52-109 respecting Certification of Disclosure in Issuers' Annual and Interim Filings, c. V-1.1, r. 27 ("Regulation 52-109") in respect of filing of the chief executive officer and chief financial officer certificates that the Filer has to file as it currently prepares Filer Financial Statements and Filer MD&As;
(d) the requirements of Part 2 of Regulation 44-101 respecting Short Form Prospectus Distributions, c. V-1.1, r. 16 ("Regulation 44-101") for the Filer to have, in at least one jurisdiction in which it is a reporting issuer, current annual financial statements, in order to meet one of the qualification criteria for use of the short form prospectus regime under Regulation 44-101; and
(e) the requirements of Part 2 of Regulation 44-102 respecting Shelf Distributions, c. V-1.1, r. 17 ("Regulation 44-102") which, by reference to the requirements of NI 44-101, require the Filer to have, in at least one jurisdiction in which it is a reporting issuer, current annual financial statements, in order to meet one of the qualification criteria for use of the shelf prospectus regime under Regulation 44-102.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers is the principal regulator for the Application (the "Principal Regulator" or the "AMF");
(b) the Filer has provided notice that subsection 4.7(1) of Regulation 11-102 respecting the Passport System, c. V-1.1, r. 1 ("Regulation 11-102") is intended to be relied upon in British Colombia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador; and
(c) the decision is the decision of the Principal Regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in Regulation 14-101 respecting Definitions, c. V-1.1, r. 3 and Regulation 11-102 have the same meaning if used in this decision, unless otherwise defined.
"stand-alone basis" refers to the filing of the Filer Financial Statements, Filer MD&As and other financial information of the Filer only. The Filer Financial Statements currently present the financial position, financial performance and cash flows of the Filer and its subsidiaries on a consolidated basis, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS").
"Canadian Securities Laws" means the securities legislation applicable in each of the provinces of Canada, and the rules, regulations and national, multi-jurisdictional or local instruments, policy statements, published policies, notices, blanket rulings and orders of the Canadian securities regulatory authorities, and all discretionary rulings and orders applicable to the Filer granted by one or more of the Canadian securities regulatory authorities from time to time.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a federation of financial services cooperatives amalgamated under the Act respecting financial services cooperatives (Québec), c. 67.3 (the "Cooperatives Act").
2. The Filer's head office is located in the province of Québec.
3. The Filer is a reporting issuer in all of the provinces of Canada and is not in default of securities legislation in any of those jurisdictions.
4. The mission of the Filer is to, among other things, (i) protect the interests of the Desjardins credit unions, including the Caisse Desjardins Ontario Credit Union Inc. (collectively, the "Desjardins Caisses"), (ii) act as a control and supervisory body over the Desjardins Caisses, (iii) see to the orderly development of the financial services cooperatives' network, (iv) define common objectives for, and look after the risk management of, the Desjardins Group (as defined below), and coordinate its activities, and (v) see to the financial health of the Groupe coopératif Desjardins (as defined below) and its sustainability. The Filer also provides the Desjardins Caisses with a variety of services, including certain technical, financial and administrative services.
5. As at December 31, 2020, there were 219 member Desjardins Caisses.
6. The Filer's outstanding share capital is composed of various classes of capital shares, all of which are owned or controlled by members and auxiliary members of the Filer or of the Desjardins Caisses.
7. The financial group to which the Filer belongs is called the "Desjardins Group". For the purpose of this decision, the Desjardins Group is comprised of the Filer and its subsidiaries, the Desjardins Caisses in Québec (the "Québec Caisses"), the Fonds de sécurité Desjardins and the Caisse Desjardins Ontario Credit Union Inc. (the "Ontario Caisse"). The Desjardins Group is not a single legal entity nor a reporting issuer.
8. Founded in 1900, the Desjardins Group is the largest financial cooperative group in North America, with assets of $362.0 billion as at December 31, 2020. The Desjardins Group employs more than 48,900 employees.
9. In June 2013, the Principal Regulator determined that the Desjardins Group met the criteria to be designated a domestic systemically important financial institution, which subjects the Desjardins Group to additional capital requirements as well as enhanced supervision and disclosure requirements, much like those of Canadian banks that are declared to be domestic systemically important banks by the Office of the Superintendent of Financial Institutions.
10. The cooperative group to which the Filer belongs, including for purposes of the Cooperatives Act, is called the "Groupe coopératif Desjardins". The Groupe coopératif Desjardins is comprised of the Filer, the Québec Caisses and the Fonds de sécurité Desjardins. For the purpose of this decision, Groupe coopératif Desjardins includes the subsidiaries of the Filer.
11. The Groupe coopératif Desjardins is not a single legal entity nor a reporting issuer. The Groupe coopératif Desjardins is the cooperative group of the Desjardins network in Québec.
12. The delineation of the Groupe coopératif Desjardins results from the jurisdictional reach of the Cooperatives Act, which in concept cannot encompass unconsolidated financial services cooperatives outside of Québec. Accordingly, the Ontario Caisse does not form part of the Groupe coopératif Desjardins.
13. While the Ontario Caisse is not part of the Groupe coopératif Desjardins, it is a Filer «participating auxiliary member" within the Desjardins Group. As such, the Ontario Caisse is required to implement, and has implemented, all necessary actions to benefit from the same rights and comply with the same obligations as the Québec Caisses (subject to the requirements as set out in applicable Ontario laws), as provided for in agreements entered into between the Filer and the Ontario Caisse.
14. The amount dedicated to member dividend payments of the Desjardins Caisses is proportionate to the level of surplus earnings of the Desjardins Group. Therefore, it takes into consideration the performance of the Desjardins Group as a whole.
15. The Ontario Caisse is the only entity outside the scope of the Groupe coopératif Desjardins that is combined in the Group Financial Statements.
16. The Financial Services Regulatory Authority of Ontario ("FSRA") regulates the Ontario Caisse in accordance with the framework applicable to credit unions and caisses populaires subject to Ontario laws. Such regulatory framework includes, without limitation, comprehensive requirements relating to capital adequacy, liquidity, and deposit insurance. In this respect, the Ontario Caisse relies on the Filer for capital and compliance support, and the obligations of the Ontario Caisse under the FSRA regulatory framework are monitored by the Filer in its capacity as control and supervisory body for the Desjardins Caisses.
17. The Fonds de sécurité Desjardins is part of the Desjardins Group and the Groupe coopératif Desjardins. It was created in 1980 by the Desjardins Group to reinforce the financial security of the Québec Caisses. It is an independent entity whose reserves collectively support all of the Québec Caisses. It is not a reporting issuer.
18. The Fonds de sécurité Desjardins plays an essential role in the Desjardins Group, as it (i) ensures the distribution of capital and other assets between the legal persons belonging to the Groupe coopératif Desjardins as defined in the Cooperatives Act as well as allows each such legal person to perform its obligations to its depositors and other creditors in full, correctly and without delay, and (ii) intervenes with regard to a member of the Groupe coopératif Desjardins as defined in the Cooperatives Act each time it appears necessary to do so in order to protect such member's creditors.
19. As a reporting issuer, the Filer currently reports financial information in compliance with Regulation 51-102 and Regulation 52-109 and prepares Filer Financial Statements in accordance with IFRS as required under Regulation 52-107 respecting Acceptable Accounting Principles and Auditing Standards, c. V-1.1, r. 25 ("Regulation 52-107").
20. Although not a reporting issuer, the Desjardins Group has established internal controls and procedures consistent with Regulation 52-109 to, among other things, demonstrate its willingness to comply with best practices in financial governance. The Desjardins Group prepares combined financial statements in accordance with IFRS as required under Regulation 52-107 (the "Group Financial Statements"), and corresponding management's discussion and analysis (the "Group MD&As"). The Group Financial Statements and Group MD&As have been incorporated in offering materials and filed with securities regulatory authorities (including on SEDAR) in connection with offerings of debt securities completed by the Filer and other entities comprising the Desjardins Group since 2002. In practice, the Filer believes that the Group Financial Statements and Group MD&As have been for several years considered by market participants as the most relevant source of financial information in respect of the Filer.
21. The Desjardins Audit and Inspection Commission (the "AIC") is the Filer's "audit committee" as required under Regulation 52-110respecting Audit Committees, c. V-1.1, r. 28 ("Regulation 52-110"). The AIC reviews the Filer Financial Statements, Filer MD&As, Group Financial Statements and Group MD&As. It is also responsible for ensuring that management has designed and implemented an effective internal control system with respect to, among others, financial reporting, and ensures that management has set up systems to manage the principal risks that may influence the financial results of the Desjardins Caisses network and Desjardins Group. The Filer considers that the Group Financial Statements, Group MD&As and related financial information constitute financial statements of the Filer for purposes of Regulation 52-110 and the AIC exercises its review and oversight responsibilities accordingly. In addition, with respect to Desjardins Group's relations with the AMF, as prudential regulator, the AIC reviews and follows up on the inspection reports issued by the AMF and reviews the financial reports that are submitted each quarter to the AMF. The AIC is composed entirely of independent directors of the Filer.
22. The Desjardins Group is an integrated financial services group, which in and of itself is a complete, distinct economic entity. The Desjardins Group prepares combined financial statements in accordance with IFRS to present the financial position, the financial performance and the cash flows of the Desjardins Group as an economic entity. The Group Financial Statements are a combination of the accounts of the Filer and its subsidiaries, the Desjardins Caisses and the Fonds de sécurité Desjardins. The capital stock of the Desjardins Group represents the aggregate of the capital stock issued externally by the Filer and the Desjardins Caisses.
23. Given the nature of the Filer as a control and supervisory body for the Desjardins Caisses and as the "core" entity which binds the other entities within the Desjardins Group, the Filer considers that changes in its affairs and changes in the affairs of the Desjardins Group are one and the same and that a material change in the affairs of the Filer would result in a material change in the affairs of the Desjardins Group, and vice versa. As such, the Exemption Sought is not expected to alter how the Filer would continue to meet the timely disclosure and material change report requirements under Regulation 51-102. For similar reasons, the Exemption Sought is not expected to alter how the Filer would continue to meet requirements relating to the preparation of annual information forms under Regulation 51-102, and annual information forms of the Filer would continue to include extensive disclosure relating to the Desjardins Group and its various components. By nature, the Filer does not hold meetings of holders of voting securities within the meaning of Regulation 51-102 or applicable corporate law and as such does not prepare or file management information circulars.
24. The Desjardins Caisses are also required to fund the Filer through basic annual assessments for each fiscal year. Assessments may also increase the general and stabilization reserves of the Filer, to the extent deemed necessary to maintain a sound financial profile. The organizational documents to which Desjardins Caisses are subject contain the terms and conditions for the establishment and payment of basic assessments. In addition to the basic assessments which the Desjardins Caisses are bound to pay as per the organizational documents applicable to all Desjardins Caisses, the Filer may establish any such assessment it considers necessary for the pursuit of its missions. Furthermore, entities within the scope of the Groupe coopératif Desjardins, as defined in the Cooperatives Act, are bound by the Cooperatives Act to pay such assessments.
25. The Fonds de sécurité Desjardins levies and collects assessments from the Québec Caisses annually in the normal course and may pool the cost of its interventions between financial services cooperatives that are part of the Groupe coopératif Desjardins as defined in the Cooperatives Act. In addition, the Fonds de sécurité Desjardins may take (and the Filer may request the Fonds de sécurité Desjardins to take) any special intervention measures granted to it under the Cooperatives Act, including the right for the Fonds de sécurité Desjardins to determine and collect assessments from the Québec Caisses. Such caisses are bound by the Cooperatives Act to pay such assessments.
26. The Cooperatives Act also provides that the Filer, the Fonds de sécurité Desjardins and the Québec Caisses may only be wound up by amalgamating all such entities into a single legal person to be wound-up (the "Universal Liquidation Mechanism").
27. In the case of the Ontario Caisse, solidarity mechanisms are found under the organizational documents applicable to all Desjardins Caisses, which provide for assessments and other support and control provisions applicable to all Desjardins Caisses (and which pre-date the additional layer of mandatory provisions that the Cooperatives Act now provide for in respect of Québec Caisses). Such solidarity mechanisms in respect of the Ontario Caisse are also provided under agreements between the Filer and the Ontario Caisse (the "Contractual Financial Solidarity Mechanisms").
28. In addition, de facto perennial solidarity among the Ontario Caisse and the other entities comprising Desjardins Group is also achieved for reasons that are not related to the legal nature of solidarity mechanisms (the "de facto Perennial Solidarity"). The Ontario Caisse is not material to Desjardins Group from a financial or operational perspective, is dependent on the Filer and cannot reasonably be construed as an operation severable from that of the Desjardins Group. The Ontario Caisse is highly integrated within the Desjardins Group. The financial products and services offered by the Ontario Caisse are Desjardins products and services which require ongoing structuring, capital and support from the Filer and Desjardins Group. The Ontario Caisse also relies on the Filer in whole or in part for all specialized business functions. As a result, in the opinion of the Filer, it is highly unlikely that the Ontario Caisse could fail to fulfill its obligations to the Desjardins Group in respect of assessments for a prolonged period of time or otherwise evade Filer oversight and direction with respect to its operations and capital management. Furthermore, the Ontario Caisse is fully integrated within the Desjardins Group and the network of Desjardins Caisses from the perspective of the public, as the Ontario Caisse members access the same financial products and services as other members and such product and services are offered under the Desjardins brand. The failure or material default of any Desjardins Caisse, including the Ontario Caisse, could be expected to severely compromise the Desjardins Group as a whole, both reputationally and operationally. In such a case, depositor confidence could be affected, leading to significant withdrawals and increases in wholesale funding costs. As such, in the opinion of the Filer, it is highly unlikely that the Ontario Caisse could be forced into winding-up or otherwise fail as an operation, as the Filer would inevitably intervene in advance and have ample wherewithal to do so.
29. The system of assessments, together with the Universal Liquidation Mechanism, the Contractual Financial Solidarity Mechanisms and the de facto Perennial Solidarity form the basis of the financial solidarity mechanisms that are the foundation of the Desjardins Group.
30. Pursuant to the Deposit Institutions and Deposit Protection Act (the "Deposit Institutions Act"), the AMF is responsible for any resolution operations in respect of the Groupe coopératif Desjardins as defined in the Cooperatives Act. The objective of such operations is to ensure the sustainability of deposit institution activities in the event of failure and without recourse to public funds.
31. In the event of the resolution of the Filer, the Principal Regulator may exercise several powers, including those conferred upon it under section 40.50 of the Deposit Institutions Act in respect of debt securities of the Filer that are bail-in instruments (the "Bail-in Powers") (as prescribed by the Regulation respecting the classes of negotiable and transferable unsecured debts and the issuance of such debts and of shares (Québec)). Because of the jurisdictional reach of the Deposit Institutions Act, the Bail-in Powers do not formally extend to the Ontario Caisse.
32. The Filer is subject to the capital adequacy guidelines of the Principal Regulator (in its capacity as regulator of certain financial services cooperatives) (the "AMF Guidelines"), consistent with the Third Basel Accord (Basel III). For purposes of computing regulatory capital in accordance with the AMF Guidelines, the Principal Regulator looks to the Desjardins Group as a whole, using the Group Financial Statements, as opposed to the Filer Financial Statements, as the Group Financial Statements combine the accounts of, inter alios, the Desjardins Caisses, the Filer and its subsidiaries, and the Fonds de sécurité Desjardins, as required by the AMF Guidelines.
33. The Cooperatives Act and the requirements of the Principal Regulator provide that the sound and prudent management practices that must be adhered to by the financial services cooperatives belonging to the Desjardins Group must provide for the maintenance of adequate capital to ensure the financial services cooperatives' network's sustainability (as opposed to the Filer's). Furthermore, the Cooperatives Act provides that AMF may require the Filer to adopt, to the AMF's satisfaction, a compliance program, where the AMF considers that the capital of the financial services cooperatives' network is not adequate to ensure its sustainability.
34. The Filer believes that the Filer Financial Statements and Filer MD&As do not provide securityholders, creditors and depositors with an adequate picture of the financial condition, performance and cash flows of the relevant economic entity with which they engage.
35. The Filer believes that as a result of the various financial solidarity mechanisms among entities part of the Desjardins Group, securityholders, depositors and creditors of the Desjardins Group are directly or indirectly protected by the collective capitalization of the Desjardins Group and its components, as opposed to that of the Filer only. In addition, the Filer believes that the financial information, particularly on the individual capitalization of each of the entities within the Desjardins Group (including that of the Filer), does not provide securityholders, creditors and depositors with an adequate picture of the capital available to support deposits and investments.
36. The financial information most relevant and useful to securityholders, depositors and creditors of the Filer is that of the Desjardins Group, as it (i) presents the financial information of the Filer combined with that of the other entities comprised in the Desjardins Group which are required to participate in the various financial solidarity mechanisms applicable to Desjardins Group as described herein and in the Application, and (ii) faithfully represents the risks to which such persons are exposed, including as a result of the financial solidarity mechanisms applicable to the Desjardins Group.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted, provided that:
(a) the Group Financial Statements and the Group MD&As be filed and delivered, as applicable, by the Filer in lieu and place of the Filer Financial Statements and Filer MD&As, in accordance with Regulation 51-102, and the Filer maintains in respect of same internal controls over financial reporting as well as disclosure controls and procedures in compliance with Regulation 52-109;
(b) the Filer uses the Group Financial Statements and the Group MD&As for all relevant purposes under applicable Canadian Securities Laws (including under Regulation 51-102, Regulation 52-109, Regulation 44-101 and Regulation 44-102);
(c) any entity outside the scope of the Groupe coopératif Desjardins included in the Group Financial Statements must be (and continue to be) subject to contractual arrangements that allow the Filer to exercise supervisory powers over such entities for the purpose of facilitating the AMF's role as prudential regulator over the entities within the scope of the Groupe coopératif Desjardins;
(d) each of the following consolidated items of any entity outside the scope of the Groupe coopératif Desjardins included in the Group Financial Statements represent, relative to the corresponding combined items of Desjardins Group, no more than 10% of such corresponding combined items of Desjardins Group, calculated using the Group Financial Statements, for the periods covered by the combined interim financial report or combined annual financial statements of Desjardins Group, as the case may be, and the applicable quarterly or annual stand-alone financial statements of the applicable entity outside the scope of the Groupe coopératif Desjardins: (i) total income; (ii) total assets; and (iii) total liabilities;
(e) the Filer provides in each Group MD&As quarterly or annual (as applicable) summary financial information regarding the total income, total assets and liabilities, total equity, net surplus earnings before member dividend and net surplus earnings after member dividend of the Ontario Caisse (together with any other entity outside the scope of the Groupe coopératif Desjardins included in the Group Financial Statements) relative to the total income, total assets and liabilities, total equity, net surplus earnings before member dividend and net surplus earnings after member dividend of Desjardins Group; and
(f) the Principal Regulator continues to recognize the Desjardins Group as a domestic systemically important financial institution under the regulatory framework applicable in the province of Québec.