1. The Desjardins Delegated Supervision Model World Bank April 2007

2. Développement international Desjardins (DID) A subsidiary of the Desjardins Group created in 1970 Provides technical support and investments for the community finance sector Aims to improve access to financial services in developing countries

3. Content The Desjardins Group Supervision – basic elements Desjardins Delegated Supervision Model Delegated Supervision : Key factors Is this model applicable to networks in Developing Countries?

4. The Desjardins Group A network of financial cooperatives started in 1900 by Alphonse Desjardins 6th Financial institution in Canada in assets 1st financial institution in Quebec Largest cooperative financial group in Canada: 5.8 million members (Dec. 31, 2006) $135 billion in assets (Dec. 31, 2006) 40,000 employees

5. Organizational Chart 218,578 MEMBERS IN NEW BRUNSWICK AND MANITOBA 5,375,031 MEMBERS IN QUÉBEC AND ONTARIO Desjardins Venture Capital Société immobilière Place Desjardins Place Desjardins Desjardins General Insurance Group Desjardins Securities Desjardins General Insurance * NEW BRUNSWICK AND MANITOBA FEDERATIONS Fédération des caisses Desjardins du Québec 552 CAISSES POPULAIRES AND GROUP CAISSES IN QUÉBEC (530) AND ONTARIO (22) Certas Direct Insurance Company * The Personal, Insurance Company * The Personal, General Insurance * Desjardins Asset Management 40 CAISSES IN NEW BRUNSWICK (33) AND MANITOBA (7) Cooperative Network Subsidiary Network As at June 30, 2006 LP and Desjardins regional development funds 1 Venture capital, public fund managed by Desjardins Venture Capital Inc. Chart does not reflect the legal ownership structure. Desjardins Global Asset Management Fiera Capital * Desjardins Financial Security SFL Management Sigma Assistel OptiFunds InvestmentsOptiinsurance Desjardins Capital régional et coopératif 1 Disnat 47,367 DCU MEMBERS IN ONTARIO DESJARDINS CREDIT UNION ONTARIO FEDERATION Desjardins Trust Caisse centrale Desjardins Fonds de sécurité Desjardins Capital Desjardins Desjardins Bank Desjardins Commercial Lending USA, corp. Ownership link Auxiliary members Shared ownership * Développement international Desjardins Fondation Desjardins Société historique Alphonse-Desjardins Desjardins Securities International Gestion Valeurs mobilières Desjardins

6. Government of Quebec National Assembly Ministry of Finance Autorité des Marchés Financiers Advisory Board

7. Supervision – Basic elements

8. Inspection Evaluation of exposure to risks; overall situation of the financial institution Assess policies, practices Ensure legal requirements are fulfilled External Auditing Statutory assessment of financial statements

9. Desjardins delegated supervision Originates from a Law: An Act respecting financial services cooperatives; Province of Quebec, 2000 The federation must establish and maintain a service to audit the financial statements of credit unions as well as an inspection service for credit unions (art. 386).

10. Board of Directors Desjardins Group Desjardins delegated supervision President and CEO Desjardins Group Bureau de la Surveillance et de la Sécurité Financière Audit and Inspection Commission Board of Ethics InspectionExternal Auditing

11. Desjardins Delegated Supervision 218,578 MEMBERS IN NEW BRUNSWICK AND MANITOBA 5,375,031 MEMBERS IN QUÉBEC AND ONTARIO Desjardins Venture Capital Société immobilière Place Desjardins Place Desjardins Desjardins General Insurance Group Desjardins Securities Desjardins General Insurance * NEW BRUNSWICK AND MANITOBA FEDERATIONS Fédération des caisses Desjardins du Québec 530 CAISSES POPULAIRES AND GROUP CAISSES IN QUÉBEC AND 22 IN ONTARIO Certas Direct Insurance Company * The Personal, Insurance Company * The Personal, General Insurance * Desjardins Asset Management 40 CAISSES IN NEW BRUNSWICK (33) AND MANITOBA (7) Cooperative Network Subsidiary Network As at June 30, 2006 LP and Desjardins regional development funds 1 Venture capital, public fund managed by Desjardins Venture Capital Inc. Chart does not reflect the legal ownership structure. Desjardins Global Asset Management Fiera Capital * Desjardins Financial Security SFL Management Sigma Assistel OptiFunds InvestmentsOptiinsurance Desjardins Capital régional et coopératif 1 Disnat 47,367 DCU MEMBERS IN ONTARIO DESJARDINS CREDIT UNION ONTARIO FEDERATION Desjardins Trust Caisse centrale Desjardins Fonds de sécurité Desjardins Capital Desjardins Desjardins Bank Desjardins Commercial Lending USA, corp. Ownership link Auxiliary members Shared ownership * Développement international Desjardins Fondation Desjardins Société historique Alphonse-Desjardins Desjardins Securities International Gestion Valeurs mobilières Desjardins

12. Desjardins delegated supervision The auditor/inspector shall have access to all the books, registers, accounts, other accounting records and vouchers of the financial services cooperative. (art 148; art 396)

13. Desjardins delegated supervision The BSSFD shall inform the Authority, the board of directors and the board of audit and ethics of the credit union of the results of the inspection. It shall, in addition, transmit a copy of its report to the Authority (Art 399).

14. Desjardins delegated supervision Relies on a very sophisticated approach by the BSSFD: developed over years of experiences drawing on the high level of integration of the Desjardins network State-of-the-art supervision instrumentation (eg: alert system of detection of risks)

15. Supervision in Desjardins: role of AMF Review Desjardins groups standards and policies regarding capital, governance, risk management... Review the quality of the BSSFD inspection and external auditing Perform an on-site inspection of a financial cooperative, if necessary

16. Supervision in Desjardins: role of AMF AMF is the ultimate responsible for the supervision of the Desjardins financial cooperatives AMF may suspend its delegation to Desjardins if its supervision is not done according to generally recognised practices

17. Delegated Supervision: A Definition Supervision performed by an organisation distinct from the incumbent authority Autonomously Under the control of the authority And/or professional corporations (external audit)

18. Delegated Supervision: Postulates Authority relies on the tools of the organisation Authority assumes the final responsibility

19. Delegated supervision: Key factors Relevant legal framework Involvement of local authorities Effective Internal control system in the primary financial institutions Competent and independent entity to carry out the supervisory role Obligatory follow-up to problems detected

20. Delegated supervision: Key factors Delegated supervision cannot happen overnight: Desjardins case: 1900-1932 : self-supervision 1932-1988: unofficial delegated supervision 1988: official delegation of supervision to BSSFD

21. Delegated supervision: Advantages for Authorities Reduced costs of supervision Communications with apex instead of each of the federated entities Less duplication of efforts

22. Delegated supervision: Advantages for Desjardins Reduced costs of supervision Supervision carried out by professionals having strong knowledge of the entities supervised Standardisation of financial cooperatives operations accelerates supervision process Easier follow-up procedure for detected problems

23. Evolution of costs of supervision in Desjardins 19932005 Number of coops1250530 Inspectors / Auditors289126

24. Evolution of insp./audit costs per 100$ assets (indexed)

25. Is Delegated supervision applicable in developing countries? If no or very deficient legal framework: Self-supervision Must be avoided if local authorities shun dealing with the financial entities Self-discipline is the first step in primaries (internal control system) Need entity able to exercise control functions and ensure follow-up

26. www.did.qc.ca