The Minister for Finance welcomes today (18th April, 2012) publication by the Commission on Credit Unions of its Report on the future of the credit union movement. He would like to compliment the Commission on the quality of the Report. Its in-depth analysis and far reaching recommendations will mark a fundamental turning point in the development of the credit union movement in Ireland. The Minister commends the Commission for their professional approach to the review of the sector and considers the agreement of all Commission participants to such a broad range of recommendations as a most positive outcome.
Minister Noonan said:
“The Commission on Credit Unions has provided a landmark Report with far reaching recommendations to restructure the Irish credit union sector and strengthen its legislative and regulatory framework. Its recommendations will influence the shape of the credit union sector for many years to come. I will now examine the Report in detail and will be informed by its recommendations in the preparation of reformed credit union legislation at an early date.
I welcome this Report. The work of the Commission will inform Government policy on credit unions for the foreseeable future. I commend the Commission on their comprehensive report and on meeting the deadline of 31 March which I set for its submission. .”
The Report sets out the key features of credit unions in Ireland, their history and development, examines the financial position of the sector and considers findings from a survey of credit unions, a public consultation and a separate efficiency study of the sector. It provides an overview of alternative financial co-operative models in various countries across Europe and North America and considers future models for credit unions in Ireland. The Report incorporates the recommendations of the Commission’s Interim Report, published in October 2011, with regard to deposit protection, resolution, stabilisation, and liquidity and initial recommendations on legislation, regulation and governance. The key recommendations are in relation to sector restructuring, the details of the proposed new legislative and regulatory framework, and new governance requirements for credit unions.
The Minister proposes that legislation incorporating the key recommendations of the Report will be published at the end of June.
Membership of the Commission is as follows:
Professor Donal McKillop (Professor of Financial Services, School of Management, Queens University, Belfast); (Member of the Credit Union Advisory Committee.)
Ordinary members of the Commission on Credit Unions:
Mr. Kieron Brennan (Chief Executive Officer, Irish League of Credit Unions)
Ms. Fiona Cullen (Head of Legal Department, Irish League of Credit Unions)
Mr. Billy Doyle (Management Committee, Credit Union Development Association)
Ms. Eileen Fitzgerald (Senior Manager in the Citizen's Information Board, with responsibility for MABS)
Mr. Eamonn Kearns (Financial Services Division, Department of Finance, replaced by Mr. Aidan Carrigan, Financial Services Division, Department of Finance),
Mr. Tom McCarthy (Chief Executive Officer, Irish Management Institute)
Mr. Tim Molan (National Secretary, Credit Union Managers Association)
Mr. Robert Moynihan (Qualified Chartered Accountant and Regulatory Consultant)
Mr. James O’Brien (Registrar of Credit Unions)
Mr. Daniel O’Gorman (Solicitor)
Mr. Joe O Toole (Former Senator), and
Professor John Wilson (Professor of Banking, St. Andrews University, Scotland)
The full Terms of Reference is below.
Commission on Credit Unions
Terms of Reference
Agreed by Government 31st May 2011
Having regard to the commitments
·in the Programme for National Government 2011-2016 to review the future of the credit union movement and to make recommendations in relation to the most effective regulatory structure for credit unions, and
·under the EU/IMF Programme of Support for Ireland to design a strategy for the future evolution of the credit union sector, to assist credit unions with a strengthened regulatory framework including more effective governance and regulatory requirements and to make recommendations to the Minister on legislation to be submitted to the Oireachtas by end-2011; and
taking into account
thenot-for-profit mandate of credit unions, their volunteer ethos and community focus, paying due regard to the need to fully protect depositors’ savings and financial stability,
·the comprehensive strategy to enhance the viability of the credit union sector prepared under the EU/IMF Programme of Support for Ireland;
international best practice in the structure, organisation and regulation of credit unions or analogous entities; and
·the strengths and weaknesses of the sector as set out in work done in the Strategic Review of the Credit Union Sector in Ireland;
the Commission on Credit Unions is invited to:
1.Define the role of credit unions in the context of a restructured financial services sector.
This will focus on the credit union as a cooperative, owned and run by its members and providing its members with the financial services that they require. Consideration will also be given to the role of the credit union in relation to the community in general. In particular, the objects of a credit union as set out under section 6 of the Credit Union Act 1997 will be examined including the function of the common bond in the context of modern financial services systems. The Commission should also consider the question of the prudential supervision of loan societies and credit cooperatives registered under the Friendly Societies Act 1896 and the Industrial and Provident Societies Act 1893 that engage in taking deposits from and providing loans to their members and make recommendations in this regard.
2.Propose a model for modern credit unions and define the structure/parameters within which financially viable credit unions will operate. At the same time, the Commission will examine how credit unions may continue to provide the services required by their members while meeting regulatory requirements sufficient to protect the savings of depositors and the financial stability of the credit union sector as a whole. This should examine how the size of a credit union, the variety and complexity of the services it provides and the competencies of its management and staff influence its viability. The question of credit unions competing with the larger financial institutions should be studied.
3.Options for restructuring The Commissionwill make recommendations on the possibility of voluntary consolidation or restructuring of the credit union sector over time, recognising the need to maintainlocal presence and taking into account the not-for-profit mandate, the volunteer ethos and community focus of credit unions. In this consideration, due regard must be given to the need to protect depositors savings and financial stability. Central Bank of Ireland proposals in relation to possible restructuring of some credit unions should be examined and recommendations made to the Minister for Finance as these may arise over the term of the Commission. The Commission is required to engage with the Department of Finance, make recommendations and exchange information on legislative proposals during the course of its deliberations.
4.Shared services The Commission will examine the options for groups of credit unions to share services on a formal basis and the extent to which this model is appropriate. The Commission should consider which services are most suitable for delivery by a separate entity, e.g. purchasing, auditing, compliance, credit control, legal, marketing, human resource management, administration and training. Progress in relation to the introduction of modern information technology and management information systems for and in credit unions will be examined and recommendations made in this regard.
5.Determine and set out the basic governance and regulatory requirements that must be met. The Commission will focus on a set of benchmarks that credit unions should meet if they are to be registered to operate in the State. These benchmarks should include capital requirements, sizes of loan books and of loans, competencies of directors and staff, investments policy, fitness and probity and governance standards. Recommendations will be made in relation to management reporting arrangements both internally and with the Registry of Credit Unions.
6.Make recommendations for legislative change. The Commission will examine the existing legislation and in particular the Credit Union Act 1997 and make recommendations on changes required to implement their findings. The Commission should make initial recommendations required to strengthen the regulatory framework of credit unions by 30 September 2011. A final report should be submitted to the Minister for Finance by 31 March 2012.
Notes for Editors
On 31 May 2011, the Government established an independent Commission on Credit Unions to review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for credit unions, taking into account their not-for-profit mandate, their volunteer ethos and community focus, while paying due regard to the need to fully protect depositors’ savings and financial stability. The Commission provided its Report to the Minister for Finance on 31 March 2012.
In summary, the Report’s main recommendations are:
·Restructuring - A core recommendation is that the credit union sector should be restructured. This should be achieved on a voluntary, incentivised and time-bound basis (a maximum 4-year period is recommended). The guiding aims of restructuring are:
·the protection of credit union members’ savings;
·the stability and viability of credit unions and the sector at large
·the preservation of the credit union identity and ethos.
Under this process, credit unions approved by a new Restructuring Board for restructuring - by way of amalgamations or transfers - would be provided with funding, where required and subject to conditions, to ensure they have adequate capital and to upgrade systems. Restructuring will not apply to all credit unions. Some credit unions will continue to operate successfully on a stand-alone basis should they so choose, provided that they have a viable business model capable of meeting regulatory requirements.
·Regulation - The introduction of a strengthened regulatory framework which credit unions will have to adapt to as it is phased in over time. A tiered regulatory framework is recommended, with less onerous requirements for those operating on a smaller and simpler scale and capacity for credit unions to operate a more sophisticated model with the regulatory safeguards to match.
·Legislation - The Report sets out a wide range of legislative proposals, which would see a review of the Credit Union Act 1997 and the introduction of a modern legislative framework. The centrepiece of this is a ‘prudential rulebook’, which will set out requirements across a suite of areas such as reserves, liquidity, borrowing, lending, saving, operations, risk management and ICT. Publication of a Credit Union Bill by end-June 2012 is a structural benchmark under the EU-IMF Programme.
·Consultation- The Report includes important commitments on Central Bank consultation and regulatory impact analysis and an appeals mechanism for regulatory directions.
·Governance - A new Governance Standard sets out clearly the roles and responsibilities of the chair, board and management of credit unions. It also deals with fitness and probity, skills and the need for robust systems, processes and controls. Many of the governance changes will be phased in over time and will be calibrated according to the size and complexity of the credit unions to which they apply.
·Credit Union model - The Report includes a number of recommendations across the areas of ICT, social lending, financial inclusion and shared services, many of which will fall to be considered at credit union level in the formulation of business strategy. The regime for providing additional services is to be tied-in to the tiered regulatory approach.
·Interim Report- The Report also incorporates the Commission’s Interim Report, which was published in October 2011. This includes a number of important recommendations in relation to deposit protection, resolution, stabilisation and liquidity; the extension of administrative sanctions, fitness and probity standards and application of the provisions of the Central Bank (Supervision and Enforcement) Bill 2011 to Credit Unions.