Presentation by Mark Bailey, President, Irish League of Credit Unions to the Oireachtas Committee on Economic Regulatory Affairs
Presentation by Mark Bailey, President, Irish League of Credit Unions to the Oireachtas Committee on Economic Regulatory Affairs
on Tuesday 02 February 2010
Introduction
Mr Chairman, Members of the Committee, I am grateful to the Committee for inviting the Irish League of Credit Unions to make a presentation to the members on the reform of financial regulatory structures and its impact on Credit Unions.
I am joined today by the Chief Executive of the League, Kieron Brennan, our Head of Legal, Fiona Cullen, our Head of Monitoring, Tom Kiely and Pat Fay, League Director.
Our reason for seeking to meet with the Committee today is because we have serious concerns around the future regulation of credit unions in this jurisdiction.
In particular we are deeply concerned that the new regulatory structures that are being proposed to deal with failures in banking regulation will adopt a one size fits all approach. The position and perspective of credit unions as the largest movement of community based volunteers in the State needs to be recognised and addressed in the months ahead.
As matters stand, we are concerned that the position of credit unions in the reform of financial regulatory structures has been put on the long finger and this is of deep concern. Inappropriate regulatory structures for credit unions have the potential to do serious damage to our movement.
All too often the consideration of regulatory structures is a matter that is reserved to experts, or consultants. We welcome the fact that a Committee of the Houses, comprised of public representatives, has a remit to review regulatory structures. Such a review has never been more critical than now, in light of the clear failure of existing regulatory structures as they apply to banks and building societies in the State.
Credit Unions in Ireland
As each of you will know credit unions play a vital role in the provision of financial services in Ireland. There are 505 credit unions on the island affiliated to the ILCU with 103 in Northern Ireland and 402 in the Republic of Ireland.
For the year ending December 2009, credit unions had assets totalling €13.9 billion. Credit Unions are operating in every county in Ireland and are an essential part of the local community infrastructure.
Credit unions are different from banks.In current circumstances it is probably useful if I highlight some of those differences.
Firstly - every credit union is owned by the members with each member having one vote – there are 2.96 million members of credit unions throughout Ireland.
Membership of a credit union is open to people who have, in relation to all other members, a common bond. In other words they share something that links them to that particular credit union such as being residents of a particular district or sharing a common vocational interest.
Credit unions are not for profit financial co-operatives. Any surplus income generated is used to bolster reserves, to develop additional services for members or it is returned to members either by way of a dividend on shares, interest on deposit or a rebate of loan interest which has been paid by borrowing members during the course of the year back to those borrowing members.
Credit unions, unlike banks, do not levy any transaction charges on loans or savings accounts and loans are insured at no direct cost to the member.Credit Unions also offer members the facility to make larger repayments on loans than initially agreed with no penalty.
Credit unions are an integral part of the communities in which they operate and provide a wide range of social capital to those communities. Some examples of this support includes:
The provision of finance to build local crèches providing both a crucial service and employment within communities;
The development of enterprise centres which house local start-up businesses which again, provide employment;
Special loan funds run in conjunction with MABS which provide low interest rate loans to assist people involved with moneylenders; and
The building of a neighbourhood village as a public private partnership in conjunction with a City Council, Health Board and Enterprise Ireland. The project has won numerous national and international awards including from the Chamber of Commerce Ireland, Excellence in Community Development, the Taoiseach’s Public Service Excellence award and the UN World Habitat award.
The most significant distinction between credit unions and banks is that credit unions operate collectively as a not for profit, volunteer based movement throughout the country with over 9,200 active volunteers involved in the management and control of their credit unions and over 3,500 employees.
Governance of Credit Unions
The governance of credit unions is very much grounded in a membership based structure. The members of the credit union elect their board. The board is responsible for the control, direction and management of the affairs, funds and records of the credit union and only credit union members are eligible for election to the board and its committees. The board governs the credit union and elects a Chairman, Vice Chairman, Secretary and Treasurer. It also appoints committees necessary for the governance and operation of the individual credit union, such as the credit committee, credit control committee and membership committee, in accordance with the Credit Union Act.
Members of the credit union elect a supervisory committee which is responsible for overseeing the board of directors in the performance of its duties. The supervisors must be members of the credit union and ensure that the board is acting within the law and in the best interest of the members.
Another important distinction between banks and credit unions is that by law, members of the board and supervisors of credit unions must serve without pay.
Each credit union is an autonomous organisation which manages its own affairs. As a credit union grows, so does its workload and the board may of course employ fulltime staff members who are responsible to the directors for the day to day running of the credit union.
The ILCU plays a significant role in training and up skilling both volunteers and staff members working within credit unions. For example in 2009, the ILCU ran 366 individual courses on aspects of the operation, management and governance of credit unions. 425 students will participate in the ILCU developed, University of Ulster accredited and Financial Regulator approved Advanced Certificate in Credit Union Practice during 2010.
Credit unions were initially established to offer savings accounts to members to allow them obtain loans from credit unions. The Credit Union Act, 1997 also enables credit unions to offer additional services such as bureau de change and to undertake third party payments in accordance with the Credit Union Act, 1997 (Exemption from Additional Services Requirements) Regulations 2004 and 2007.
Regulation of Credit Unions
At present, credit unions are regulated by the Registry of Credit Unions which is responsible for their registration, regulation and supervision. The statutory position of the Registrar of Credit Unions is created within the Financial Regulator to assume responsibility for the day to day regulation of credit unions.
Under the current regulatory regime, the Registrar works under the direction of the Chief Executive of the Financial Regulator who in turn is responsible to the board of the Financial Services Regulatory Authority.
The functions of the Registrar are to regulate credit unions with a view to the protection, by each credit union, of the funds of its members and the maintenance of the financial stability and well being of credit unions generally. The Registry of Credit Unions undertakes its regulatory function through a combination of off site analysis and on site inspections. Credit unions submit regular returns to the Registrar to assist regulatory overview. Our Head of Monitoring, Tom Kiely has experience of working in regulatory compliance in mainstream banking and has noted, since joining the League, that credit unions here are regulated far more intensively than banks.
Generally, the regulatory structure for credit unions has worked effectively. It has been said by some volunteers in the credit union movement that the approach adopted by the Registrar has, at times, been over zealous and too intense without taking due consideration of the voluntary and community based ethos of credit unions. Others point to the contrast between the strong position of credit unions subject to such regulation and the banks, which have clearly been subject to a lighter touch of regulation and have needed direct support from the Exchequer through recapitalisation or nationalisation.
The simple fact remains, that despite an extremely tough climate last year, with major challenges for individual credit unions and their members, credit unions remain robust, stable and prudentially sound.
Regrettably the same cannot be said for many of our main banks and building societies – much to our collective cost.
Concerns on Future Regulation
Our primary concern around the new regulatory structure and the reason why we sought an opportunity to speak before this Committee is that the proposed reforms to the financial regulatory structure will directly impact on credit unions, given that we are regulated within the current Financial Regulatory structure.
We are also deeply concerned that, in the redesign of regulation for financial institutions, which currently includes credit unions, new structures would be put in place to address the worst excesses of banking in Ireland, which could have an adverse effect on credit unions.
Our main concern is that the regulation of credit unions will be excessive, disproportionate and approached on the basis that “one size fits all” in the measures which will be applied to every institution involved in the provision of financial services. In other words, credit unions would be tainted by a regulatory response proportionate to the excesses and inadequacies in how banks and building societies have operated without due consideration of its suitability or otherwise for credit unions.
We are equally concerned that in the new regulatory structure, the role, function, ethos and mission of credit unions will be neglected and become lost within the regulatory attention and priority afforded to banks and building societies. In this context we are seeking recognition within a new regulatory structure that credit unions operate to a different mandate, with entirely different objectives to this country’s banks and building societies. Our concerns in this regard have already been heightened by the recent news that the Registrar of Credit Unions, when recruited, will report into the newly appointed Assistant Director General for Financial Supervision in general, rather than the Director General/CEO, as is currently the case. If the Registrar of Credit Unions is to stay within the new Central Bank of Ireland structure - and that is a big if in our minds - at the very least, the Registrar should report directly to the Director General and not play second fiddle lower down the management chain.
An Independent Credit Union Regulator
There is a significant question as to whether the Registrar of Credit Unions should remain within the current Financial Regulatory structure under the proposed “one size fits all approach”. There is an argument that credit unions, as voluntary based community or vocational organisations providing financial services only to members, should be regulated in a structure outside the Central Bank Commission.
