Final Report of the Commission on Credit Unions
Media Release: 18 April 2012
The Irish League of Credit Unions (ILCU) welcomes the publication of the Final Report of
the Commission on Credit Unions. The purpose of the Report is to:
a. Inform the preparation of credit union legislation to be published by end June
2012; and
b. Make recommendations regarding the strengthening of the regulatory framework
for credit unions including more effective governance and regulatory requirements.
In response to requests from the ILCU and credit unions, the Government established the
Commission on Credit Unions on 31st May 2011. ILCU would like to acknowledge the
key role the Department of Finance played in relation both to the establishment and
successful work of the Commission.
The Commission was given a broad remit by Government which included reviewing the
future of the credit union movement and making recommendations in relation to the most
effective regulatory structure for credit unions. The Government required that this be done
taking into account credit unions not-for-profit mandate, their volunteer ethos and
community focus.
Given the short timeframe available for completion of its work, it is testament to the
Chairman and the other members that the Commission succeeded in producing a
comprehensive report in the allotted period of time. The Report makes various
recommendations which will contribute to the reform and development of the Irish credit
union movement. In order to maintain the momentum already created by its work, the
Commission also recommends that a group be established to oversee implementation of
its numerous recommendations.
The Commission believes that a certain amount of restructuring of the credit union sector
is required and recommends that this should be achieved on a voluntary, incentivised and
time-bound basis. The Report recommends that all credit unions should undergo a
detailed assessment to ascertain suitability for participation in the restructuring process. It
is clear that restructuring will not apply to all credit unions and the Report recognises that
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.
The Commission recommends that a new body be established on a short-term basis –
called the Credit Union Restructuring Board (ReBo) to engage with credit unions on the
ground and facilitate the restructuring process. Its engagement with credit unions will be
for the purpose of assessing suitability for participating in a restructuring plan and
formulation of any such proposal for onward submission to the Central Bank and where
necessary, the Minister for Finance for funding approval. The ReBo will also provide
technical support and expertise for restructuring proposals, project manage the
restructuring process and provide post-restructuring support. Its work will be overseen by
a board appointed by the Minister for Finance including members from Government, the
Central Bank, credit union representative bodies, other credit union stakeholders and
independent members.
The Commission recommends that, during the 4 year restructuring period, the
Central Bank should operate a stabilisation fund for viable but undercapitalised
credit unions which may wish to apply for such support.
In terms of the regulatory framework, the Commission’s key recommendation is a
one-size-fits-all approach to credit union regulation is not appropriate and that some
regulatory requirements may not be needed for smaller credit unions which want to
operate a simpler business model. The Commission considers that such credit
unions should be permitted to operate a limited business model under a simpler
regulatory regime.
Similarly, the Commission recommends that credit unions which are capable of
operating a more sophisticated basis should be allowed to offer a wider range of
products and services; and engage in a broader range of lending and investment
activities.
The Commission has also addressed issues which have been of concern for some time
among credit unions which relate to requirements around loan rescheduling, contained
within Section 35 of the Credit Union Act 1997. It is hoped that this will make the
requirements clearer and more effective.
In a very welcome development, the Report recommends that a Consultation
Protocol be developed between the Central Bank of Ireland and the credit unions
which it regulates. Therefore when setting out new regulations, the Central Bank
should undertake a Regulatory Impact Analysis (RIA) in line with existing
requirements and having regard to international best practice.
The Report also makes various recommendations in the area of credit union
governance. This is in line with the Government’s commitment to the Troika to
provide for same. Areas of particular importance include the composition and role
of the Board of Directors as well as fitness and probity considerations. The
Commission recommends that these changes be phased in over time and be
calibrated according to the size and complexity of the credit unions to which they
apply. Furthermore the Commission recommends that consultation take place with
the representative bodies and credit unions when these changes are being
implemented.
The deliberations and discussions of the Commission were necessarily conducted on a
confidential basis and therefore it is only now that credit unions will be given sight of its
Final Report. ILCU looks forward to discussing the contents of the Report and the
recommendations of the Commission with its member credit unions in general meeting in
Killarney at the end of this month. We anticipate that the new credit union legislation (to
be published by end June 2012) and various processes around the introduction of new
requirements for credit unions, including engagement by the Central Bank, will provide
credit unions with an opportunity to comment on the implementation of new measures
arising from the Commission’s work and we look forward to assisting credit unions in that
process.