On 30 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 has now provided its Interim Report.
The Interim Report deals with Phase 1 of the Commission’s work regarding the strengthening of the regulatory framework of credit unions including more effective governance and regulatory requirements. In summary, its recommendations are:
· The establishment of a credit union stabilisation mechanism, controlled by the Central Bank of Ireland, and funded by the credit union sector with an oversight committee involving sector representatives to provide ex post advice to the Minister and the Governor on stabilisation issues. This mechanism would be used to support viable credit unions in a time-bound process. Stabilisation interventions would include governance, business operations, systems and processes as well as capitalisation.
· A prudential rulebook for credit unions setting out a comprehensive framework of regulatory requirements.
· Changes to credit union requirements on governance, competency, risk management, internal audit, lending, compliance, liquidity and other matters.
· Commencement of Part III of the Central Bank Reform Act 2010 for credit unions. This will provide the Central Bank with the powers to set out the Regulations and Code of Fitness and Probity for the credit union sector.
· Credit unions to remain subject to the general deposit guarantee and their financial contributions under the scheme to commence.
· Central Bank powers to inspect, investigate and gather information from credit unions.
· Extension of the Central Bank’s administrative sanction regime to credit unions.
· Application of the provisions of the Central Bank (Supervision and Enforcement) Bill 2011 to credit unions.
Minister Noonan said:
“The Interim Report of the Commission on Credit Unions provides important recommendations to strengthen the regulatory framework for credit unions, including governance and regulatory requirements. The Report also makes recommendations in relation to a stabilisation framework for credit unions. I will now examine these recommendations with a view to publishing legislation on the regulation of credit unions at an early date.
The Interim Report confirms that recent adverse financial and economic conditions in Ireland, allied with internal governance weaknesses in some credit unions and the absence of an appropriate statutory regulatory framework, have contributed to difficulties in the sector. The challenges ahead can, however, be overcome.
The Government recognises the important role of credit unions as a volunteer co-operative movement and the distinction between them and other types of financial institutions. The establishment of the Commission on Credit Unions and the publication of its Interim Report represent an important milestone in strengthening the credit union movement. The Commission will now focus on the future structure of the sector. It is important that any future model for the credit union movement is underpinned by legislation to strengthen the regulation and governance of credit unions together with a framework for stabilisation. I welcome the report.
As I stated last week, the Government will ensure all necessary measures are taken to ensure a stable credit union sector. The savings of credit union members are and will continue to be protected under the Deposit Guarantee Scheme. The work of the Commission will inform Government policy on the future of the credit union movement.”