Our point simply is that were we to proceed with that proposition, Irish credit unions would be out on a limb and virtually the only movement to which such a restriction would apply. One may observe the fact that no other financial institution in the Republic of Ireland is subject to this type of restriction and we consider this to be highly objectionable, particularly in light of recent events in the wider financial services industry in the country. I again ask: what is the justification for this unfavourable treatment of credit unions relative to other financial service providers in the Republic of Ireland? We ask that in preference to providing such hard restrictions in primary legislation, credit unions be invited to amend their own registered rules to insert a provision regarding term limits for the board of directors, board oversight committee and principal officers, where such a proposal is considered to be workable in the circumstances of the particular credit union and the pool of volunteers available to it and where it is in the best interests of the members of that credit union.
Another issue for us is that of prohibitions, as outlined in head 20, subhead 10, on membership of the board or the board oversight committee of a credit union.
We have serious questions about the legality and constitutionality of these exclusions, which are seen as representing an undue interference with democracy and the constitutional rights of individuals. The extensive list of prohibitions set out on people in that head of the Bill undermines the democratic principle in credit unions and goes on to interfere with the constitutional rights of the individuals prohibited. While understanding the necessity to implement some such prohibitions, these recommendations go so far as to almost ensure a negative impact on credit unions. We ask that further and full consideration be given to matter and if in the event the decision is made to proceed, the attention of the Attorney General's office is drawn to these concerns of unconstitutionality at an early stage.
A third issue we are concerned about is the proposal to regulate credit unions in accordance with tiering by reference to asset size only. The league board position on this is that it does not support the creation or classes, types or tiers of credit unions on the basis of asset size alone and believes a model based on risk and complexity of the business model would be more appropriate. To be clear, we are saying we support the principle that there should be differentiated regulation within credit unions. One size does not fit all. Very large and very small credit unions must be treated differently, but that cannot be done on the basis of asset size alone. The complexity of the business model must be examined and regulation applied according to the risk profile. We ask that the model already successfully operated by the Financial Services Authority, FSA, in Britain and, more recently, in Northern Ireland, including in the league's 104 credit unions based there, whereby credit unions are categorised into different versions on the basis of risk and complexity of business model, be adopted in the Republic of Ireland.
Credit union members tell us they would take issue with the proposal to remove the office of treasurer. While we fully accept the definition in law of treasurer in the 1997 Credit Union Act as managing director is incorrect and inappropriate and that a number of the current statutory functions are purely operational issues that should properly be conducted by the executive, the league board does not believe the office should be abolished in its entirety. The 1997 Act sets out the role of treasurer as a member of the board responsible for governance at a strategic and policy level but also assigns a number of operational functions to that person. The commission put forward the proposition that the governance and strategic spheres should be totally separated from the operational and executive spheres. We agree with that but there is no need to abolish the office completely. It could be restricted to the operational level. Why can credit unions not have a treasurer in the same way as the local football or GAA team? We ask that the office of treasurer be retained in law for the purpose of ensuring the timely preparation of accounts and their onward presentation to the general meeting.
The last of our major issues relates to the memorandum of understanding between credit unions and the Central Bank of Ireland. At a time when credit unions are moving to a new and markedly different regulatory environment, it is critical that a memorandum of understanding be agreed by the credit unions and the Central Bank. The document should address how each party will interact with the other and how communications will be conducted, specifically when written instructions and confirmations will be required of either party. There are substantial regulatory and other changes proposed for credit unions and it is important the regulated and the regulator agree a way to communicate around those changes. The last thing we need is difficulty arising from any misunderstanding. We ask the committee to support our proposal for the putting in place of a memorandum of understanding.
There were some issues in the Commission on Credit Unions' final report that were discussed and remarked upon but were not made the subject of specific recommendations. We would like to draw the committee's attention to them.
There is an enabling provision in Part 2 in the governance section of the Bill. We have commented on tiering arrangements, whereby credit unions of different sizes and complexity would and should be regulated differently. The power to vary that specifically has not been given in the legislation. The Central Bank has not been given the power to vary its regulatory behaviour for the different types of credit union and we contend that power must be explicitly stated in the legislation.
Alternative and additional means of raising capital should be explored. Provision should be made for alternative additional means by which credit unions could raise capital. This is of importance in an era when credit union income continues to fall. Successful methods being used in other movements include issuing deferred shares, member paid-in capital and non-member paid-in capital. The opportunity should not be lost to provide in law for a credit union liquidity mechanism which would be triggered at a future date in the event such a need were to arise. The commission report correctly states the liquidity position in credit unions as being very strong. If we go back two or three years, however, that would not have been the case and there would have been extensive debate around the need for a mechanism. We are saying that should be looked at and such a mechanism should be put in place for a time when the need might arise.
We are also concerned about the omission of electronically enabled payment accounts when the report's recommendations were being transposed into legislation. Credit unions should be leaders in assisting Government to implement its financial inclusion agenda. The new Bill should encourage credit unions by permitting them to offer electronically enabled payment accounts. We are asking credit unions to step up to the plate and engage in change and improve the member service offering, but we are not enabling them to take on the technological know-how to do that. We are saying to enable that, at least, in the legislation.
Social finance is a very important issue for credit unions. It is an issue the commission report spent considerable time discussing but on which it did not make any recommendation that found its way into the legislation. The suggestion is simple and appropriate for current times: the Bill should amend the 1997 Act in order that credit unions can lend to Government-backed schemes or projects that have a social benefit. We all agree that is a desirable outcome at present.
The Bill does not reflect the position and thrust of the report where it asks credit unions to engage fully in the restructuring agenda. It asks credit unions to come together and provide enhanced services but it does not enable them to do so. The Bill should support the establishment of credit union service organisations and other means of sharing services between credit unions. If we want them to come together and behave in a better aggregated way, they must be enabled to do that in legislation.
Given all of the provisions and new requirements of credit unions and the new compliance requirements that have been put forward, a legislative provision around a regulatory impact analysis should be conducted by the Central Bank of Ireland as part of its system of regulation of credit unions. This is both desirable and necessary. Where such huge change takes place in the future, the Central Bank should be mandated in legislation to undertake a regulatory impact analysis and discover precisely what the impact of the changes will be. That should properly inform the debate around future regulatory changes.
