I thank the committee for inviting the credit union advisory committee report implementation group to attend the meeting to discuss our final report. As the Chairman stated, I am accompanied today by the credit union representatives of the implementation group, namely: Mr. Ed Farrell, chief executive of the Irish League of Credit Unions; Mr. Kevin Johnson, chief executive of the Credit Union Development Association; Mr. Tim Molan, chairman of the Credit Union Managers Association; and Mr. Joe Tobin, treasurer of the National Supervisors Forum.
The Central Bank representative on the credit union advisory committee report implementation group, Elaine Byrne, is not present today. However, the Central Bank has indicated that the registrar and deputy registrar are available to attend the committee if it wishes to extend them an invitation on another occasion.
I also note the positive contribution of Joe O'Toole who attended a lot of our meetings as a CUAC observer to assist our understanding of the CUAC report, which was issued in 2016.
The implementation group has its origins in the CUAC report. The report was requested by the Minister of Finance and presented to him in June 2016. The CUAC report contained ten recommendations along with an overarching recommendation to establish an implementation group for a specified period to oversee and monitor the implementation of the recommendations and to advise the Minister for Finance on progress. As such, the implementation group was established under tight terms of reference and was not tasked with addressing legislative or regulatory issues facing the sector other than those recommended, namely, tiered regulation; lending; consultation and engagement; governance; restructuring; business model development and three additional policy papers on an interest rate ceiling, AGM voting and a common bond, respectively.
The name "implementation group" is a slight misnomer given most of the CUAC recommendations could only be fully implemented by the Oireachtas, the Central Bank or credit unions themselves. The implementation group has worked, therefore, to progress each of the recommendations as much as possible and has monitored those which were being implemented. The group met 18 times during 2017 and 2018 and worked through each of the CUAC recommendations, prioritising work on recommendation 2 on lending and recommendation 3(a) on consultation and engagement. In addition to the final report, three papers were completed by the group on lending, engagement and tiered regulation, respectively, all of which were submitted to the Central Bank and two of which were submitted to the joint committee. It is important to note that while these papers and the final report represent a collective view of the implementation group, they are without prejudice to the individual views of the organisations represented on it.
The final report is a considered document reflecting a balance of different views amongst the stakeholders involved. As to the implementation of the CUAC recommendations, while some have been progressed satisfactorily or are being recommended for implementation, others have not, as there were cases where the members of the implementation group did not agree with a CUAC recommendation or felt it was of lower priority. As the final report outlines, the main progress has been on the following four issues. First, in terms of lending, the implementation group's scoping paper was fully considered by the Central Bank in the current consultation paper on the lending framework for credit unions, "CP 125". The group hopes that some matters proposed in the paper which were not taken on board will be reconsidered during the consultation. Second, the Minister for Finance has agreed, subject to Cabinet approval, to bring forward proposals to increase the interest rate cap from 1% to 2% in line with the recommendation of the implementation group. Such a cap merely provides further flexibility to credit union boards and is not intended to be a target or to express any desire for them to raise rates. Third, in terms of business model development, a range of collaborative ventures have been progressing towards implementation, many more than when CUAC initially prepared its report in mid-2016. Fourth, the consultation process for regulations has improved, though further refinements can be made over time.
On the negative side, while Central Bank engagement with the sector has improved both formally and informally since the CUAC report, both the implementation group and CUAC itself are disappointed that a version of the CUAC proposal for service level agreements between the Central Bank and credit unions has not been introduced to date. This is a matter for the Central Bank in its role as the statutory independent regulator of credit unions. Another recommendation which has not been progressed in line with the CUAC recommendation, namely, tiered regulation, deserves further explanation, as it has been a consistent issue for the sector since the Commission on Credit Unions, as I am sure members are aware. While proportionality and avoiding a regulatory framework which is one-size-fits-all is supported by all members of the implementation group, after careful assessment, the group decided to propose a different approach than what was recommended in the CUAC report. Developments in the sector such as tiering in investment and lending regulations in recent times and refinements in the supervisory approach, led to the implementation group concluding that a form of this approach should continue, with tiering introduced within Central Bank regulations rather than through a formal tiered regulatory structure that would divide the sector in two. Such a recommendation was accompanied by a number of principles, which include not restricting any credit union from services, or limits, they can currently provide; automatic inclusion in a higher tier for credit unions of a certain size and risk profile, and clarity in the approval process. This is a pragmatic change in approach, which may better serve to meet the needs of evolving credit union business model demands and reflects a different environment to that encountered when CUAC prepared its report. This recommendation is of course dependent on sufficient tiering being incorporated into all new regulations and a clear and transparent approval process where relevant. The implementation group agreed that failing this, tiered regulation should be revisited. The change in approach reflected in this report does not conflict with the sector's call for proportionate regulation and supervision, details of which are set out in the Credit Union Act 1997.
As members may have noticed, appendix 2 of the final report is a cross-reference to their own report on the review of the credit union sector. This is intended to identify those aspects which were addressed by the implementation group and those aspects which were outside of the scope due to the tight terms of reference I mentioned at the start of this statement. The final report also sets out the many positive developments in train with a 2019 roadmap, which points to the material regulatory changes that are either bedding in or due to come into effect over the short term and the imminent expansion of services and products for a large cohort of credit unions. As this section points out, 2019 could be an important year for the credit union movement with up to 50 of the larger credit unions, encompassing greater than 50% of sector assets, moving forward with current accounts and debit cards, as well as the sector-wide potential expansion of the provision of mortgages and the further roll-out of agrilending. Notwithstanding this, there are emerging issues and challenges facing the sector, which are summarised in the penultimate section of the final report and which may be subject to additional work by stakeholders individually or collectively.
The final report is not an end point but rather a staging post, with much done and more to do. As demonstrated by the 2019 roadmap, this year promises to be a busy one for the sector and all stakeholders involved. There will be new regulations from the Central Bank following its review of the lending framework and new proposed legislation in respect of the interest rate cap, subject to Cabinet approval and the Oireachtas process. I thank members for their attention.