I welcome the Minister for Finance, Deputy Michael Noonan, and his officials. The purpose of this meeting is to consider the Credit Union Bill 2012, which was referred to the select sub-committee by Dáil Éireann on 14 November 2012. It is proposed to conclude consideration of Committee Stage today. Is that agreed? Agreed. I propose a 20 minute sos at 4 p.m. and if business is not concluded at 7 p.m., we will suspend and recommence proceedings later in the evening at a time agreeable to members. Is that agreed? Agreed. I remind Deputies to switch off all mobile telephones.
Credit Union Bill 2012: Committee Stage
Sections 1 to 5, inclusive, agreed to.
SECTION 6
Amendments Nos. 1 and 2 and 4 to 10, inclusive, are related and will be discussed together by agreement.
I move amendment No. 1:
In page 7, between lines 5 and 6, to insert the following:
“ ‘chair’ has the meaning given by section 55A(2);”.
All the amendments I am moving today are technical in nature and none contains any policy content. For this reason, members need not have any concern in regard to policy issues. The Ceann Comhairle was willing to allow the amendments to proceed to comply with the rules of notice.
Amendments Nos. 1, 2, 5, 6, 8 and 9 rearrange various definitions into alphabetical order. Amendments Nos. 4 and 10 correct a printing order. Amendment No. 7 deletes reference to the definition of a savings protection scheme, which is being replaced by the statutory stability support scheme. Amendment No. 3 refers to financial services legislation in section 6 and is to be grouped with several other amendments.
As I stated on Second Stage, the perception that this definition turns on a range of new legal provisions to credit unions from the wider financial sector is mistaken. This definition does not apply financial services provisions to credit unions anew, nor could it be used for that purpose. The definition of financial services legislation is a technical interpretation provision which is needed for references throughout the Bill to requirements that are already imposed on credit union under various items of financial services legislation. One reason for this is that the credit unions have secured authorisation outside of the credit union sector and, therefore, fall under wider financial services legislation, such as the European Communities (Insurance Mediation) Regulations 2005, Investment Intermediaries Act 1995 and European Community (Payment Services) Regulations 2009. The deposit guarantee scheme which protects members' savings also applies by virtue of wider financial services legislation such as the Financial Services Deposit Guarantee Scheme Act 2009.
It is important to understand that the agreed Commission report cannot be implemented if the Central Bank Acts are not applied to the credit unions. The provision for credit unions to appeal to the Irish Financial Services Appeals Tribunal is provided for in Part VIIB of the Central Bank Act 1942.
The facility for credit union members and credit unions to continue to seek redress through the Financial Services Ombudsman, relies on Part VIIB of the Central Bank Act 1942. The application of the administrative sanction regime to credit unions relies upon Part IIIC of the Central Bank Act 1942. The application of fitness and probity to the credit unions relies on Part 3 of the Central Bank Reform Act 2010. The resolution powers which the Commission recommends to be applied to credit unions where appropriate are set out in the Central Bank and Credit Institutions (Resolution) Act 2011.
The Central Bank Acts already have wide application to credit unions. For example, the office of registrar is provided for in the Central Bank Act 1942. I do not consider that excising all references to financial services legislation or the Central Bank Acts is a workable solution if it fundamentally compromises what the Bill and the Commission report is trying to achieve. I am, however sensitive to the concerns on this point and will consider further, in consultation with the Office of the Attorney General, whether it is possible to address the concerns being raised. I inform the committee of this because there appears to be a misunderstanding on the part of the league of credit unions about this issue. I want this information on the record for the committee. However, if sections of the Acts are being applied unnecessarily and if members indicate that to me here, I am prepared to take their concerns on board and see what we can do on Report Stage to meet their concerns and those of the Irish League of Credit Unions. My perception is there is a misunderstanding of how various other pieces of financial legislation interact with the new Bill and this is giving rise to unnecessary concerns. We will tease our way through the issues.
If we can deal with that issue, it will help to smooth our proceedings because many of the subsequent amendments relate to the issue of the application of the full suite of financial services legislation to credit unions. The Minister has addressed this directly in his remarks and I welcome that. I also welcome his openness towards looking at the detail of this and his commitment to consult the Attorney General to examine whether the concerns of the movement can be taken into account without compromising the effect of the legislation. I accept the Minister's undertaking in the spirit offered.
As the Minister is aware, the league has given us a different interpretation. It has written directly to the Minister also. Its concern is that the structure and regulatory architecture that has been designed and developed for banking regulation and which does not distinguish between the different functions, roles and objectives that credit unions serve will now be applied to the credit unions. There is a concern that applying the full suite of Acts, from 1942 to 2011, will result in additional requirements with which credit unions must comply on the regulatory side and that these requirements do not take into account the distinctive nature of the movement and how it operates on the ground. That is the key concern. If the Minister is saying we will go through these issues and that he is open to considering them, I accept that.
The Irish League of Credit Unions and its representatives, including its manager, has had ongoing contact with the officials charged with developing this Bill and considering amendments. I am of the view the league is more satisfied with the position now than it was when the initial correspondence was entered into with Deputies from all sides. The league still has some concerns and I hope we can deal with those concerns as we go through the Bill.
For example, some people have suggested we delete the definition. I can give two examples of what the effect would be if we deleted the definition. First, section 18 inserts a new section, 55(A)(f) into the Credit Union Act 1997. This requires the Chairman to conduct a performance evaluation of all directors regarding their compliance with obligations under financial services legislation. Many credit unions are authorised under the European Communities payment services regulations 2009. A director of a credit union who fraudulently misappropriates users' funds under these regulations commits an offence. However, if these references were deleted in the Bill, that offence could not form part of that director's performance evaluation.
Second, section 15 of this Bill substitutes a new section 53(7) in the Credit Union Act 1997. Deleting this reference would mean the Bill would allow a retiring director to be eligible for re-election, even where to do this would result in a breach of another legal provision which already applies to the credit unions. For example, there are requirements on directors regarding fitness and competence under the Investment Intermediaries Act 1995, under which many credit unions hold an authorisation. The failure of a credit union director to meet these requirements would be grounds for an application to the High Court to remove the credit union's authorisation as an investment intermediary. Including the reference to an applicable requirement under financial services legislation means that credit union members can have confidence that the directors coming before them for re-election are not doing so in a way which would breach a legal requirement to which the credit union is already subject.
Some people have suggested we should include the phrase "where relevant or applicable" to provide for how these would apply. The approach used in the Bill has been subject to careful consideration and scrutiny by legal advisers of the Department of Finance, the Central Bank, the Office of the Attorney General and the Office of the Parliamentary Counsel. The wording has been chosen carefully to ensure that it serves its purpose as an interpretation provision, but no more than an interpretation provision. My officials have explored with the Office of the Attorney General where some additional wording might be used to clarify that these provisions are only to be interpreted where applicable or relevant. The change suggested would not alter the meaning or interpretation of these provisions. Furthermore, the use of the term financial services legislation throughout the Bill must be read in the context where it is already accompanied by a reference to applicable requirements. It is important that in adding any words for clarification purposes, the intent and meaning and purpose of the provision is not inadvertently compromised.
Another question which might arise might suggest we should just list the legislation that does apply. The Department has explored this option with the Office of the Attorney General and the assessment is that this approach would introduce unnecessary risks to the robustness of the provision and could result in a more limited application of the Bill than intended. The interconnectedness of financial services legislation is such that any inadvertent omission or misapplication of a particular provision could impede or prevent key sections of the Bill from applying in their intended form. Furthermore, this approach would not address the situation whereby credit unions operate in areas of business beyond the current statutory provisions that apply. Credit unions already typically hold authorisations under three or four regimes and any further authorised activity would fall outside of the definitions. Such avoidable risks need to be reviewed against the fact that no amendment to the meaning of the provisions is being sought.
I could provide more information on specific issues that have been raised, but committee members probably want to participate. I will come back in on this again.
Tús maith, leath na hoibre. I welcome the Minister's opening comments on this section of the Bill. My concerns relate more to the next group of amendments we will deal with, submitted by opposition groups, and amendment No. 3 is fundamental in that regard.
I listened to what the Minister had to say on this grouping. When his officials briefed my office on this grouping they explained the consequence of the Bill was to apply the existing legislation applicable to credit unions to the credit unions generally. I understand the enormous wealth of legislation that is in place since 1942. However, there is grave concern that this could be interpreted to include other legislation.
There would be unintended consequences if this were to be interpreted in a broader fashion. There is also the issue that future legislation could be interpreted to apply to the credit unions which may not be the intended cause. I welcome the Minister's comments that he is examining the issue and I understand he asked the Attorney General to examine wording to that effect. It is an issue about which the credit unions are passionate and is fundamental to the Bill. If it were to be interpreted in the broader fashion and yet was not discussed at the Commission on Credit Unions that is also relevant. On the basis that the Minister is examining wording for a possible Report Stage amendment I am satisfied, but I am laying down a marker that this needs to be amended. We all have the same objective to ensure that the legislation that is relevant to credit unions applies but no more than that.
Like other speakers, I welcome the acknowledgment by the Minister that these concerns need to be addressed and he is attempting to do so. That is vitally important for reasons on which we all agree. The credit unions were at pains to stress that they should not suffer the backlash as a result of the failures of other sectors of the financial services industry, the banking sector and so on, as we move to correctly regulate the banks and the financial services sector, whose reckless activities helped crash the economy, given that the sector has no responsibility for that crisis. The danger is that if the legislation is applied to them, they could be regulated in an inappropriate way that could undermine their fundamental ethos and character. It is vitally important that does not happen. As has been mentioned, they were alarmed that it was proposed that legislation that applies to the rest of the banking sector was to apply to credit unions given that it had not been discussed at the Commission on Credit Unions. I welcome the fact that the Minister will examine the issue. To allay concerns is it his intention to seek to amend the wording in conjunction with the Irish League of Credit Unions and on the basis of agreement with it. That is what should be done as it knows the sector best. Whatever amendments the Minister proposes to deal with these concerns should be in accord with its views and wishes.
I thank Deputies for their approach to the Bill.
I shall bring in one or two other speakers, Deputy O'Donnell and Deputy Heather Humphreys who is deputising for Deputy Michael McNamara.
I welcome the fact that the Minister will consider the issue for Report Stage. Clearly under the financial services legislation, certain sections apply to credit unions but equally there are sections from which credit unions are exempted. What is required of any amendment is clarity in respect of the same practices in any further legislation or statutory instrument that are introduced for credit unions. What is being sought is that practices that have been in operation would continue relative to credit unions in future legislation. Given that the Minister has already referred to an interpretation provision, perhaps clarity can be brought to the issue.
I acknowledge the fact that the Minister will examine the issue for Report Stage. It is important that there are no subsequent changes to the Central Bank Acts that would remove some of the exemptions that credit unions enjoy under those Acts and impact negatively on credit unions into the future. We need to be mindful of that.
I thank all Deputies for their approach to the Bill. It is important legislation. Even though we have all been very complimentary about the credit union movement it is also true that it did not escape unscathed from the collapse in the financial services industry consequent on the collapse of the construction and building industry. Some credit unions had moved away from their traditional areas of activity and some of the bigger credit unions were heavily involved in funding construction and development in a way that was unexpected. Deputies are aware of examples of that. There is quite a degree of impairment in the credit union movement. If the more than 400 credit unions were all branches of the same organisation there would be certain difficulties in them and one would have to distinguish one from the other. Members will be aware from the reports already published that there is a significant number of credit unions whose reserves are quite low and the Government has pledged to repair that situation through a variety of means. One of the reasons the Bill is proceeding as a matter of urgency is that the Government has committed to putting €250 million into an account to be used for the credit union movement and we need to get it in this calendar year, because it is in this year's accounts which is why we need to move it forward. There is pace attached to the way we are dealing with it. I do not know what the full impairment was, but the first shot was somewhere between €0.5 billion and €1 billion and I do not know whether it will reach that amount. That will not be known until people go into the credit unions and examine the situation. We have had only one example of that in Newbridge. Certainly that was a revealing exercise when the special manager went in there.
We want to treat the credit union movement fairly. We want to provide the capital that is required to repair the damaged credit unions and to provide a framework to enable ReBo, the new group, to do what is necessary to repair any damage the credit union movement has suffered in the course of the crisis. The purpose of the Bill is to ensure the credit union movement will be strong and the threats to its vitality and ongoing success will be removed and that there will be a framework in accordance with law within which it will operate.
I believe there is a misunderstanding. Given the ongoing contact between the credit union movement and my officials the ground has narrowed from the original communications. I would like to provide similar information in order that we can confine it to where there is a real difficulty rather than chasing hares that are not relevant. I will read another note which is in reply to the key question of how financial services legislation will apply to credit unions.
A key question is how financial services legislation will apply to credit unions. The Central Bank Acts have limited application to credit unions. My officials carried out a review of the Central Bank Acts and the Building Societies Act in assessing section 184 of the Credit Union Act of 1997. They found that only certain provisions would apply to credit unions. These include the following: the Irish Financial Services Appeals Tribunal, in Part VIIA of the Central Bank Act 1942; the Financial Services Ombudsman, in Part VIIB of the 1942 Act; and the administrative sanctions procedures, in Part IIIC of the 1942 Act.
Although currently applicable to credit unions in practice, the following provisions may also be caught by section 184 disapplication provision. In other words, the following are provisions that no longer apply: provisions relating to collection of regulatory levies in respect of which specific provision is made for credit unions, in Part IIIA of the 1942 Act; powers of the Registrar of Credit Unions for the purposes of supervising or regulating credit unions, in Part IIIA of the 1942 Act; and provisions empowering the bank to carry out studies, surveys and analysis with respect to the provision of financial services to consumers, including the power to compel the production of information for these purposes and to publish its findings in respect of same, insection 5(c), Part II of the 1942 Act.
The Department of Finance has identified a number of provisions in the Central Bank Acts and the Building Societies Act which directly apply to credit unions, in apparent conflict with section 184 of the Credit Union Act 1997 - for example, section 134 of the Central Bank Act 1989, which contains a direction-making power which permits the Minister, in consultation with the bank, to suspend certain business in the national interest. This direction-making power extends to licence holders and persons exempt from holding a licence under section 7(4) of the Central Bank Act, 1971, which includes credit unions. The Central Bank Act of 1971 mainly applies to licence holders, which does not include credit unions. Section 14(1) of the 1971 Act specifically refers to credit unions: Section 14 (1) specifically refers to credit unions and states they cannot use the word "bank" in their names. Therefore, the disapplication clause of the Central Bank Act 1971 causes an uncertainty as to whether this prohibition is enforceable against credit unions. Section 27 provides that persons shall not advertise for deposits or other repayable funds but there is an explicit exception provided for inter alia credit unions, which will be unaffected by the repeal of section 184.
Deputies can see that the detail is rather complex. We can supply the briefing notes on this if Deputies require them in advance of Report Stage. I would like to give Deputies as much information as possible to reduce the areas of misunderstanding so that we can concentrate on what, in the opinion of Deputies, might need to be amended.
I will summarise where we are as of now because this is a very substantive section, particularly as we go on to amendment No. 3. The general concern arising, as expressed by some committee members and by some representations made to the committee, is that some aspects of the Bill, and particularly the section we are discussing now, may have unintended consequences for the sector. One of the concerns in redressing that is that if there is an action of unintended consequence, the credit union - either individually or the movement as a whole - would have access to an appeals mechanism or process with regard to the regulator or the Central Bank. Is the Minister inclined towards to such a position as we move towards Report Stage or is he dealing with that conclusively this afternoon?
What I am trying to do is clarify the position so that we are not chasing hares due to a misunderstanding. Then, as we go through the amendments, I believe Deputies will be able to isolate genuine areas of concern. If I cannot explain them by way of misunderstanding, then we will look at their concerns for Report Stage.
Perhaps I am misunderstanding the position but I was under the impression that the Minister was going to look at this section, that is, the interpretation of the financial services legislation, to try to ensure that it has the intended consequences that he, his officials, the Opposition and the League of Credit Unions would share. Is there a set of words that can be included somewhere in the Bill that would ensure that there can be no broader interpretation so that the interpretation that is laid down of financial services legislation encapsulates all legislation post-1942? Can the Minister clarify that he and his Department are looking at a possibility - whether that arises or not - but that they are examining the potential of clarification to this Section so that it does not have unintended consequences?
Essentially we are looking at a wording that will ensure the credit union movement knows that the interpretation section applies to legislation which is applicable to the credit union movement. After giving Deputies the initial explanations in an attempt to narrow the ground, if we now look at amendments tabled by Deputy Doherty and others, we will refine the ground further, to see what is necessary.
Yes, but the Minister and his officials are looking at the section itself and at possible wordings. Is that correct?
Yes, but as I said, so that there is no misunderstanding about the interpretation section, that it only applies to legislation which is applicable to credit unions. It is not, by some subterfuge of a couple of words, trying to import legislation which does not apply. It is not that at all. It is just applying what is necessary to apply and then anything that is enacted here is a supplement to that.
Amendment put and declared carried
I move amendment No. 2:
In page 7, to delete line 9.
Amendment put and declared carried.
Amendments Nos. 3, 18, 25, 26, 34, 44, 47, 54, 58, 62, 64, 84, 101,108 and 110 to 112, inclusive, are related and may be discussed together by agreement. Amendment No. 26 is an alternative to amendment No. 25. Amendments Nos. 111 and 112 are alternatives to amendment No. 110.
I move amendment No. 3:
In page 7, to delete lines 31 to 37.
Essentially, all of the amendments in my name in this grouping flow directly from amendment No. 3. They all relate to the issue of the financial services legislation. If there is adequate wording in section 6 concerning financial services legislation and, in particular, on the application of the Central Bank legislation to credit unions, which makes it absolutely clear that provisions which were never intended to be applied to credit unions will not now apply to them, even if financial services legislation is specifically referred to later in the Bill, then I would be satisfied with that. All of the other amendments flow from that so if the overall principle is agreed in the definition of financial services legislation, namely that it only relates to where it explicitly refers to credit unions, than that will be sufficient.
This is the definition section. If Deputy McGrath's amendment goes through then everything else falls in the panel the Chairman read out because it is consequent on the definition. We will examine the definition between now and Report Stage to determine whether we can refine it to meet the objective Deputy McGrath has stated, but we will not delete it.
I am happy to withdraw amendment No. 3 but I wish to clarify my position. As a matter of principle I am keen for the definition of financial services legislation in section 6 to make clear that the application of legislation for credit unions relates to where there is explicit provision in the original legislation for it to apply to credit unions. Then all the other references later in the Bill to financial services legislation will only relate to where it is applicable. On that basis I am happy to withdraw amendment No. 3.
This amendment is in the name of three Deputies, mine included. The point has been made and on the basis of the assurance of the Minister I will not be pressing it and I am happy to withdraw it. We need to ensure there are no unintended consequences in this section. While the proposal from myself and the other Deputies is to delete the section, we have no wish to delete existing regulations that apply to the credit unions. That is not the intention. It is about bringing this issue forward. If the Minister can provide a formula of words on Report Stage I would be satisfied to accept that.
I have no wish for any misunderstanding. Is it the case that the three Deputies who signed the amendment seek a form of words which gives greater assurance that no new provisions will be introduced either by accident or design outside of what is applicable to credit unions already?
The Minister has acknowledged the concern raised by the Irish League of Credit Unions and Opposition Deputies. We take it that the Minister is on the job trying to deal with those concerns. The main point is that credit unions are not banks and should not be treated like banks in a way that could damage their essential character. As long as the Minister is committed to amending the legislation in such a way that regulation appropriate to banks is not applied to credit unions and such that the Irish League of Credit Unions is satisfied prior to Report Stage that this is the case, then we are all singing from the same hymn sheet and I hope we can all move together on this amendment.
Before we withdraw the amendment another series of amendments will be taken during this part of the debate. Amendments Nos. 26 and 25 are in the names of Deputies Boyd Barrett and Michael McGrath, respectively. The related amendments are to be discussed together. Are there any other comments or proposals with regard to this section and the related amendments?
As I understand it, all the other amendments are consequential on the definition amendment and therefore they rise and fall together.
Amendment, by leave, withdrawn.
I move amendment No. 4:
In page 8, line 22, to delete “ ‘officer’ in relation” and substitute “ ‘officer’, in relation”.
Amendment agreed to.
I move amendment No. 5:
In page 8, to delete lines 36 to 38.
Amendment agreed to.
I move amendment No. 6:
In page 9, between lines 4 and 5, to insert the following:
“ ‘principal Committee’, in relation to a credit union, means a credit committee, credit control committee or membership committee;”.
Amendment agreed to.
I move amendment No. 7:
In page 9, to delete lines 17 and 18.
Amendment agreed to.
I move amendment No. 8:
In page 9, between lines 30 and 31, to insert the following:
“ ‘strategic objectives’ has the meaning given by section 76A(1);”.
Amendment agreed to.
I move amendment No. 9:
In page 9, to delete line 32.
Amendment agreed to.
I move amendment No. 10:
In page 9, line 33, to delete “assistant’ in relation to” and substitute “assistant’, in relation to”.
Amendment agreed to.
Section 6, as amended, agreed to.
NEW SECTIONS
If amendment No. 11 is agreed then amendment No. 16 cannot be moved. Amendments Nos. 11 to 13, inclusive, and Nos. 15 to 17, inclusive, are related and may be discussed together. Amendment No. 16 is alternative to Amendment No. 11 and amendments Nos. 13, 15 and 17 are alternative to amendment No. 12.
I move amendment No. 11:
In page 9, before section 7, to insert the following new section:
“7.—Section 6 of the Principal Act is amended by the insertion of the following subsection after subsection (5):
“(6) Nothing in the foregoing will prevent a credit union from providing certain services, to be prescribed by the Bank, to a credit union or a member of another credit union registered under this Act.”.”.
Essentially this relates to the issues of shared services. While shared services are being provided for at the level of the credit union, the position of the Irish League of Credit Unions and individual credit unions which have approached me is that the Bill should enable shared services at the level of the individual member of the credit union. The key words in the amendment refer only to where it is prescribed by the Central Bank. Therefore, a control mechanism would be in place. It is not that a credit union can roll out services to be shared by members according their free will. It should be prescribed by the Central Bank. My understanding is that the 1997 Act does not allow members to access services. The issue is if credit unions are being allowed to share services, are we moving to a position whereby someone can avail of credit union services in one credit union while being a member of another credit union?
In respect of amendment No. 12, a credit union service organisation is an entity that facilitates the sharing of services. There are credit unions throughout the country doing this already. For example, there is a model in west Cork whereby a group of credit unions work together and share services. The amendment proposes that recognition should be given to a credit union services organisation as a mechanism for delivering the sharing of services.
Amendment No. 13 would give credit unions the power to lend to State-guaranteed projects. The purpose is to allow credit unions to fulfil the potential that we all agree they have to invest in projects with a social value, whether in the areas of health, education or employment. As proposed, the projects would be State-guaranteed and therefore a credit union would not be taking on any additional risk, an understandable concern for the regulator.
Amendments in my name in this section include amendments Nos. 13 and 15. Amendment No. 13 is also in the name of Deputy Michael McGrath and it deals with State-guaranteed projects. This was one of the issues the Irish League of Credit Unions presented to the committee when a deputation appeared at the pre-legislative scrutiny stage. It makes absolute sense. We are aware the Irish League of Credit Unions and credit unions throughout the State invest in projects and, like banks and financial institutions, they must invest in projects. They want to invest in State-guaranteed projects which would benefit the local community.
The ethos of credit unions is one of sharing profits with their members and developing local communities. Why can we not have an extension of that ethos to allow credit unions to invest in State guaranteed projects?
Last night I re-read a reply to a parliamentary question I asked about the public private partnership in eight schools, one of which is Coláiste Ailigh in Letterkenny. This is being bankrolled by Bank of Ireland. The bank, in which the State is a minority shareholder, will get a benefit from that. Why should a credit union not be allowed to invest in a State guaranteed project that would be of benefit to the local community?
Amendment No. 15 is similar to amendments submitted by other Deputies. The Bill needs to do more than deal with the regulation of credit union, although it is important that we have proper and robust regulation of them. It also needs to deal with the future development of the sector and with the movement's role in five, ten, 15 or 20 years time. Credit unions need to be able to share services at the member level. The report of the Commission on Credit Unions noted that international experience shows there is scope for improved collaboration and efficiency through shared services arrangements. The commission recommended that these should be facilitated in legislation for Irish credit unions.
This amendment, while not ruling out other shared services, lists a number of services in which credit unions should be able to participate. They include electronic transfer, automatic teller machines, debit card services and electronic fund services.
It is important that there be a clear pathway for the future development of the sector. When departmental officials briefed the committee on this issue they stated that nothing in the legislation prevented the provision of shared services. When we teased out the matter, however, it became clear that the type of shared services envisaged were back-end services such as administration and human resources. There is a clear distinction between back-end services and services at member level, such as electronic funds transfer. I need to be able to access my funds in Gweedore Credit Union whether I am in Gweedore or in Dublin. Banks are changing the way they deal with their members. We need to ensure that credit unions can keep up with them. If the Minister supports the idea of sharing member level services why can we not explicitly reference some of those services to ensure that nothing in other legislation can prevent this taking place?
Has there been any contact with the Irish Banking Federation regarding this section? Have approaches been made regarding allowing the credit union sector to move ahead in this direction?
I have listened to the proponents of the proposal and I have met officials of the credit union movement on this matter. They made a telling case which seems, in principle, to be quite reasonable. I would like to hear the Minister's response to the amendments and I hope he can look upon them in a favourable manner. If there are grounds for not accepting the amendments, I hope the Minister can tell us what they are.
There could be a simpler solution to the question of additional services. Credit unions could be allowed to provide debit cards. They are the way forward.
Are you referring to cards that have cash on account as opposed to credit cards?
A debit card would be used in a retail outlet, as opposed to getting cash from an ATM.
There would be cash in the account. The card is not a credit card.
No, it is not a credit card. There would be cash in the account. The Minister might look at amending SI 223 of 2004 which already allows the use of ATMs and electronic funds transfer. A simple solution would be to allow credit unions to provide debit cards by amending that statutory instrument. Section 2 of the Schedule to SI 223 of 2004 allows third party payments, "that is to say any service whereby a credit union member may arrange to have transferred to his or her account third party payments by way of electronic funds transfer or otherwise". A small enhancement to this was made in 2007 to allow members to transfer funds both to and from their accounts. We could look at this on Report Stage.
Chairman, does the group of amendments we are discussing include those tabled by myself?
No, Deputy. They are not listed.
I tabled amendments Nos. 16 and 17. Are those not being discussed?
I apologise. They are.
Should I move those?
The Deputy may move the amendments when we reach them chronologically, but we are discussing them now.
My amendments deal with the issues being discussed, but with a slightly different formulation. These are among the most important amendments being proposed by the Irish League of Credit Unions. When I discussed the proposals with representatives of the league they put it to me that we have had a catastrophic failure of the for-profit banking model. The credit unions are asking that the Bill, as recommended in the commission's report, should facilitate the promotion and expansion of an alternative financial services model that is not for profit and remove any impediment to the promotion and expansion of that alternative model. The case for doing that is overwhelming, given the failure of the for-profit model.
Here is a model that does not carry the guilt of crashing our economy and provides an alternative way of doing financial services that is democratic and socially focused. We should do everything in our power, given the current circumstances, to expand, develop and promote that model and remove any obstacle or impediment to its expansion. That is the essence of the amendments. Part of doing this is to allow credit unions to expand the range of financial services they make available to their members so that those services can be accessed everywhere in the country and the full range of services can be offered by credit unions to provide an alternative and a choice for people.
The fact that many for-profit banks are closing branches, particularly in small towns and rural areas, often means that a credit union is the only financial services outlet in an area. In that context, it is even more important that they be able to offer the full range of services to their members throughout the country and not be limited or impeded from doing that in any other way.
Deputy, I need to move you towards the amendments.
The amendment is exactly about shared services.
Please speak directly to the amendment if you can, Deputy. I have been a member of a credit union myself for 40 years. I could talk about it all day here. Please speak to the amendment.
I was speaking to the amendment, Chairman. What aspect of the amendment was I not speaking to?
I have read your amendment, Deputy. It refers to services.
Shared services.
Focus on that, please.
I do not understand the point, Chairman. I was talking about shared services, the capacity of credit unions to provide those shared services and removing impediments to their providing them.
That is precisely what they have asked for in their representations to me and in their discussions with me. I suspect this is also the case for other members.
It is very creditable that the credit unions say they wish to use some of their assets to promote social projects, social enterprise and other government projects which would be beneficial for the economy, would create employment and be beneficial in boosting demand in the economy. They want to be allowed to do this. However, because of certain restrictions on them they are having to send money abroad when what they would prefer to do is to invest money in this country for the promotion of employment and enterprise. They would prefer to be assisting the Government in its financial difficulties in trying to improve the economic lot of the country. These are very important amendments which we are proposing on behalf of the Irish League of Credit Unions and the Minister should accept them. They are very worthwhile and they will benefit not just the members of the credit unions but also the economy and the country.
It is worth examining what credit unions may do under the law as it currently stands because they may not be taking up the options available to them under current legislation.
The commission report into the credit unions notes that services may be shared in a number of ways, including the establishment of central credit unions, corporate credit unions, credit union service organisations, CUSO, or local alliances. Shared service arrangements are already in operation in the credit union area. For example, the credit union services co-operative limited or Irish League of Credit Unions own payments service, CUSO. The commission recommends that the establishment of such shared services arrangements should be facilitated by legislation where necessary. The Government agrees that the sharing of services offers credit unions an opportunity to benefit from economies of scale and allows them access to expertise which credit unions may not normally have the resources to engage. This may become increasingly important in the future, given the increased complexity and running costs which would be expected from a modernised regulatory framework and enhanced service offering. The Irish League of Credit Unions has accepted that there is no obstacle to establishing shared services arrangements at a credit union level. That is the first position.
I do not propose to accept the amendments on CUSOs as there is no need to provide for them in legislation. CUSOs are not regulated financial services providers and they do not require to be regulated as such by the Central Bank. The Bill already sets out provisions for outsourcing which will ensure that services can be shared safely. As Deputy Doherty said, that is the back-office range of services. They are enabled in law as it stands to do so and I would encourage them - as would the Central Bank - to do so.
It is not so much a case of shared services - known as shared branching. Shared services involve establishing an entity, usually a company or a co-operative, to provide certain back-office services to credit unions on a shared basis. This can reduce costs, enhance expertise and improve efficiency. I have outlined the commission's recommendations. There is no problem in doing this under the law as it stands. Deputy McGrath in the first instance and Deputy Boyd Barrett moved to deal with what is not shared services but rather is shared branching. Shared branching is a different concept; it involves credit unions providing front-of-house services, not back-shop services, to each other's members. This activity operates primarily in the US credit union system. Shared branching was not considered by the commission on credit unions and does not form part of its final report. In the public consultation process, shared branching was not a key issue in the submissions received from credit unions or other stakeholders, nor did it emerge from survey returns from credit unions.
In simple terms, shared branching would allow a credit union member to use the services of other credit unions as a customer - as do the banks. For this to work securely, a number of important provisions must be put in place. First, a settlement system would be needed and this is not in place at present. Otherwise, a person could withdraw his or her savings several times over from different credit unions without any safeguards to provide against this. Second, an underwriting process is needed to establish proper assessment of ability to repay a credit union issuing a loan on behalf of the member's home credit union. It will also need to be clear who would be responsible if the loan were to run into arrears; whether it would be the member's own credit union or the credit union which issued the loan. Third, an accompanying prudential framework would be needed to ensure, for example, that proper liquidity management practices are in place to guard against large unpredictable withdrawals at small credit unions that are connected to larger credit unions. Furthermore, shared branching raises fundamental questions about the common bond, notwithstanding the commission recommendation that the common bond remains unchanged.
However, the fact that shared branching operates apparently successfully in other jurisdictions indicates that this is worth exploring. It is not a decision to be made quickly as it would need an underpinning framework to be in place before we move in that direction. If it is the practice in America and if that is the direction in which the international credit union movement is moving then it should be explored but not in this legislation.
Perhaps the best way to provide what shared branching seeks to achieve - members being able to access their money - is with the use of debit cards, as Deputy Heather Humphreys suggested. The changes in the Bill to the additional services provisions on the attached savings will further support credit union debit cards.
I consider that it would be premature to enshrine shared branching in legislation in the absence of the supporting infrastructure and prudential framework, developed in consultation with all the relevant credit union stakeholders and the Central Bank. For that reason, I do not propose to accept amendment No. 7. However, there is merit in the debate. It is a space into which the credit unions may go in future but in the absence of the architecture to support this initiative and which I have described, it is premature to go there.
If Deputies wish to press the matter, I am happy to request the credit union advisory committee to examine and report on this issue, in consultation with stakeholders. If there is an appetite for it which did not come across in the submissions made to the commission, and if it can be done safely, I would be open to looking at it again.
Deputy Doherty spoke about the credit union moving into the space where investment in desirable community projects - especially those funded by the State or by local authorities - would be open to credit union investment. The commission report recommends that a formal process of engagement be established between the credit union representative bodies and the Government, to determine safe ways to invest collective credit union funds into community projects, employment initiatives and small co-operatives. I remain open to proposals from the credit union movement on this front. My Department is available to engage with credit union groups and other relevant players to explore what can be done in this area. There is nothing in law to prevent it. Primary legislation is not required in order to facilitate this. It is wise not to limit the scope for projects in this space by confining it to lending projects only.
I would like to hear more from the credit unions about the type of projects they have in mind and how they see this working, whether in the form of PPPs, as suggested by the Deputy, or otherwise. I emphasise that any such project would have to accord with the investment requirements of the Bill. Legislation is not required to enable them to move into the space as suggested by Deputy Doherty but in the working through of the projects, they would be required to comply with the investment requirements of the Bill.
The investments would not involve undue risk to members' savings. It is important to remember that the billions in cash held by credit unions belong to those who save with them. That money is callable on demand by savers; it is not spare money and cannot be used for double purposes. It cannot be callable on demand and invested in a PPP at the same time.
The second point is that the potential impact on credit unions, including on liquidity, must be assessed beforehand, as must their financial position. The third aspect is that the funds to be invested are those which are surplus to need and not immediately required. Deputies will accept that investment criteria are important. If a credit union approaches the Department or the Central Bank with an investment project, we will be open to considering it.
It is worth noting that section 44 of the Credit Union Act 1997 provides for a credit union to establish a dedicated fund for social and cultural purposes. Many credit unions use such funds to support local projects in their areas. Again, legislation is not required. However, there are so many credit unions that some of them are not aware of how they are already empowered to do certain things. I know members are in contact with their local credit unions and perhaps they might highlight this fact to them. Some credit unions are using the power available to them to establish dedicated funds for social and cultural purposes but others are not.
Given that no change in primary legislation is required to support this initiative, I do not propose to accept the relevant amendments. However, I invite credit unions to bring forward proposals they have in respect of this matter. I assure them that they will be assessed with an open mind.
Deputies Heather Humphreys and Billy Timmins referred to debit cards. I will be in a position to provide a comprehensive response to their concerns in this regard in the context of the next group of amendments.
The Minister described the proposal contained in amendment No. 11 as relating to shared branching. This is an objective it would be worth working towards. I accept that considerable work would have to be done in order to ensure adequate systems and safeguards would be put in place to ensure the system would work properly. The Minister's offer to refer the matter to the Credit Union Advisory Committee for further examination is acceptable.
We will do that.
On amendment No. 12, the Minister has made the point that there is no provision in statute to prevent the establishment of a credit union services organisation. I presume that, by extension, the scope of the work of any such organisation would not be limited in law. I accept the Minister's comments to the effect that explicitly listing the functions of credit union services organisations could actually narrow the scope of what these organisations can do.
Amendment No. 13 specifically relates to State-guaranteed projects. The Minister has made the point that there is nothing in law to prevent credit unions from engaging in this type of investment activity and indicated that he is open to considering proposals. I accept what he said in this regard.
I was quite surprised by the Minister's response to amendment No. 13. I accept what he said, but when representatives from the Irish League of Credit Unions came before us, they requested that the suggested amendment be made. I am sure Deputy Michael McGrath also received a copy of the amendment from the league. I understand some credit unions would not be aware of the existence of various funds and possibilities. I am of the impression, however, that the Irish League of Credit Unions is aware of their existence. The league has, for some reason, asked that this be explicitly mentioned in the legislation. I am sure it has been in contact with the officials and may even have been in direct contact with the Minister. If it is simply the case that there is no requirement for legislation and that provision is already made, that is fine and I will accept it at face value. I presume the Minister has an understanding of why the league requested that this change be made. Perhaps he might indicate whether he possesses such an understanding.
Amendment No. 15 is similar to amendments Nos. 12 and 17 and relates to shared services for members. I welcome the Minister's comments to the effect that this issue will be referred to the Credit Union Advisory Group for consideration. I regret that this has not happened up to now. The matter should have been dealt with in the context of the Bill. I am not sure what will be the interpretation of the credit union sector when we examine what the report has to say about shared services. Did it simply refer to back-end services? It must be noted that there may be a different interpretation of the latter. The Minister's stated intention is that we should seek advice on this matter. This should be done without delay and we should specify a timeframe for the delivery of such advice. If the advisory group's response is positive, the Minister should give a commitment to legislate in this matter.
I am concerned that a clear pathway is not being provided for the credit union movement. We met senior bank officials in recent times and are aware of the technological advancements being made within the banking system. All we are referring to in the context of amendment No. 15 is debit cards for credit union members. The reality is that in the light of the advancements to which I refer, people will not be using debit cards in the future, rather they will use their mobile phones to make financial transactions. Amendment No. 15 seeks to allow credit unions to establish shared services in respect of something which is probably going to be outdated in a number of years.
I impress on the Minister the urgency of what we are suggesting. I would have liked him to have accepted the amendment, with the proviso that the new section could not be commenced without a ministerial order. The latter would send a positive signal to the effect that this matter was under consideration and had been referred to the advisory group in order to discover how we might ensure the relevant protections, etc., would be put in place. As stated on Second Stage, we do not oppose the Bill, rather we want to strengthen it. However, there is concern, scepticism or whatever one wants to call it about the fact that the Bill veers very much to the side of regulation. That is important because we want robust regulation, but we also want a clear pathway for the credit union movement. Perhaps the Minister might consider this in tandem with referring the matter to the advisory group.
My amendments are similar to the others in the group. The Minister has indicated that there are three aspects to this matter, namely, the sharing of back office services, shared branching or front office services and credit unions being in a position to use their assets to invest in socially beneficial projects. I do not want to question anyone's bona fides in this regard, but will the Minister explain why the credit unions believe there is an impediment to having shared back office services? Is it simply the case that they do not understand that there is no such impediment? Has the Minister discussed the matter with the credit unions in the interests of everyone moving forward together and reaching an understanding that there is nothing to prevent the sharing of such services in the way they would like?
I am slightly more concerned about the Minister's response on the issue of front-office services. Obviously I will go back and talk to the credit unions but I would be interested to hear what further comment the Minister would make on this. I would hate to think that we were blocking the credit unions from expanding the number of services they can make available because, for example, it might not be to the liking of the for-profit banking sector.
I never said that.
I am throwing out that comment because the credit unions were keen to emphasise that they want to offer an alternative to the for-profit banking model and that their inability to offer shared front-office services in a number of areas is inhibiting them from developing, expanding and promoting that alternative model. The Minister said a settlement system between different credit unions was needed, that an underwriting service was required and that there were issues relating to loans being taken out and who was responsible for them. Those are all reasonable concerns. The infrastructure and safeguards for credit union members will need to be in place. However, the important point is that this Bill indicates that the Minister is in favour of facilitating the expansion of these services. He could easily insert wording into the Bill to indicate that - namely, that we want to move in that direction and to remove any impediment to doing so but that all of those safeguards would have to be put in place first. The relevant legislation that would govern the provision of such sharing of services in the for-profit banking sector would have to apply where appropriate and so on. It seems the credit unions are right to want to move in this direction and are disappointed the Bill has failed to do that. Perhaps it is difficult and complex to put that infrastructure in place. I do not know that and perhaps the Minister could enlighten me on whether it is very difficult to do so. I will be keen to hear what the credit unions have to say, but they have expressed disappointment in that regard. What they are asking for makes sense from the point of view of credit union members and with the aim of providing members of the public with a choice in terms of a different type of financial services.
On the issue of credit unions' ability to invest in socially beneficial projects that could help create employment and so on, the Minister said he was open to such suggestions. I am sure that is welcome, but he also seemed to sound a note of caution by saying that credit unions could not put funds in a place where the members would not be able to call their money back on demand. That is a reasonable point, but what the credit unions have said to me - and I have certainly heard this suggested - is that they would lend the money to the Government at a reasonably low interest rate and the State would guarantee a return on the money. They would rather lend money to the Government for projects that would stimulate employment and help the domestic economy than have to invest it outside the country, as is currently the case. I would be interested in the Minister's response to this. Sallynoggin Credit Union has written to me to say it is now restricted to having 25% of the total value of its investment portfolio deposited with any single institution. With fewer banks here now, that means it has to put its money in Bank of Ireland and Allied Irish Banks, and when it has reached the limit of the amount it is allowed put into any one institution, it is left with the rest of the money. There is nowhere to put it and it must invest it outside the country. It does not want to do that; it wants to invest the money here. The credit unions might be able to lend money to the Government at a reasonable interest rate with a guaranteed return, which means such an investment would pose no danger for their members in that they would know their money was safe.
While I am anxious to have an inclusive debate, the Deputy has made the same point about investments three times in his contribution. He will have to be more concise and to summarise, because I have a good deal to get through here. I want to get everybody's opinion but if the Deputy is being repetitious in the discourse, I will have to pull up him up. He is repeating himself.
I must object in the strongest terms. I did not make that point previously.
The Deputy should check the record. He has said it three times.
No. I did not make any point about money being lent to the Government.
The Deputy spoke about not-for-profit lending and the-----
No. In my initial contribution I did not make any reference to-----
The Deputy made the same point three times in his second contribution.
No, I did not.
Okay. The Deputy did, but I ask him to move on.
I was speaking in response to the Minister's answer and refining the point because he said there was an impediment to this.
I ask the Deputy to move on because I have other speakers to bring in.
I note the Chairman has cut across me twice in a way he has not cut across any other speaker.
Yes, I have, because other members are more measured in their contributions to this debate. Has the Deputy concluded?
I have made my points.
I welcome the Minister's points on shared branches and his commitment that if the necessary framework were put in place or if a submission were made by the League of Credit Unions he would examine it in a positive manner. I have to support the Chairman in dealing with my colleague on my left.
Thank you.
It is worth recalling the intention of the Government in this regard. The financial services industry in Ireland has come through a major crisis and every institution involved has been damaged, including the credit union movement. The Government wants to ensure that the credit union movement is restored in health and reputation and that it carries out the functions it originally carried out. We are prepared to have a legislative framework within which credit unions operate and we are prepared to use a great deal of taxpayers' money in ensuring they are properly provisioned and, in particular, that those credit unions whose reserves are depleted are restored to good financial health. Then we want to position them in order that when they are restored to health they can expand their services in the future, but we do not want to push it too far in the first instance. I have outlined the reason it would be difficult currently for credit unions to provide the kind of front-of-house services that Deputies have suggested: the underlying architecture is not there to do that with safety. Our first principle must be to protect the savings of the people who put their money into the credit unions. If we go into shared services at front-of-house there is a risk. There is no inhibition in law - the credit union movement knows this - to sharing back-office operations. It is fully aware of that and we will encourage it to do so. When it comes to discussing whether credit unions should come together, we will certainly encourage the use of shared services and back-office operations. As to whether I would be prepared to move forward in this regard, I would like to see this bedded down first and if the credit union movement, or the stronger credit unions out of the totality of credit unions, brought forward a scheme to provide front-of-house operations, we would look at that on its merits, but at present I am not going to give a commitment to that for reasons of prudence but also because, as finance Minister, I am not the only entity involved in this. The Central Bank has a serious role in the how the credit unions operate.
This brings me back to Deputy Doherty's question on what might be the basis of a misunderstanding with regard to the difference between what I am saying and how the credit unions briefed him.
It possibly arises from section 12(3) where it states: "For the purposes of subsection (2)(a) the Bank may prescribe investments in which a credit union may invest its funds. In prescribing matters for the purposes of subsection (2), the Bank may also prescribe other matters in relation to prescribed investments, including any of the following:". The concern is with the first clause, (a), of subsection (2), which specifies the classes of investments the credit union may invest in. What the credit unions want is a specific inclusion there that they can invest in State projects, local government projects or PPPs. The Bill is vesting that decision in the Central Bank. I do not know what the Central Bank’s intention might be but it is its function under the Act to decide on the classes of investment.
The section continues to outline the other measures. The Deputy can read it himself. The bank cannot act unilaterally or in an arbitrary way. Under law it has to consult the credit unions before they prescribe the classes. It is up to the credit unions to make the case. If one large credit union wants to be involved in a PPP and it has the resources to do it, and it is not money on-call – it is surplus money – I do not see why the Central Bank would not allow it to do that. The Central Bank will be the actor, but not arbitrarily. It will have to consult with the credit union movement before the bank outlines a schedule of classes of investment that would be appropriate for the credit union movement. That is the basis for the misunderstanding. That is the space we are in.
In response to Deputy Boyd Barrett’s question, the primary purpose is to protect the investor. We must protect the savings of the 2 million plus people who claim to be members of the credit union movement. That is the primary purpose of everything we are doing, while at the same time freeing up the credit union movement to carry out additional services, but those which would not put the savings of their members at risk. The Deputy referred to the for-profit sections and the banks but the credit unions do pay a dividend and their members are shareholders. They do not operate on the basis that they want to lose money. They work on the basis of profit as well and they distribute their profits to their shareholders. We should not forget that. That is the model.
In terms of the services to members, I take it the Minister will not accept the amendment but he has gone some way towards it in terms of the advisory group. We will not rush matters. There is much to discuss, but it is urgent that we ensure the process will begin as quickly as possible. The Minister must ensure that it does not go on and on.
To be precise, if they want to take up the offer of speaking to the advisory committee and then to move on as the situation evolves, I do not have an objection in principle to that, but as I said, the Central Bank is a key player in the process as well.
I appreciate that. I also appreciate the clarification on credit unions investing in State-guaranteed funds and the Minister’s assessment of the misinterpretation. However, the problem is that responsibility lies with the Central Bank. I do not understand why we would not explicitly, as the credit union movement want, write it into the Bill that there is one type of investment that credit unions may invest in. I do not say “shall”, “will” or “are compelled to” invest in, especially given the circumstances in which the Minister finds himself. He knows it better than most that it is difficult to get institutions to invest in projects in this country and the State does not have the money itself for projects. I would like to push the issue but if the Minister is open to looking at it then I will not do so.
I do not have a problem in that regard. There are prudential reasons the Central Bank should be involved. I do not want any credit union to get involved in an investment which is a dud, as some of them did in the past whereby they lost a great deal of money. I do not wish to name credit unions but the Deputy will be aware of the ones I am talking about. We must ensure that there is an authorisation process. The public investments are safer than some of the private investments. Therefore, on prudential grounds I do not see a reason to prevent such investments. I am not averse to making an amendment to section 12(3) if it gives assurances to the credit union movement. We will examine the matter and consult with the Attorney General. Off the top of my head I am inclined to say that classes of investment could be both private and public. Just that much would probably give the Deputy what he needs but I am not sure what the implications of that suggestion would be until I consult with the Attorney General and get my officials to examine it. We will examine the matter with a view to seeing whether we can meet the point.
I will not labour the point but I disagree with the Minister that credit unions and banks operate according to precisely the same principles.
I never said that.
The Minister made a comparison.
I never said that.
Okay. The Minister made a comparison and it sounded a bit like that.
The Deputy should listen to what I say.
The Minister implied that the members’ dividend in the credit union was the same as a shareholding in banks in that they were both based on profit.
I was making the point that credit unions are not-----
We will agree to differ. We will leave it at that. Of course it is reasonable and correct that the Minister would want to ensure the safety of the deposits and savings of credit union members. I gather from his response that he is willing to consider any reasonable proposal that would both do that but also meet the objective of the credit unions, which could allow funds they have, which currently they are just putting in the banks, but which they would rather put elsewhere into purposes that might be beneficial to the Minister and the country’s interests. I hope he will examine the options. It seems a reasonable and credible aspiration on the part of credit unions and it should be examined.
Deputy Boyd Barrett excoriates the banks. That is a point of view. Then he criticises the legislation because it does not allow the credit unions to load all their money into the banks which he excoriates.
It is precisely the opposite point that I am making.
No, the point the Deputy made is that under direction from the Central Bank the credit union movement must limit the amount of money it invests in any one bank. That is forcing them to put their money in banks abroad, which is not to the benefit of the Irish economy. The reason the Central Bank did that was because it wanted to protect the savings of credit unions. It shared the doubts Deputy Boyd Barrett has about the banking system at a particular time because nobody wants to put millions of shareholder funds into banks that might go bust. That was the history of it.
Could I say to the Minister-----
Deputy Boyd Barrett should wait until I finish the point because he pushed it strongly.
I did not finish my point.
The Central Bank did it for prudential reasons. The Deputy casts all sorts of doubts about the banking system and then he says that people’s savings in credit unions should be invested without limit into the banks. The banks are solvent now and they are absolutely solid. In view of the guarantee they have full protection for the savings of individuals but the guarantee under law until recently only extends to €100,000. The reason for the restriction by the Central Bank was to protect the assets of the credit union movement.
First, I am acting simply as a conduit for points that were raised by the Irish League of Credit Unions.
The Deputy is not a delegate; he was elected to be a Member of Parliament.
The credit union movement put a very convincing argument. I do see myself as a delegate of movements outside of this Parliament that I admire and see as offering a useful model for how we can do things better. The point I make is precisely the opposite to what the Minister suggested.
The credit union movement is frustrated that the regulations are such that the deposits it has cannot be used to benefit the community, employment and society as a whole and must be deposited in for-profit banks both here and abroad. The representatives of the movement said this. The movement would like to be able to enter into an arrangement with the Government so that the funds could be used to benefit the community and economy and enhance employment prospects. That is the point.
It is not.
What is the position if a credit union invests a substantial amount of its money in a PPP and its members then seek that money?
They cannot invest money that is on call. One of the finest features of the credit union movement is that one can, under law, withdraw one's savings any day. We are talking about surplus funds. The reason there are surplus funds is because such funds are not on call for members or being invested in the kind of projects to which the Deputy refers. This is why there are reserves to put in the banks overseas. Under law, there is nothing to stop credit unions from investing in their local communities, cultural or small business activities, etc. It is because the credit unions chose for prudential reasons not to make such investments that they have spare money that they are putting on deposit. However, the Central Bank has an obligation, based on knowledge of the banking system, to ensure money is spread around. It was a question of spreading risk at a time when there were serious doubts about banks everywhere. Now the fiscal climate has settled again.
There are still serious doubts about banks everywhere.
In that case, why does the Deputy encourage the credit union movement?
I have indulged the Minister and Deputy Boyd Barrett enough and will drive on.
I have two points to make. I welcome the fact that the Minister, under section 12(3), will consider offering some flexibility in the areas in which investments can take place. It is often forgotten that credit unions had a dual problem. Some invested in perpetual bonds that they should never have gone near. Clearly, there was a problem with regulation at the time.
The Minister spoke about front-office and back-office arrangements. I understand that in respect of the back office, it is possible to move in the direction stipulated. I welcome the fact that we want functioning banks but the credit unions need to be in a position to pay a dividend to their members. Many of them are not doing so. Therefore, the balance sheets must be firmed up such that the credit unions can compete in a very competitive market and start to pay dividends. Credit unions are different from banks in that they are basically paying back the surplus to their members. There is a subtle but important distinction. For the credit unions to be able to compete in this age, they ought to have debit cards and ATMs.
We covered that extensively.
What is the view of the Minister on that?
I will not allow that as this has been dealt with. There are more than 100 amendments and I will not ask the Minister to reiterate comments. They will be on the record.
Amendment, by leave, withdrawn.
I move amendment No. 12:
In page 9, before section 7, to insert the following new section:
"7.—The Principal Act is amended by the insertion of the following new section:
"26A.—(1) A credit union may promote, invest in, loan to, and/or contract with a credit union service organisation approved by the Bank (on such terms as the bank consider appropriate) and engaged in activities and services of the credit union service organisation related to the routine daily operations of credit unions.
(2) Credit union services organisation activities or services may include but are not limited to the following:
(a) clerical, professional and management services:
(i) accounting services;
(ii) internal audits for credit unions;
(iii) credit union risk and compliance;
(iv) management and personnel training and support;
(v) marketing services;
(vi) research services;
(vii) procurement related services;
(viii) debt collection services;
(b) electronic transaction services:
(i) automated teller machine (ATM) services;
(ii) debit card services;
(iii) electronic fund transfer (EFT) services.".".
Amendment, by leave, withdrawn.
I move amendment No. 13:
In page 9, before section 7, to insert the following new section:
"7.—Section 6(2) of the Principal Act is amended by the insertion of the following paragraph after paragraph (g):
"(h) a credit union may lend to state guaranteed projects which are in keeping with the objects for which credit unions are formed as stated in this section,".".
Amendment, by leave, withdrawn
I move amendment No. 14:
In page 9, before section 7, to insert the following new section:
"7.—Credit unions shall be permitted to operate electronically enabled payment accounts.".
Deputy O'Donnell will be pleased to know this is about debit cards. It provides for explicit recognition and permission for credit unions to operate electronically enabled payment accounts. Many of the larger credit unions, as the Minister will know, operate accounts that share all the features of a bank account. They can be viewed electronically, and direct debits and standing orders are permitted. Some credit unions have ATMs, for example, but apparently they cannot put a debit card arrangement in place. I know one in Cork where certain members had a debit card but it was subsequently withdrawn on the instruction of the Central Bank. I ask the Minister to address this issue. I agree with the point made by Deputy Doherty that technology is moving so quickly that if we do not at least allow credit unions to operate a debit card system, they could be left behind.
I ask the Minister to give us his views on this.
There is no legislative obstacle to the provision of electronically enabled payment accounts. Therefore, the amendment is not needed. Almost 70 credit unions already provide such accounts and have been doing so for many years, including for a wide range of services, which include a wide range of social welfare payments. Credit unions already have a variety of EFT capacity providers. The obstacle is not in legislation but concerns the broader capacity of credit unions generally to offer these services securely. Credit unions already offer ATM cards, and there are a number of changes in the Bill that will make debit cards more available.
The debit card is a new service. For credit unions to offer the service, they must apply to the Central Bank. The current difficulty is that some shareholders in the credit unions have their shares attached to loans. If shares and savings are attached to loans and one has a debit card, one could be removing collateral underpinning those loans. There are provisions in other sections of the Bill that change that. There are also provisions that simplify the manner in which credit unions will apply for new services. Capacity in this regard has been vested in the new boards.
With the changes in this Bill, it will be possible for individual credit unions to apply to offer debit cards. The Deputy is correct that technology is evolving and we should make provision, where prudent, to allow people to move with the times. We are doing so in the Bill.
Under the Bill, will credit unions have to apply individually to the Central Bank for permission to operate a debit card system?
Under the law already, credit unions must apply to the Central Bank for permission to offer new services. A debit card service comprises a new service. The reason credit unions did not apply in the past is twofold. The application procedure was a little complex. In addition, savings underpinned loans quite frequently in the credit union movement. One could not allow somebody with a debit card to take away the collateral underpinning a loan. This has been solved in this Bill. The application procedure to the bank will be vested in the boards. The board will make a decision on the application. Once the Bill is enacted, it should be possible under the two headings for credit unions to provide debit card facilities if they see fit.
May I ask the Minister a question?
Just before the Deputy does so, I know of some substantial credit unions in the Cork city region that certainly would be able to operate such a service. At present however, they have in place a separation of accounts. One may have a loan account against which one has savings held and which are locked into that but one may also have a budget account or a savings account that is separate from that loan account and to which the debit card would be working. What is the presentable difficulty? If the credit unions can state, in respect of credit union members, that such a card is only applicable to money they can withdraw on call and is not attached to their saving accounts, what is the difficulty?
That is what the Bill is doing now.
Will the Bill rectify this issue?
The Bill will solve the problem the Chair has just outlined.
I mentioned technology and so on but I believe it should be standard that all credit unions should be able to avail of a debit card facility. I acknowledge they may not reach the criteria and so on. Excuse my ignorance in this regard but were I a credit union member or director, is it clear what standard or requirement I must reach or what boxes must I tick within my credit union to be able to satisfy the Central Bank in order to be able to have this new debit card service? Are the provisions in black and white?
It will be clear on enactment of the legislation.
There will be no interpretation on the part of the Central Bank in this regard. Essentially, one will reach the requirement of putting in place this, that or the other and once those boxes are ticked, one will be automatically entitled to do so.
While the Bill does not go into that level of detail, in its role generally, the Central Bank is very interested in moving people forward to use the latest technology and this also would apply to credit unions.
Without repeating my earlier comments, will the Minister consider on Report Stage the tagging of this provision onto the statutory instrument of 2004 that allowed the use of automated teller machines, ATMs, and electronic fund transfers, EFTs? The aforementioned legislation could be amended to the effect that the rules and regulations covering the use of ATMs and such cards also would apply to debit cards. While I do not know whether this is possible, perhaps it would be worth considering.
While I will consider the Deputy's suggestion, it probably would be better to do it under the new system. However, I will revert to the issue on Report Stage and will ascertain whether it can be facilitated in a less complicated matter.
That is good. I thank the Minister.
On that basis, I will withdraw the amendment.
Is that agreed?
May I contribute briefly at this point?
The Deputy should be brief.
As the credit unions must apply for this facility, will guidelines be issued by the Central Bank as to how they may apply? As for the debit cards themselves, could a situation arise in which some credit unions will qualify while others will not? I seek a level of practical detail on how this facility will operate. Will someone who has a debit card from a credit union in Limerick be able to use that card when shopping in Dublin? One major issue for the credit union movement at present is that as many credit unions are not paying a dividend, they are finding it difficult to attract deposits. Given this is the electronic age, I greatly welcome the placing on record of the point that the issue of ATMs and debit cards is progressing as a reality for credit unions. However, I seek practical details on how it will come into effect.
It will be an amendment to section 48(1) of the Principal Act of 1997 and it states: "Subject to the following provisions of this Part, a credit union may provide, as principle or agent, additional services of a description that appears to the credit union and to the Bank, to be of mutual benefit to its members." The amendments are listed in the Schedule to the Bill and this general provision is at page 82. Underneath this provision, one can see the consequentials. While I believe it should work, I will re-examine it to ascertain whether the bank should be empowered under the regulatory provision and whether this should be more precise. However, I do not think so. For example, section 48(2) of the 1997 Act will now include the provision that "regulations made by the Bank for the purposes of paragraph (b) may make the exclusion of any services from being additional services conditional on compliance with such conditions". While I will look at this again, I think it is okay and does what is necessary.
Amendment, by leave, withdrawn.
I move amendment No. 15:
In page 9, before section 7, to insert the following new section:
“7.—The Principal Act is amended by the insertion of the following new section after section 26:
“26A.—(1) A credit union may promote, invest in, loan to, and/or contract with a credit union service organisation approved by the Bank (on such terms as the bank consider appropriate) and engaged in activities and services of the credit union service organisation related to the routine daily operations of credit unions.
(2) Nothing in this section or the following provisions of this Part affects the operation of any enactment which is not contained in this Act and which, in whole or in part, relates to the provision of credit union service organisation activities or services.
(3) Credit union services organisation activities or services may include but are not limited to the following:
(a) clerical, professional and management services:
(i) accounting services;
(ii) internal audits for credit unions;
(iii) credit union risk and compliance;
(iv) management and personnel training and support;
(v) marketing services;
(vi) research services;
(vii) procurement related services;
(viii) debt collection services;
(b) electronic transaction services:
(i) automated teller machine (ATM) services;
(ii) debit card services;
(iii) electronic fund transfer (EFT) services.”.
Amendment, by leave, withdrawn.
I move amendment No. 16:
In page 9, before section 7, to insert the following new section:
“7.—The Principal Act is amended by inserting the following subsections after section 6(5):
“(6) A credit union may lend to a State guaranteed project which is in keeping with the objects for which credit unions are formed as stated in this section.
(7) Notwithstanding the provisions of this section, nothing in the foregoing shall prevent a credit union from providing certain services, to be prescribed by the Bank, to a credit union or a member of another credit union registered under this Act.”.”.
Amendment, by leave, withdrawn.
Section 7 agreed to.
NEW SECTION
I move amendment No. 17:
In page 11, before section 8, to insert the following new section:
“8.—The Principal Act is amended by inserting the following subsections after section 26(1):
“(1A) In this subsection ‘CUSO’ means a credit union service organization which has been approved by the Bank according to criteria set out by the Bank and which is engaged in activities and services related to the routine daily operations of credit unions.
(1B) A credit union may promote, invest in, loan to, and or contract with a CUSO.
(1C) CUSO activities or services may include but are not limited to:
(a) clerical, professional and management services:
(i) accounting services;
(ii) internal audits for credit unions;
(iii) credit union risk and compliance;
(iv) management and personnel training and support;
(v) marketing services;
(vi) research services;
(vii) procurement related services; and
(viii) debt collection services;
(b) electronic transaction services:
(i) automated teller machine services;
(ii) debit card services; and
(iii) electronic fund transfer services.
(1D) The Bank may make regulations to amend or extend the services and activities set out in subsection (3) provided that such amendment or extension is in accordance with the terms of this Act.”.”.
Amendment, by leave, withdrawn.
Section 8 agreed to.
SECTION 9
I move amendment No. 18:
In page 11, lines 35 to 37, to delete all words from and including “and” in line 35 down to and including “legislation” in line 37.
Amendment, by leave, withdrawn.
Section 9 agreed to.
Section 10 agreed to.
SECTION 11
I move amendment No. 19:
In page 13, line 15, after “union.” to insert the following:
“Where that credit union can demonstrate the underwriting expertise to enable such lending, and subject to section 35(3), the Central Bank of Ireland will extend the Common Bond on application from a credit union to include social lending or forms of business lending.”.
The Chair should let me know if the content of this amendment already has been discussed in my absence.
No, we are coming fresh to it.
The issue for me in this regard pertains to microfinance. The Credit Guarantee Act and the microenterprise loan fund exclude credit unions from participation. My understanding from credit union representatives to whom I spoke is that while they can make loans for personal reasons, whatever they may be, they are prohibited from making loans for business purposes. I am taking that from them and if that is correct, this amendment seeks to reverse that position. Before I get into the reasons for so doing, perhaps the Minister will confirm whether we have the same understanding that credit unions are prohibited from making small loans for enterprise.
Yes, after consulting, I have been informed that a tiering of the credit union movement is envisaged, in which the larger top tier would be allowed to make the kind of lending suggested by the Deputy but the smaller ones would not.
Perhaps we can examine this issue a little further. I spent some time working with the World Council of Credit Unions looking specifically at microsavings and microfinance in some extremely disadvantaged parts of the world. I have carried out work in respect of microfinance, which is incredibly powerful. It appears to me as though we have a market failure at present whereby the banks are not lending as much as one certainly would wish to viable businesses. There appears to be a huge opportunity at present in terms of entrepreneurship, job creation and economic recovery for microfinance for quite small but targeted loans. I am not convinced the banks are set up well to do this kind of thing and even if they were, I am not convinced they would be doing it.
It seems to me that the credit union movement at all tiers would be potentially a useful way of getting microfinance moving. I am delighted the Minister will do this for the top tier. Will he consider moving it to the other tiers? Will he explain the rationale behind why it is only at the top tier?
Microfinance has a very precise definition. However, I do not see anything inhibiting credit unions from providing funding to small businesses in their own communities, if the definition of "microfinance" extends to that. As far as I know, they do it quite regularly, like putting money into small shops, businesses and start-ups. I would encourage them to continue to do so.
I agree with the Deputy's analysis. In the situation we are in, the quality of the spend is as important, if not more, than the quantity. Small amounts of money put into the right place can have great results. There is nothing from stopping the credit unions, large or small, from doing so.
Why is it then, that the top tier will be allowed to do this but the lower tiers will not?
It is due to more complex lending at a large scale. This is not about lending to the local start-up, the local shop or a business that wants to put on an extension.
Is this a loan limit issue for the top tier?
For tier 1 credit unions, lending advice states the maximum loan amount in excess of shares is to be specified, a maximum loan term of five years is in place and there is no business lending. A tier 2 credit union can give limited business lending while tier 3 is less restrictive business lending than tier 2 credit unions. This has been specified by the registrar of credit unions. Basically, there is no business lending for small credit unions while the middle range can engage in limited business lending and the larger ones have less restricted business lending. This will be further enunciated when the Bill is enacted.
In that case, will the Minister consider loosening restrictions for tier 1 and 2 credit unions? Regarding the rule about no business lending for a credit union with capital reserves under €10 million, from my experience with microfinance in the US and not just the developing world, operations with less than €10 million in reserves can be good at providing microfinance. More so than large financial institutions, they understand the lender, the context and the community. My knowledge of microfinance globally suggests it would be a missed opportunity for tier 1. Will the Minister and his team consider this and then we can examine what limited business lending means? I take it this needs to be defined.
Yes, it does. There is also provision that a credit union in a particular tier may apply to be enabled to conduct the activities in the tier above it. There is provision for a tier 1 credit union to apply to have its exclusion removed in certain circumstances. I will have a look at the Deputy's suggestions.
I would have thought that it was a matter of limiting the amount of business loans that a tier 1 credit union can give. Would a business seeking a €10,000 loan get it from a tier 1 or a tier 2 credit union?
Tier 1 credit unions, as a matter of practice, will only be enabled to lend for personal loans. Tier 2 can lend to small business while tier 3 can lend to larger businesses. As a safety net under that, there is an application mechanism where a tier 1 credit union could be allowed to lend for business purposes but it would not be the general practice.
Amendment, by leave, withdrawn
I move amendment No. 20:
In page 14, subsection (2), line 30, to delete "catagories" and substitute "categories".
Amendment agreed to.
Section 11, as amended, agreed to
SECTION 12
I move amendment No. 21:
In page 15, line 22, to delete "subsection (2)(a)" and substitute "subsection (2)(c)".
Amendment agreed to.
I move amendment No. 22:
In page 16, line 5, to delete "catagory or catagories" and substitute "category or categories".
Amendment agreed to.
Question proposed: "That section 12, as amended, stand part of the Bill."
The issue of perpetual bonds was a significant issue for credit unions with many of them running into enormous difficulties with major losses through investing in them over the past several years. Under existing legislation, are they prohibited from investing in these types of bonds now?
This section gives effect to recommendations of the report of the Commission on Credit Unions relating to investments, chapters 10.3.22 to 10.3.24, inclusive. It substitutes a new section 43 of the 1997 Act which outlines the overriding principles with which a credit union must comply in managing its investments, including the need to avoid undue risk to members' savings as well as the need to consider the impact on liquidity and the financial position of the credit union. This section also provides that the Central Bank may prescribe certain investments in which credit unions may invest funds which are surplus to operating requirements and not immediately required by the credit union. The Central Bank may preserve ancillary matters concerning these investments including the classes and quality of investments, the maximum amounts in which the credit unions may invest and the distribution policy to be applied to any investment income. The Central Bank may also make regulations for the distribution policy of any investment income. The Central Bank would not allow investment in a particular high-risk instrument such as that referred to by the Deputy.
Question put and agreed to.
As it is 4 o'clock and we agreed to take a sos, I propose that we suspend for 20 minutes rather than going into another section or another amendment. Is that agreed? Agreed.
Sitting suspended at 4 p.m. and resumed at 4.30 p.m.
SECTION 13
I move amendment No. 23:
In page 18, between lines 4 and 5, to insert the following:
“(10) The Government will support, in the interest of financial inclusion, the broadening of the existing payments infrastructure (including ATM networks) based on fair and cost effective measures to facilitate access by credit unions to these networks.”.
I understand this issue has already been dealt with. I apologise for not being here but I had to be in the Dáil Chamber. I understand the Minister has agreed to investigate the issue of ATMs, etc. I ask him to confirm this.
The issue of the ATMs has been discussed but this is a slightly different amendment. It is tabled under section 13 but it is in fact alien to that section, which deals with reserves. I will deal with the substance of the amendment, however.
Credit unions already have access to payments infrastructure through providers such as Bank of Ireland, AIB and BNP. The Irish League of Credit Unions is seeking to enter this market on a commercial basis through its credit union service organisations for payments, CUSOP, project. The latest reports of the league set out the details of the project, which would require authorisation from the Central Bank. This is a commercial project and credit unions will have to decide for themselves whether to get involved. I do not propose to accept the amendment as it could be misinterpreted as a statement of support from the Government for one potential service provider in the commercial market.
It is not a question of electronic banking because credit unions can already provide such services and several credit unions operate ATMs. Our earlier discussion focused on how the Bill will assist credit unions in offering debit cards as part of their services. This is a wider issue relating to the Irish League of Credit Unions getting involved in an area of banking and seeking support for its activities.
When I teased this amendment out with the ILCU in order to understand what it was trying to achieve, it expressed concern that it would be priced out of the market by the pillar banks acting in a duopolistic manner. While they may technically be able to access these services, the providers would keep them out on cost. I consider the most relevant aspect of the amendment to be the phrase "cost effective". Perhaps the amendment does not belong in the legislation but I would welcome an assurance from the Minister that he will keep an eye on this area to ensure the small number of banks that remain do not act as a duopoly in order to price the credit unions out of these services.
They have to undergo a Central Bank application process. It is not a matter for the Minister; it is for the bank and others in the sector who may like to provide similar services. These services are commercial in nature. I am not opposed to the ILCU's plans and I wish it with them well but they are not within my area of responsibility. I do not want to inhibit the project from proceeding, nor do I want to endorse it, in case I could be interpreted as interfering in a business matter.
I understand that. Perhaps it is in the Minister's remit to keep an eye on the banks we partly control to ensure they do not act in an anti-competitive manner. The amendment probably does not belong in the legislation but it would be a key factor for the Department to monitor.
I will keep a look out for any evidence that may emerge to suggest that is happening.
Amendment, by leave, withdrawn.
Section 13 agreed to.
Section 14 agreed to.
SECTION 15
I move amendment No. 24:
In page 19, line 16, to delete “third” and substitute “fifth”
The term of three years seems unbalanced. In the public sector seven years are the norm. For example, the term for Secretaries General is seven years. I increased the period to five years to find a happy medium between the pressure for three years and the norm of seven years. I agree with the principle of limiting terms because any voluntary organisation is open to capture. Even party political selection committees can see people arrive at meetings who were never seen before in order to ensure the selection of a particular candidate. From my own experience with voluntary organisations, it can be incredibly difficult to find suitable people for these jobs. This may not be as much of a problem for some of the larger tier 3 credit unions but it will become unnecessarily difficult for smaller credit unions to recruit the right people who can invest the time needed to understand their role and the idiosyncrasies of their organisation.
I will begin the debate on the governance area by setting out the briefing note for the section. Section 15 implements a number of the recommendations set out in chapter 11 of the commission's report, while also retaining certain measures provided for in section 53 of the Credit Union Act 1997. This section substitutes a new section 53 of the 1997 Act which provides that credit unions should have boards of directors with responsibility for the general control and management of the credit union. It also sets out the composition of the board of directors, the method of election of members of the board, their term of office and the re-election of retiring directors. Subsection (3) implements recommendation 11.3.12 of the commission's report, namely, that the board of a credit union shall comprise an odd number of directors, with a minimum of seven and a maximum of 11. This reduces the current maximum number of directors from 15 to 11. However, as each director will be required to have the knowledge skill and qualifications necessary to carry out the duties of a director, concerns regarding the number of qualified board members available need to be balanced against the reduction in the number of members required to sit on the board.
Subsection (7) sets out the term of office of a director. Subsection (7)(a) sets out when the term will begin and subsection (7)(b) ensures that the term will not extend beyond the third subsequent AGM.
These provisions are not new. They are part of the 1997 Act. Section 53(7)(c) has been amended from that contained in the 1997 Act to include applicable requirements of financial service legislation in line with new fitness and probity measures. The directors of a credit union are required under this section to have sufficient time to devote to their role and responsibilities associated with their role. This section prohibits a number of persons from acting as directors, including bodies corporate, persons not of full age, employees, voluntary assistances or members of the board of a credit union committee. Directors are required under this section to possess the necessary expertise, experience and probity and section 53(13)(b) provides that directors may be required to undertake training and development to ensure they have a minimum competence in specific relevant areas.
Although the new section 53(14) of the principal Act is faithful to the report recommendation 11.3.53, it has sparked a great deal of discussion. The report recommends that board members shall not serve on the board for more than nine years in aggregate in any 15-year period. For existing board members, the commission recommends that the nine-year period should commence from the date on which the requirement is introduced. The new section 53(15) ensures existing board members will be able to remain in the position for a further nine years following the enactment of the legislation. To avoid mass retirement after a nine-year term of office and to ensure experience is retained on boards, the number of directors retiring should, as far as possible, be the same at each AGM. This section also requires the secretary of a credit union to notify the Central Bank and the board oversight committee when the secretary becomes aware that all the credit union board members intend to resign on the same date.
I do not see a necessity to amend the restrictions to terms of service under the 1997 Act, which have worked well, and Deputy Boyd Barrett's amendment is such a case because the restriction proposed is in place. With regard to the new restrictions, I would like to establish the principle of rotation and I am prepared to listen to the advice of Deputies on how long that should be, but they should bear in mind that the amendment has been presented as if all the directors would have to go when the Bill is enacted and we would have to get new directors in everywhere who could only serve for nine years. The existing directors can serve another nine years under the section following the enactment of the legislation, and then the rotation will begin. The existing position prevails and the principle of rotation is the rock I will stand on regarding the new restrictions.
Time served prior to the legislation is not included in the rotation.
No, it goes forward. That is the position. Many amendments have been tabled about this and I would like to hear the views of members.
The current legislation provides that people must resign after their third year as a director. Is the Minister saying they can remain in the post for an additional nine years?
There are two different issues. The new requirements run from the enactment of the legislation. It is not as onerous as presented. Amendment No. 24 would mean that a director could sit for five years before standing for re-election. This is a term limit but this is not the issue. Serving nine years out of 15 is a different issue. A director who has served three years can be re-elected but he or she cannot serve without being re-elected. After that, the limit of nine years out of 15 applies, which is a different issue.
That is not how I read it. Section 53(7)(b) of the principal Act will read: "The term of office of a director of a credit union ... shall not extend beyond the third subsequent annual general meeting after his or her election,".
If one is elected at an AGM, one serves a three-year term.
There are misunderstandings about these provisions and much of what we are doing is providing clarity.
They can, therefore, serve nine years in three-year terms.
They can serve three consecutive periods but not more than nine years out of 15.
Amendment, by leave, withdrawn.
I move amendment No. 25:
In page 19, lines 22 and 23, to delete all words from and including "or" in line 22 down to and including "legislation" in line 23.
Amendment, by leave, withdrawn.
I move amendment No. 26
In page 19, line 23, to delete "financial services legislation or".
Amendment, by leave, withdrawn.
Amendments Nos. 27 to 29, inclusive, 30, 32 and 33 are related and will be discussed together. Amendment No. 28 is an alternative to amendment No. 27.
I move amendment No. 27:
In page 19, to delete lines 32 to 34 and substitute the following:
“(a) an employee of the credit union;”.
The section is harsh as it relates to the proposed exclusions to prevent people from becoming directors. My amendment relates to voluntary assistants serving on the board of another credit union. People who act as volunteers in credit unions embody the ethos of the movement better than anybody else and if they are prepared to serve on the board of the credit union for which they work on a voluntary basis, that should be embraced and supported and I cannot understand why they are specifically excluded. I can understand the logic of not allowing a credit union employee to serve on a board up to a point but I cannot understand why a voluntary assistant should not be allowed to do so. I equally cannot understand how a voluntary assistant or employee of a credit union should not be allowed to serve on the board of another credit union. I do not agree with this logic but I will listen to the Minister's arguments in this regard.
The engagement so far has been good, as has Minister's openness to examining our concerns, which reflect the concerns of the credit union movement. This is the red line issue for many people. It affects smaller credit unions because of the small pool from which they have to draw to attain volunteers who meet all the standards laid down in the legislation and previous regulations and the need to ensure the credit union movement survives and thrives in the future.
These amendments deal with the contentious exclusions from and the limits to credit union boards. Yesterday in response to a parliamentary question the Minister stated he was not aware of similar exclusions in banking or credit union legislation in other OECD countries. I believe the reason he is not aware of such legislation is because it does not exist. Ireland will be unique if we proceed with this section of the Bill and lay down these exclusions. I understand such exclusions do not operate in Irish banks but I am open to correction on this.
The parliamentary question also dealt with the fact that the Bill is based on the Commission on Credit Unions recommendation and I take this to be a statement of fact. However, it is important to state the recommendation on the exclusions did not have the support of the credit union movement because the restrictions will particularly hit smaller credit unions and, as has been stated previously when dealing with other amendments, it is very difficult to get volunteers in Irish society. A huge amount of volunteers do untold excellent work and make a contribution to Irish society, but the credit union competes for volunteers with other sections of society such as the GAA, committees in local communities and political parties. Many organisations and interests press on people's time. I understand the intention behind this section but we need to be concerned about its impact. From the Minister's point of view the intention of the restrictions to be imposed is not to put smaller credit unions out of business but there is no doubt people believe this is the desired intention. I do not state I share this view.
There is also an issue with regard to the democratic nature of the credit union movement. Members of a credit union elect people and term limits will limit democracy in the credit union movement. There would be an outcry, particularly from people here longer than I have been, if we were to introduce legislation that introduced term limits for us. I will have been here for two years next Monday, but others have been here for much longer. If somebody wisely suggested we introduce term limits for Oireachtas Members there would be an outcry because we value the fact it is up to the people to decide who to elect.
Term limits are quite common in the United States.
That is true. We value the fact that the credit union movement is a democratic movement, and strong regulation is important and must be robust. The legislation includes additional responsibilities and fitness and probity tests for people in this capacity in the credit union movement but this is not the issue I am raising. We need to be careful about the impact of this. On Second Stage the Minister stated he would re-examine this issue and I was heartened by his comments. In response to my parliamentary question he stated he would be willing to examine this. I hope the Minister is open to listening to us and members of the credit union movement and to examine international best practice.
I urge the Minister to support the amendments we have tabled. If he, his advisers or the Central Bank do not feel this is the best set of proposals to reach the desired outcome I would be open to examining proposals made by the Minister. As Deputy McGrath stated, the Bill proposes restrictions on those who work voluntarily in the credit union. It also proposes restrictions on people working voluntarily for another organisation serviced by a credit union. Amendment No. 32 stipulates individuals in arrears for more than 90 consecutive days are not eligible to become directors. We do not state volunteers should not comply with any of the other regulations laid down or with the test to ensure they are fit and proper to hold responsibility, but there is a failure to recognise, quantify or imagine the problem this could cause to voluntary organisations in small and rural communities which find it extremely difficult because the number of those passionate about credit unions is small. I hope the Minister will be as open to these suggestions as he has been to suggestions made earlier.
I will not repeat what has been said. I believe all the points have been made. Will the Minister explain why he feels it necessary to remove eligibility from the volunteers? What impact would it have if volunteers remain in the mix for elections and playing the role on boards and directorships? It has always been the ethos of credit unions that voluntary work is paramount.
I agree with what the other Deputies have said and I understand the need for good governance and tightening up on governance. However, I do not understand why voluntary assistants are targeted. It comes back to how difficult it is for small branches to find people. If a small branch is looking for directors, and for people to give up their time for free and take on responsibility, perhaps it should look at the volunteers. I am keen to understand the rationale for excluding voluntary assistants.
I have no issue with precluding someone from being a voluntary assistant once he or she was a director. I have no difficulty with it working the other way around, but it seems to be going a bit too far.
The Deputies are quite familiar with the process. The Long Title of the Bill states in summary the purpose of the legislation. It includes the fact that the objective is to change the governance requirements for credit unions by removing certain management functions from the boards of directors of credit unions, providing for a separate management structure and improving the oversight and the general policy functions of boards. I do not think anyone would disagree with this objective. It is something that is required to reposition credit unions and ensure they are run, managed and overseen properly. Most of what is proposed runs directly from the Commission on Credit Unions.
The groups that had proportionately the most members on that commission were the Irish League of Credit Unions, ILCU, and the other credit union group. The commission examined this issue in detail. The exclusions from board membership are specifically recommended in its report, which was co-authored and agreed by the ILCU. I am not slagging anyone. I am just setting out the facts of the situation.
Deputy Collins asked why we would make these exclusions. They are designed to ensure that people are not overseeing their own work or answerable to themselves. In any kind of management system in a financial institution, people do the work and people oversee it. In this light and on the specific recommendation of the commission, employees and volunteers of credit unions cannot also be directors.
Regarding the issue of employees and volunteers at other credit unions, members need to have confidence that board members are free from conflicts of duty and loyalty. A director who is making decisions about business strategy or a possible amalgamation might find it difficult to maintain sufficient objectivity where the decision might also affect the neighbouring credit union where he or she works. There would be the potential for conflicts of interest.
If the committee believes that this provision goes too far, there is one matter in respect of which I can provide some satisfaction. There is a provision whereby, if one is a voluntary assistant in one credit union, one cannot be a director of another. Arguably, this is harsh, as there is no direct conflict. I could make the argument about voluntary assistants in another credit union, but the risks are much lower, as the assistant has no financial or employment interest at stake. If the committee believed it appropriate, I could remove voluntary assistants at other credit unions from the list of exclusions.
The effect of amendment No. 29 would be to allow a person to sit on the board of one credit union while being responsible for overseeing the board of another, possibly neighbouring credit union. In such a case, the person on one board would have full access to the records and documents of a neighbouring credit union and would be able to attend its board meetings. There is scope for divided loyalties. This is best avoided if we want to engender confidence in the objectivity of those on board oversight committees. I note that the National Supervisors Forum, NSF, which represents those who sit on board oversight committees, have not sought this amendment in its submission.
I accept that there are safeguards in the Bill against conflicts of interest and that a member of a board oversight committee at one credit union could bring many skills to the board of another. I will reflect further on this case. However, my main priority is to avoid any conflict that might compromise the best interests of credit union members.
If accepted, amendment No. 30 would allow employees of representative groups to sit on credit union groups even where to do so would expose them to potential conflicts of interest. This exclusion was agreed by the Commission on Credit Unions, including the three credit union groups present that would be affected by it. On these grounds, I do not propose to accept the amendment. I note that the ILCU made it expressly clear when it appeared before the committee in September that it had no difficulty with this particular exclusion.
Amendment No. 32 would allow a person who is in arrears for more than 90 consecutive days under a debt obligation to that credit union to sit on its board. Credit unions are primarily about savings and loans. A core focus at board level is on lending, provisioning and credit control. Allowing those with a manifest arrears problem to remain on the board and make key decisions about lending in arrears in the wider credit union creates potential conflicts of interest. I do not know how someone who is known to be in arrears and is a director of the board can insist on a profile of on-the-nail repayments for other people in arrears. The Deputy can see the possible conflict. It may sound harsh in the individual case but, in the general interests of the particular credit union, it is appropriate that this provision should be made. I do not propose to accept the amendment.
Amendment No. 33 would allow family members of a voluntary assistant to sit on the board. This exclusion was specifically recommended by the commission to avoid conflicts of interest where the board member must undertake effective oversight of volunteers, including his or her own family member. If a young, bright son was an accountant, his mother was on the board and he was overseeing her, there would be a potential conflict. However, it is not as great a conflict as others. I will reflect on whether family members of volunteers ought to be removed from this provision, given the fact that the Bill also provides against conflicts of interest and that it will be important to retain scope to draw from a sufficiently wide pool of volunteers. I may be able to remove the exclusion if I believe that the conflict of interest provisions elsewhere in the Bill are strong enough to afford protection. If they are not in the first instance, I will examine them to determine whether they need to be strengthened. I can give ground on this issue.
I have tabled a number of amendments, but we have not reached them yet.
I might interject. I have worked in a voluntary capacity for 20 years and have managed voluntary organisations. Each such organisation has a different context. We are dealing with financial institutions, which have a determined context.
Regarding the issue of voluntary assistants, Mr. Charles Handy - an Irishman who is one of the major international authorities on establishing and managing voluntary organisations - would assert that there are different tiers of volunteerism within organisations, be they the credit union movement, the Simon Communities or local GAA clubs. One can bring kids to a match, be a manager, be on the board, etc. The essence of what Mr. Handy describes as a psychological contract, that which engages people to do voluntary work, is the reward that they get for their voluntary engagement and the need they meet by engaging. If this triangulation works, it leads to greater voluntary participation with the organisation.
I have managed voluntary organisations comprising 100 or 120 people, some of whom were bank managers, some of whom were on the dole. They did their voluntary work because it gave them a type of reward that they did not get in their day-to-day employment, their retirement, their unemployment, etc. It gave them a sense of having done something worthwhile. As laid out, the difficulty with the voluntary assistant provision is that it does not recognise that someone can engage in a credit union in various ways that are not in conflict with one another. If someone enjoys his or her voluntary work with the credit union, he or she will want to volunteer further.
Will the Minister re-examine the provision before Report Stage? Financial conflicts of interest can arise, but the purpose of voluntary engagement, if it works, is to engender further engagement. What the Minister is proposing tends to run contrary to what was laid out in the voluntary White Paper of approximately ten years ago and to the general voluntary ethos of voluntary organisations across the country.
I welcome the fact that the Minister will revisit the issue of the prohibition of family members of volunteers from sitting on boards. Insisting that someone with a brother or sister who volunteers in a credit union should not be allowed to sit on its board goes too far in a small community. Another approach to the issue of volunteers serving on boards would be to put a cap on the number of such persons serving so that there would not be undue influence by a group of volunteers acting together.
Most credit unions rely on volunteers to a greater or lesser extent.
Some of them rely on them to a huge extent. It will probably not be a huge issue in my area, which is largely urban and has a far bigger pool of people who might be interested in serving, but it is a concern in small rural communities, and I have met representatives of a number of those credit unions. Another way to get around it is to put a cap on the number of volunteers who can serve on the board of a credit union.
The Minister's comments about re-examining it in some areas are welcome. I will bank that and move on.
There are still some matters on which the Minister has not provided me with any comfort. One is the issue of voluntary assistants in credit unions. The Minister talked about the possibility of excluding voluntary assistants of other credit unions from the provision, because there would not be a conflict of interest. He mentioned in particular that there would not be any financial or employment benefit for them, because they are in another credit union. However, this is too rigid. There is no definition of a voluntary assistant in the legislation. I assume a voluntary assistant in a credit union means somebody who helps out in that credit union. That could extend to somebody who has painted the local credit union because he believes in the credit union. A parent of his might have worked there or he might have been a young saver in the credit union. If he decides to help out by painting the building or by coming in and cleaning it at the weekend, he is now not eligible to be a member of the board of directors. That individual, because he or she assists voluntarily, gets no financial or employment benefit. The provision is very rigid. We would like to include voluntary assistants of the credit union.
The board of directors would more than likely come from the local area, and the majority would be volunteers. The pool available consists of the people who are volunteering. The people who are giving of their free time and energy are more likely to do the required training and comply with the different regulations and tests that are laid down. It is not the person who sits at home and receives their statement every year stating what dividend they will receive and the current position of their loan and savings; it is more likely to be the person who is hands-on and providing his or her time for free because he or she believes in the credit union. I realise I am preaching to the converted and that the Minister understands volunteerism. I also understand the conflicts we must prevent. That is why exclusion is perhaps not the best way, if another amendment is tabled. The provision is far too harsh in excluding volunteers in credit unions across the board. I urge the Minister to reconsider this to see if there is another way to deal with it. Certain rules must be laid down on conflicts of interest. That could be strengthened to deal with the volunteers as well. I do not have a solution for the Minister aside from what is here, but I would be open to supporting something else. For many people it is a red-line issue in the legislation.
I welcome the Minister's commitment in other areas. I am not belittling it and I appreciate his genuine approach in expressing his intention to examine the issues. The other matter he said he would not consider was that referred to in amendment No. 32 - that is, individuals who are in arrears for 90 days consecutively. I understand the Minister's point about deciding on rates for people who are in arrears and what structures should be put in place. If somebody is a saver in a credit union, the directors would also have a benefit there. This refers to subsection (11). We are dealing with subsection (10), which gives the list of exclusions. However, it does not stop there, because subsection (11) provides that a person who would not be fit to be appointed as a director to the credit union must resign. Subsection (10) outlines the people who are not fit to be appointed as directors.
I understand the validity of the Minister's argument about somebody who is in arrears and so forth, but consider an instance in which I, for example, am an existing director of the credit union and I work as a Deputy. Let us say I have a loan from the credit union and I lose my job. My financial situation has become dire and I am in arrears for three months. I am still making payments to pay off the loan, but I am still in arrears because I cannot make the full payment. It means I must resign as a director of that credit union. Consequences flow from the exclusions set down here. Again, I believe it is a little too regimental. I do not believe somebody who might have provided eight or nine years of service as a director, who has gone through all the training and skills improvement and who might be the key person there - sometimes there are a number of key persons within the credit union - should have to resign because of something that happens externally and causes a financial imposition. It might not even be the loss of a job; it could be due to a child getting sick or some other situation. The provision is too rigid in stating that after 90 days one must resign one's seat on the board. Perhaps the Minister would examine that again.
To refer back to the issue of directors and voluntary assistants, there must be a clear line between the board of directors and the people who work in the credit union. It is most important to make that separation. Sometimes it can be difficult in small credit unions. Could some mechanism be included which, in exceptional circumstances, would facilitate a volunteer who was serving on the board of directors in also working voluntarily in the credit union? A special case would have to be made for that. We are talking about a small number of credit unions where there are only volunteers and no paid staff. Perhaps a mechanism could be devised to accommodate that.
Deputy Pearse Doherty spoke about the obligation for a director to step down if he or she is in arrears for 90 consecutive days. I agree the provision is very prescriptive. Is there some way of re-examining that to provide for a little leeway? Somebody could easily get into financial difficulty despite having been a dedicated member of the board. It is an important issue.
Being in debt is not a sin.
That is right. The person might have given many years of good service and might still have much to offer the credit union but, for whatever reason, he or she may have got into arrears. That should be looked at again.
I also welcome the Minister's openness to moving on some of these issues. One way to address this issue might be to tighten the definition of a voluntary assistant on page 9. It defines a voluntary assistant as somebody who is engaged in any way in the operation of the credit union. As Deputy Doherty said, that means that if one painted the place or the like, one cannot serve on the board. It appears to be a huge missed opportunity. The Minister could consider tightening the definition to something approximating being a substantive volunteer or volunteering on a weekly basis. I cannot suggest an exact wording but it should make it clear that if one painted the place in June or got involved in some activity for the credit union, it does not preclude one from being a member of the board. On the other hand, section 11 suggests that the directors on the board cannot volunteer even in an ad hoc way, or they must resign. Perhaps something can be done there.
Can I get clarity from the Minister about the voluntary assistants? Subsection (10), which defines the persons who are not eligible to become a director of a credit union, lists the various descriptions we have been discussing. One of them is obviously the voluntary assistant.
Is it the intention of the Minister that I could be a voluntary assistant, decide to put myself forward for election to the board and state categorically that I am stopping my role as voluntary assistant? Is the idea that if someone has been a voluntary assistant, even if one is willing to stop doing so once the person is elected to the board, that person cannot run for the board? I agree with the Minister that board members should not be overseeing their own work.
I urge the Minister to examine this as broadly as he can in respect of maintaining the voluntary assistants. If it is not broken, do not fix it. The voluntary aspect of this is working and it encourages people to get involved. In my credit union, people built up experience over a number of years in respect of volunteering. They are now getting skilled up on financial regulation. I would welcome the Minister examining this point and other areas of conflict of interest to tighten up the legislation and protect volunteerism.
On that section, it is a matter of good governance to have separation of employees and the board. The credit union movement is not unique but is based around volunteerism. Perhaps the Minister could examine having the board separate from its employees as a matter of good governance but, if the situation arises where a specific credit union cannot meet that criteria, it can make an application on the point of volunteerism. Smaller credit unions are extremely important.
Regarding section 15(10)(m), dealing with a member of a credit union who is in arrears for more than 90 consecutive days, we can overcome the problem if people exclude themselves from discussion at board level where there is a discussion on arrears. In any normal board situation, if there is a conflict of interest, someone steps outside. The key is to retain the essence of the section but to reflect the unique circumstances of volunteerism. It is very important and is one of the strengths of the credit union movement, particularly smaller credit unions. I expect the larger credit unions could overcome what is required in the section whereas smaller ones will have difficulty.
I find this a helpful discussion because we all have an interest in improving the legislation. The opening position is that we want to strengthen the credit union movement. One of the weaknesses identified was governance. As members know from their experience, governance varied from very good to not so good. Volunteers are absolutely vital but there are only 18 credit unions out of over 400 that are totally operated by volunteers. It is not as big a volunteer organisation as frequently presented. There are many employees on good salaries working in the credit union movement. Some of the individual credit unions have become quite large. The principle of strengthening governance was put to the commission, which made a series of recommendations. The central principle of the new governance position is that people cannot be answerable to themselves. I understand Deputy Heather Humphreys was a manager of a credit union. She said that one must separate the board of directors from the people working in credit unions. As long as we maintain the principle, I am flexible on the categories. Perhaps we can examine the definition of voluntary assistant on page 9. Deputy Pearse Doherty gave us a prose version of it, which is close to what is in the Bill: "‘voluntary assistant’ in relation to a credit union, means a member of the credit union who, although not a remunerated employee of the credit union, is engaged in any way in the operation of the credit union." That excludes the painter because the painter is not engaged in the operation of the credit union. The final clause is very confining. The exclusion in the Act is that someone cannot be a director and a volunteer at the same time. The person can move seamlessly from one to the other but cannot hold the two roles simultaneously. That is helpful to the debate.
I can see a lot of embarrassment for someone who had served for a long time and then inadvertently fell into arrears, especially in a small community. I will examine an alternative way around it. If we allowed credit unions, within their rules, to make provision for the exclusion of persons in arrears from the board of directors or from other functions in the operation of the credit union, it would be a more discreet way of doing it. I am not making a commitment at this stage because I will have to run it by the Attorney General but I am committing to examine that line of approach rather than the direct exclusion in the Act.
If people were in some resolution process or in negotiation about putting a resolution process in place, perhaps they could be allowed to see out directorships.
I am inclined to leave that matter to the rules of the credit union. If we give this hint to the Irish League of Credit Unions, it will design something appropriate that will run through the system. There is a real issue but we do not want to do something that is excessively harsh and holds someone up to opprobrium in a community where previously he or she was a person of status. We can work on that point. I will stick by the principle, which was recommended by the commission. We will remove the exclusion on people working in neighbouring credit unions volunteering and acting as directors. In the case of the family member, I will approach it by changing, if necessary, the conflict-of-interest provisions so that it is not as absolute as presented currently. In respect of arrears, we will try to go around it by the rules of the credit union. I will hold on the other exclusions to the principle I have enunciated, which runs through the Bill, and on the recommendation of the only other former manager of credit union present at the debate.
All committee members are probably members of a credit union.
Amendment, by leave, withdrawn.
I move amendment No. 28:
In page 19, line 33, to delete “or voluntary assistant”.
Amendment, by leave, withdrawn.
I move amendment No. 29:
In page 19, lines 36 and 37, to delete all words from and including “or” in line 36 down to and including “union” in line 37.
Amendment, by leave, withdrawn.
I move amendment No. 30:
In page 19, to delete lines 38 to 41.
Amendment, by leave, withdrawn.
I move amendment No. 31:
In page 20, line 5, before “Financial” to insert “the”.
Amendment agreed to.
I move amendment No. 32:
In page 20, to delete lines 22 to 24.
Amendment, by leave, withdrawn.
I move amendment No. 33:
In page 20, line 27, to delete “, employee or voluntary assistant” and substitute “or employee”.
Amendment, by leave, withdrawn.
I move amendment No. 34:
In page 20, lines 43 and 44, to delete all words from and including “and” in line 43 down to and including “legislation” in line 44.
Amendment, by leave, withdrawn.
If amendment No. 35 is agreed, amendments Nos. 36 to 38, inclusive, cannot be moved. Amendments Nos. 36, 37 and 38 are alternatives to No. 35 and amendments Nos. 38 and 39 are alternatives to amendment No. 37. Amendments Nos. 35 to 39, inclusive, are related and will be taken together.
I move amendment No. 35:
In page 21, to delete lines 8 to 18.
These amendments relate to the problem of term limits and the impact they will have on smaller credit unions. The credit unions made the point to us that smaller credit unions in rural areas, where there might be a small pool of people who keep the credit union going, could face problems if there are term limits. The amendments would remove the term limits, which could be detrimental to the ability of credit unions of function.
Many arguments have been made against this provision. I subscribe to the principle of rotation but, given that there is an acceptance that this may cause problems for the smaller credit unions, could the rotation principle be linked to the tiering of credit unions and give recognition to the fact that this will pose particular problems for smaller credit unions? There must be some way of working that into the Bill.
The second suggestion is that instead of saying every individual can only a serve a maximum of nine years in 15, a requirement be inserted that a certain percentage of the board must rotate. In this way there would still be rotation but an individual who was serving the board well and wanted to continue would be allowed to do so. The issue is not nailed down at the level of the individual but of the overall board. That would be a smarter way to do this.
I concur with Deputy McGrath about people going up for re-election. There are two aspects to this. For directors, a new rule is coming in whereby they can only serve a maximum of nine years in a 15-year period. Based on the circumstances of the credit union and to achieve continuity, that could be extended to 12 years over the 15-year period. They would still need to be re-elected every three years. This brings us back to the problem of smaller credit unions not meeting the requirements for board membership and experience.
Directors of a credit union cannot serve more than three consecutive years in a principal post such as chairman or secretary. The context is that there could be a new board with new requirements. After the three-year period they will all have to go up for re-election. For the sake of continuity it would make sense to extend that from three to four years. That is the purpose of amendment No. 39, which would apply to section 15(14) to (16). This would retain the requirement for directors to be re-elected but it would allow people to have an extra three years in the 15-year period. The principal posts of chairman and secretary would then enjoy continuity until a new board of directors was elected.
I have already commented on this section. Term limits do not exist anywhere in the OECD in the banking sector and I do not see the need for them in the credit union sector. We have discussed the impact on small credit unions and it is clear the Minister is concerned about this and that it is not the intention of the Bill to put pressure on them. Is there anything in the legislation that would allow for smaller credit unions that would find it difficult to comply to make a case to the Central Bank? The fear is that the term limits will place a huge burden on areas in which there is a small pool of people to serve on the board. We cannot legislate for specific cases, but would the Minister be open to considering such a provision if he insists on proceeding with term limits?
The commission considered all of these matters and I am following its recommendations closely. I repeat that the three credit union movements were represented on the commission. When their representation was combined, they were by far the biggest group, and they wanted to go down this road.
I am most interested in establishing the principle. With regard to the practicalities, this legislation will be passed before Christmas and will be signed by the President. AGMs will then take place in January, so it will be 2014 before the provisions are implemented. Existing directors can then go forward every three years for re-election and can continue to serve until 2023. That seems a fair length of time, but in establishing the principle I would not have a difficulty conceding the amendment drafted by Deputy Heather Humphreys to increase the period from nine to 12 years to give more discretion. I want, however, to retain the principle of rotation.
On whether an officer, such as a chairman or secretary, may hold office for four rather than three years, as suggested by Deputy Kieran O'Donnell, it makes sense to have continuity, for example, in cases where a chairman is re-elected and a large number of new directors are elected. The only reason the Bill provides for a term of three years is that this was the period recommended by the commission. If we change it to four years, we will not implement the commission recommendation, although as legislators we are entitled to do so. The best I can do is accept the proposal made by Deputies Kieran O'Donnell and Heather Humphreys and extend the nine-year period to 12 years, thus allowing a member of a board to remain in situ for 12 years in a 15 year period. I could also extend to four years the three year limit in respect of key officerships. This can be done by way of amendments introduced in the Seanad and resubmitted to the Dáil.
Beyond the changes I have proposed, I am not prepared to abandon this provision, as recommended by the commission. It is a good idea to have renewal. As I indicated on Second Stage, I observed such renewal in my political party in 1977 when the late Garret FitzGerald took over the leadership. When he changed the party's constitutional rules, we had chairmen of branches who had been in place since the party was founded or even ten years prior to that, dating back to 1922. We were told then the sky would fall in if we implemented the new rules as small branches would not find volunteers to serve. Once we renewed the rules, we had a rush of volunteers, including many young people. The principle of renewal is a good one and I would like to retain it.
I welcome the Minister's decision to accept our proposal and extend the period to 12 years. His decision is also important from the point of view of training. Directors are being asked to undertake considerable additional training, as is appropriate, but given the voluntary nature of their role and the fact that some of them only attend board meetings once a month, they need longer to immerse themselves in the role than would be the case if it were full-time. I am pleased the Minister has agreed to change the position in this regard.
I welcome the Minister's commitment to extend the number of years a director may serve in a 15-year period. On subsections (15) and (16), I agree that renewal is good. Nobody in the credit union movement wants the same people to remain in place permanently. The problem, however, is that this sometimes becomes the reality because the pool of people available to serve as directors is small. All genuine members of credit unions would like to have a rush of people seeking to become members and directors.
Why could the Minister or I not table an amendment on Report Stage to write into the legislation a provision that subsections (15) and (16) will be complied with in full, except in circumstances where the approval of the Central Bank is obtained? This would allow limited flexibility on the three-year and nine-year limits on terms of office, which the Minister has agreed to change to four and 12 years, respectively. I propose that where it is not possible to comply with the limits laid down in the Bill, the Central Bank would have the final say. Such a measure would allow for a set of circumstances that may never arise but would put the minds of members of credit unions at ease as it would allow them to make a case to the Central Bank when unforeseen circumstances arise. If, for example, asking an officer to step down at the end of a four-year term could have a detrimental impact on the credit union in question because there are no other candidates available for the position, the credit union could make a case to the Central Bank. Allowing such flexibility would not open the floodgates and the principle of renewal would be maintained. It would give small credit unions the safety net of being able to make a case and have the Central Bank make a judgment call.
Speaking extemporarily, if the Deputy were to draft an amendment for Report Stage, confine its import to tier one credit unions and refer to the Registrar of Credit Unions rather than the Central Bank, I would consider it on its merits.
The Minister is taking a reasonable approach to many of the issues raised and the proposed amendments. Having listened to his views on the matter, I have still not fully arrived at a view on it. I did not hear him express his view on the principle of rotation.
An issue arises with regard to the smaller credit unions, and suggestions for addressing the problem have been made by Deputies Pearse Doherty and Michael McGrath. The proposal to impose limits on periods of service has provoked a major reaction from the credit unions. The Irish League of Credit Unions, the representative body of credit unions, has acknowledged that it did not expect this response from member credit unions when it participated in discussions of the issue at the Commission on Credit Unions. The publication of the draft legislation provoked a major reaction, which may have been partly because the credit unions believed the proposal undermined the democratic principle that members should make decisions of this nature. Why should these limits apply to credit unions when they do not apply to banks? Why is it necessary to make a special provision and apply term limits which restrict the right of members to make decisions about who they want on boards and as principal officers? I apologise to the Minister if he has answered my questions. If so, I do not expect a lengthy response.
We have discussed this issue.
In that case, I apologise.
The Commission on Credit Unions, on which all the credit union representative bodies were represented, recommended this measure and all members of the commission signed off on it. It is a good idea to include in the legislation a requirement for the rotation of the principal. This proposal provides an opportunity for renewal. We are not speaking of organisations that were perfect but organisations that still have serious difficulty. The State is intervening to assist them by providing a new legal framework and significant sums of money to put themselves back in order. Having established a commission to advise us on this matter, on which the credit union movement was heavily represented, I intend to take its advice. However, I am also prepared to take the advice of Deputies by adopting a flexible approach to the implementation of the principles. Notwithstanding this, I am not prepared to move on the principle.
I welcome the Minister's decision to extend the relevant periods from nine to 12 years and three to four years. This is a pragmatic approach which does not undermine the principle. The credit union movement will benefit from his decision as it will improve continuity. Having a chairman in place for four rather than three years will also strengthen the boards of credit unions.
Amendment, by leave, withdrawn.
Amendments Nos. 36 to 39, inclusive, not moved.
I move amendment No. 40:
In page 21, between lines 37 and 38, to insert the following subsection:
"(2) An amendment to the rules of a credit union passed in accordance with section 14(1) of the Principal Act to give effect to section 53(3) of that Act, as amended by subsection (1), shall have immediate effect notwithstanding section 14(2) of that Act.".
Amendment agreed to.
Section 15, as amended, agreed to.
SECTION 16
Amendments Nos. 41 and 46 are related and may be discussed together.
I move amendment No. 41:
In page 22, to delete lines 8 to 11 and substitute the following:
"(4) Subject to subsection (10), the chair shall cause a detailed agenda of items for consideration and discussion to be prepared by the secretary of the credit union for each meeting of the board of directors.".
These are technical amendments.
Amendment agreed to.
I move amendment No. 42:
In page 22, line 29, to delete "shall".
Amendment agreed to.
Section 16, as amended, agreed to.
SECTION 17
I move amendment No. 43:
In page 24, lines 8 to 10, to delete all words from and including "manager," in line 8 down to and including "officer" in line 10 and substitute "manager and risk management officer".
Amendment agreed to.
I move amendment No. 44:
In page 24, lines 31 and 32, to delete "or any other financial services legislation".
Amendment, by leave, withdrawn.
Section 17, as amended, agreed to
SECTION 18
I move amendment No. 45:
In page 26, line 41, to delete "director" and substitute "directors".
Amendment agreed to.
I move amendment No. 46:
In page 26, line 46, to delete "setting the agenda" and substitute "causing the agenda to be set by the secretary".
Amendment agreed to.
I move amendment No. 47:
In page 27, lines 6 and 7, to delete "the obligations under financial services legislation and".
Amendment, by leave, withdrawn.
I move amendment No. 48:
In page 27, line 11, to delete "requested" and substitute "reasonable".
Amendment agreed to.
I move amendment No. 49:
In page 27, line 31, to delete "3 consecutive terms" and substitute "5 consecutive terms".
My amendment concerns the same issue, that is, the time limits. There is no need to rehash the arguments.
Amendment, by leave, withdrawn.
Section 18, as amended, agreed to.
SECTION 19
Amendments Nos. 50 to 52, inclusive, are related and may be discussed together.
I move amendment No. 50:
In page 29, line 6, to delete "delegation" and substitute "matters to be carried out on behalf of the board".
Amendment agreed to.
I move amendment No. 51:
In page 29, line 16, to delete "this".
Amendment agreed to.
I move amendment No. 52:
In page 29, line 33, to delete "section 55A" and substitute "section 54".
Amendment agreed to.
Section 19, as amended, agreed to.
SECTION 20
I move amendment No. 53:
In page 31, line 19, after "of" where it firstly occurs to insert "the".
Amendment agreed to.
Section 20, as amended, agreed to.
SECTION 21
I move amendment No. 54:
In page 33, lines 11 and 12, to delete "and other financial services legislation".
Amendment, by leave, withdrawn.
Section 21 agreed to.
Section 22 agreed to.
SECTION 23
I move amendment No. 55:
In page 35, line 16, after "committee," to insert the following:
"as expressed through a written statement issued to the director in question,".
This is a particular issue arising from a representation at my clinic of a person who had formerly served on the board of an oversight committee and considers that due process was not followed when it came to his removal from the board. He made the point that if the oversight committee makes a decision to remove a person from the board of directors there should be a written record of it, in order that if somebody wants to challenge it subsequently it is possible to retrace the steps and the rationale behind that decision. It appears to be a reasonable requirement for transparency and accountability and the functioning of the oversight committee and I hope the Minister does not find it controversial. The person who has raised the issue would be very happy if the amendment was accepted because he considers it an important part of ensuring proper transparency and accountability in the functioning of these committees.
The section relates to the suspension and removal of a director by the board oversight committee. The amendment proposes that when forming an opinion which may lead to the decision to suspend a director the board oversight committee will be required to express its opinion in written form to the director concerned. I thank the Deputy for tabling the amendment. It is one in which there is merit. I will ask the Department to consult with the Attorney General's office with a view to bringing forward an amendment of the same effect.
I thank the Minister.
Amendment, by leave, withdrawn.
Section 23 agreed to.
SECTION 24
I move amendment No. 56:
In page 36, lines 19 and 20, to delete all words from and including "66A.-" in line 19 down to and including "shall-" in line 20 and substitute the following:
"66A.-(1) A credit union shall have governance arrangements which shall-".
Amendment agreed to.
I move amendment No. 57:
In page 36, between lines 36 and 36, to insert the following:
(2) A credit union shall have in place the oversight, policies, procedures, practices, systems, controls, skills, expertise and reporting arrangements to ensure compliance with the requirements set out in this Part.".
Amendment agreed to.
Section 24, as amended, agreed to.
Section 25 agreed to.
SECTION 26
I move amendment No. 58:
In page 45, lines 41 and 42, to delete "and other financial services legislation".
Amendment, by leave, withdrawn.
Amendments Nos. 59 to 61, inclusive, 63, 65 and 67 to 70, inclusive, are related and may be discussed together.
I move amendment No. 59:
In page 47, line 23, to delete "(9) For the" and substitute "(6) For the".
These are all technical amendments.
Amendment agreed to.
I move amendment No. 60:
In page 47, line 46, to delete "(10) Where-" and substitute "(7) Where-".
Amendment agreed to.
I move amendment No. 61:
In page 48, line 7, to delete "(11) An outsourced" and substitute "(8) An outsourced".
Amendment agreed to.
I move amendment No. 62:
In page 48, to delete lines 14 to 16.
Amendment, by leave, withdrawn.
I move amendment No. 63:
In page 48, line 21, to delete "(12) Where a" and substitute "(9) Where a".
Amendment agreed to.
I move amendment No. 64:
In page 48, lines 23 and 24, to delete all words from and including "compliance" in line 23 down to and including "of" in line 24.
Amendment, by leave, withdrawn.
I move amendment No. 65:
In page 48, line 26, to delete "(13) Nothing in" and substitute "(10) Nothing in".
Amendment agreed to.
I move amendment No. 66:
In page 48, lines 34 to 36, to delete all words from and including "of" in line 34 down to and including "union." in line 36 and substitute the following:
"(of any minor non-business activity where a defect or failure in its performance could not impair-
(i) the continuing compliance with the conditions and obligations of the credit union's registration or its other obligations under the financial services legislation,
(ii) the credit union's financial performance,
(iii) the soundness or continuity of the credit union's financial performance, or
(iv) the soundness or continuity of the credit union's business.".
Amendment agreed to.
I move amendment No. 67:
In page 48, line 37, to delete "(14)(a ) A credit" and substitute "(11)(a ) A credit".
Amendment agreed to.
I move amendment No. 68:
In page 48, line 45, to delete "subsection (15)" and substitute "subsection (12)".
Amendment agreed to.
I move amendment No. 69:
In page 49, line 13, to delete "(15)(a ) The Bank" and substitute "(12)(a ) The Bank".
Amendment agreed to.
I move amendment No. 70:
In page 49, line 40, to delete “(16) In prescribing” and substitute “(13) In prescribing”.
Amendment agreed to.
Amendments Nos. 71 and 81 are related and will be discussed together.
I move amendment No. 71:
In page 51, lines 5 and 6, to delete “subparagraph (i).”.” and substitute the following:
“subparagraph (i).
(7) The internal audit function shall have access, at all times, to the books and documents (including draft documents) of the credit union to enable it to carry out its functions under the Act.”.”.
Amendment agreed to.
Section 26, as amended, agreed to.
SECTION 27
Amendments Nos. 72, 80, 82, 83 and 85 are related and will be discussed together.
I move amendment No. 72:
In page 51, to delete lines 21 and 22 and substitute the following:
“(a) Part IV, this Part and any regulations made for the purposes of Part IV or this Part, and”.
Amendment agreed to.
Amendments Nos. 73 to 78, inclusive, are related and will be discussed together.
I move amendment No. 73:
In page 52, to delete lines 23 to 26 and substitute the following:
“(a) an employee of the credit union;”.
This discussion parallels the one we had in respect of eligibility to serve on the board. I suggest the same principles should apply and ask the Minister to reflect on these amendments on that basis.
We should see the same attitude in this area. The points have been made with regard to boards of directors. This relates to oversight committee members.
Ditto.
As my amendments are technical, there is no need to address them here. With regard to the amendments brought forward, I intend to apply the same criteria as applied to the main board. Therefore, where I have moved back from exclusions in that regard, I will move back from exclusions in this area. We will try to have one mirror the other.
Amendment, by leave, withdrawn.
I move amendment No. 74:
In page 52, to delete lines 27 and 28.
Amendment, by leave, withdrawn.
I move amendment No. 75:
In page 52, lines 29 and 30, to delete “or a director of any other credit union”.
Amendment, by leave, withdrawn.
I move amendment No. 76:
In page 52, to delete lines 31 to 35.
Amendment, by leave, withdrawn.
I move amendment No. 77:
In page 53, to delete lines 18 to 20.
Amendment, by leave, withdrawn.
I move amendment No. 78:
In page 53, lines 24 and 25, to delete “, employee or voluntary assistant” and substitute “or employee”.
Amendment, by leave, withdrawn.
I move amendment No. 79:
In page 53, to delete lines 36 to 41.
Amendment, by leave, withdrawn.
I move amendment No. 80:
In page 54, lines 12 and 13, to delete all words from and including “in” in line 12 down to and including “Part.” in line 13 and substitute the following:
“in accordance with Part IV and this Part and any regulations relating to Part IV or this Part.”.
Amendment agreed to.
I move amendment No. 81:
In page 54, to delete lines 14 to 16 and substitute the following:
“(3) The board oversight committee shall have access, at all times, to the books and documents (including draft documents) of the credit union to enable it to carry out its functions under the Act.”.
Amendment agreed to.
I move amendment No. 82:
In page 54, to delete lines 24 to 30 and substitute the following:
“(6) The board oversight committee may notify the Bank of any concern it has, that the board of directors has not complied with any of the governance requirements set out in this Part or regulations made thereunder, following a unanimous vote at a meeting of the committee called for the purpose of considering such a notification.”.
Amendment agreed to.
I move amendment No. 83:
In page 54, lines 34 to 36, to delete all words from and including “in” in line 34 down to and including “2012.” in line 36 and substitute “in accordance with Part IV and this Part.”.
Amendment agreed to.
I move amendment No. 84:
In page 55, lines 26 and 27, to delete all words from and including “and” in line 26 down to and including “legislation” in line 27.
Amendment, by leave, withdrawn.
I move amendment No. 85:
In page 57, subsection (2), line 34, to delete “remainder the term” and substitute “remainder of the term”.
Amendment agreed to.
Section 27, as amended, agreed to.
Section 28 agreed to.
NEW SECTION
Amendment No. 86 is in the name of the Minister. If amendment No. 86 is agreed to, amendments Nos. 87 to 90, inclusive, cannot be moved. Amendments Nos. 87 to 90, inclusive, are related and alternatives to amendment No. 86. Amendments Nos. 86 to 90, inclusive, will be discussed together.
I move amendment No. 86:
In page 58, before section 29, to insert the following new section:
29.—The Principal Act is amended by inserting the following after section 84:
“84A.—Without prejudice to any other function exercisable by the Bank, where the Bank considers it appropriate or necessary in the circumstances, it may make regulations for any of the following purposes:
(a) protecting the financial interests of members of credit unions either generally or for the purposes of the financial services legislation;
(b) ensuring compliance by credit unions with the requirements imposed under financial services legislation;
and, in particular, the Bank may make regulations prescribing certain oversight, policies, procedures, processes, practices, systems, controls, skills, expertise and reporting arrangements which credit unions are required to maintain.
84B.—(1) In making regulations under this Act the Bank shall have regard to the need to ensure that the requirements imposed by the regulations so made are effective and proportionate having regard to the nature, scale and complexity of credit unions, or the category or categories of credit unions, to which the regulations will apply.
(2) Before making regulations under this Act, the Bank shall consult with —
(a) the Minister and the Credit Union Advisory Committee,
(b) any other body that appears to the Bank to have expertise or knowledge of credit unions generally, and
(c) any other body that the Bank considers appropriate to consult in the circumstances.
(3) Regulations made under this Act may—
(a) contain any incidental, supplementary and consequential provisions that appear to the Bank to be necessary or expedient for the purposes of the regulations,
(b) apply either generally to a specified category or categories of credit union, and
(c) include different provisions in relation to different categories of credit union.
(4) A consultation by the Bank under subsection (3) which is conducted by reference to a section of this Act that has been inserted into or substituted or amended by a provision of the Credit Union Act 2012 shall be taken to be a consultation for the purposes of subsection (3) notwithstanding that such consultation takes place before that subsection has been commenced.”.”.
This amendment substitutes a new section 29 which splits section 84A into two separate sections, 84A and 84B. This is done for the purposes of clarity. Section 84A sets out the regulation making power of the bank. Section 84B sets out that the bank must engage with the Minister, the credit union advisory committee, credit union stakeholders and any other body or person the bank considers appropriate to consult. The section also provides that any consultation by the bank prior to the commencement of the section will be considered a valid consultation as required under the section. Officials in the Department of Finance are in discussions with the Office of the Attorney General about the best approach to be adopted in order to achieve this objective.
Amendments Nos. 87 to 90, inclusive, refer to financial services legislation. They relate to references to financial services legislation in this section. I dealt with the substantive issue when dealing with amendment No. 3. I propose to deal with these amendments on a similar basis.
NEW SECTION
Amendment agreed to.
Amendments Nos. 87 to 90, inclusive, not moved.
Section 29 deleted.
Amendment No. 91 is in the name of Deputies McGrath and Doherty. If amendment No. 91 is agreed to, amendment No. 92 cannot be moved. Amendments Nos. 91 and 92 are related and alternatives to each other and will be discussed together.
I move amendment No. 91:
In page 59, before section 30, to insert the following new section:
30.—The Principal Act is amended by the insertion of the following new section after section 84A (inserted by the Credit Union Act 2012):
“84B.—As soon as is practicable, the Bank shall enter into a memorandum of understanding with credit unions the form of which shall be agreed in consultation with credit unions and representative bodies.".".
This amendment relates to the proposal to have a memorandum of understanding between the Central Bank and the credit unions. According to the Irish League of Credit Unions, this is an issue that arose during its consultations with the individual credit unions. The league's explanation is that it would define the working relationship between the Central Bank and the credit unions and would, in a sense, be a customer charter and deal with issues such as whether instructions given by the Central Bank should be given in writing or when credit unions raise issues with the Central Bank, whether there should be a time limit for a response. Such a memorandum would deal with issues that would not normally fall within the remit of legislation. It would be inappropriate, therefore, to legislate for these issues, but the memorandum would set out the framework for day-to-day operations within which contact between credit unions and the Central Bank could take place.
The Irish League of Credit Unions places significant emphasis on this issue in its representations. It seems to be a reasonable request in what is now a very different regulatory environment that there be a clear understanding of how credit unions will relate to the Central Bank and the terms under which they will do so. I am interested in hearing the Minister's response, but it seems to be a reasonable request, given the new requirements being imposed on credit unions.
The Credit Union Commission recommended that a consultation protocol should be in place between the Central Bank and the credit unions. This protocol is to be developed following consultation between the Central Bank, the Minister, credit union representative bodies and the Credit Union Advisory Committee. The protocol is to set out how the Central Bank proposes to engage with credit unions in any formal consultation process prior to the introduction of new regulations. The protocol may provide for varying levels of consultation depending on the nature and complexity of the regulation being proposed. This will have the effect of increasing transparency and confidence in the regulation-making process. The protocol is to include the specific requirement that consultation does not impact on the statutory independence of the Central Bank in the regulation of credit unions.
I understand that a draft of the protocol has already been circulated to stakeholders for comment and that the Irish League of Credit Unions has made a submission, which is being considered by the Central Bank. It has been suggested that a broader memorandum of understanding be agreed between the Central Bank and the credit unions. I understand that one of the concerns driving this is that the Central Bank would issue written directions. The Bill does not provide for this as well as providing for an appeals mechanism. I do not favour a statutory memorandum of understanding nor was one recommended by the commission. We should be careful not to undermine the independence of the regulator. We have learned enough from the financial crisis to know that the Central Bank must be able to act within its powers when required. Therefore, I am not accepting the amendment.
What will the consultation protocol deal with?
As I said earlier, the protocol is being developed between the bodies I named. It is to set out how the Central Bank proposes to engage with credit unions in any formal consultation process prior to the introduction of new regulations. The protocol may also provide for varying levels of consultation depending on the nature and complexity of the regulation being proposed. This will have the effect of increasing transparency and confidence in the regulation-making process. The protocol will also include the specific requirement that consultation does not impact on the statutory independence of the Central Bank in the regulation of credit unions. A draft protocol has already been circulated for comment. The Irish League of Credit Unions has made a submission on the basis of the protocol and that submission is currently being considered by the Central Bank. It is fit for purpose but I do not want to put it on a statutory basis by way of a statutory memorandum of understanding because that could inhibit the independence of the Central Bank to act readily, as the regulator.
The Minister agrees with the principle that there would be such a protocol for how the credit unions-----
Absolutely. It should be done but on a non-statutory basis and I believe it will be quite effective on a non-statutory basis. If it is put on a statutory basis we could end up with a credit union trying to take the Central Bank to court or something like that. Given what we have seen in the financial services industry in the past, the Central Bank, as regulator, must be able to move, and move speedily, if there is a crisis.
I presume that the credit unions, as very different bodies to the banks or other big financial institutions that are run by professionals, are worried about a regulatory environment that is extremely onerous on them, given their volunteer basis. If I remember the representations they made to us, that is what they were afraid of. The important point is that we are sensitive, in the drafting of this legislation, to that concern and do not do anything that is unnecessarily onerous, notwithstanding the obvious need for regulation, which the credit unions and everyone here accepts. It is important that we do not do anything that makes life unnecessarily difficult for them. In that context, while not wishing to get into an argument with the Minister, why does it interfere with the independence of the Central Bank to regulate if we require that such a memorandum be in place? The amendment does not state what should be in the memorandum but rather that it would be a requirement that it be made clear to the credit unions what sort of obligations they might be operating under.
Perhaps the outcome will be the same in both instances, if I understand what the Minister has said. The memorandum of understanding, were this amendment to be accepted, would not be on a statutory basis because it is not explained or spelled out. There is simply a legislative requirement to have a memorandum of understanding, but the memorandum itself would not be on a statutory basis. Would that not be the case?
If that is the way one puts it, I suppose that is the case, in the way the Deputy is putting the amendment.
That is why I believe we are talking about the same thing here. All we are saying is that it needs to happen, that there is a legal requirement for a memorandum of understanding to be put in place. It does not, however, have statutory effect because the details are not in any legislation.
It is not telling the Central Bank how it is to relate to the credit unions. It is just making it a requirement that it has an understanding so that the credit unions know what their potential obligations might be.
The commission recommended a consultation protocol and that has been drafted by the Central Bank. The Irish League of Credit Unions is sufficiently satisfied with it to make a submission, which is being considered by the bank. I have a draft here which begins: "The Central Bank of Ireland is committed to having clear, open and transparent engagement with stakeholders in fulfilling its financial regulation and supervisory objectives." It goes on to state:
The consultation protocol sets out how the Central Bank proposes to consult formally with credit unions, their representative bodies and other relevant stakeholders prior to the introduction of new regulations for credit unions. In this regard, the Central Bank will also ensure it complies with any relevant legal obligations in relation to consultation. In addition to formal consultations, the Central Bank may engage informally with credit unions, their representative bodies and other stakeholders.
The draft goes on from there but it seems fine to me. I presume there is no problem with my giving copies to colleagues.
Deputy Noonan is the Minister. He should decide.
I am looking for legal advice. I have just been told it is still in the ownership of the bank. When it is finalised, it will be circulated.
I believe what we are looking at here is the same thing, whether one describes it as a consultation protocol or a memorandum of understanding. Essentially, the amendment places a legal requirement on the bank to have such a memorandum in place. The bank is legally required to have such a document, basically.
There is a further obligation on the Central Bank to put in place a prudential rule book so that credit unions have clarity on what is expected of them. When one takes the two together, it seems to be fit for purpose and reasonable.
We may return to this on Report Stage but the only problem at this point in time is that there is no legal requirement on the bank vis-à-vis the document the Minister has in his possession.
It may be right and proper and so on. Perhaps that is why we are tabling it. The purpose of the amendment is to ensure there would always be a requirement to have an understanding between the banks and the credit unions with regard to what was expected.
When we spoke to the interpretation section of the Bill, we referred to financial services legislation, which the Minister is examining for the purposes of clarity. That will feed into the protocol also. The protocol will be in place, but it is more a case of there being certainty for the credit union side on their exact obligations. The Minister is doing this in a legal context with regard to the protocol.
All of Deputy Pearse Doherty's arguments are based on representations made by the credit union movement, which is fine. However, my perspective must focus on the best way to regulate the credit union movement. I am sticking on this one and not giving ground.
Amendment, by leave, withdrawn.
Amendment No. 92 not moved.
SECTION 30
Amendments Nos. 93 to 96, inclusive, are related and may be discussed together.
I move amendment No. 93:
In page 59, lines 25 to 29, to delete all words from and including “and” in line 25 down to and including “liabilities” in line 29.
These are technical amendments.
Amendment agreed to.
I move amendment No. 94:
In page 59, lines 30 to 34, to delete all words from and including “The” in line 30 down to and including “requirements.” in lines 33 and 34 and substitute the following:
“The Bank may prescribe the liquidity requirements that a credit union is required to maintain at a minimum as well as conditions on the application of the liquidity requirements.”.
Amendment agreed to.
I move amendment No. 95:
In page 59, line 38, after “proportion” to insert “and nature”.
Amendment agreed to.
I move amendment No. 96:
In page 60, line 31, after “unions” to insert “in respect of the matters so prescribed”.
Amendment agreed to.
Section 30, as amended, agreed to.
SECTION 31
I move amendment No. 97:
In page 61, to delete lines 8 to 17 and substitute the following:
“(3) A person shall be appointed to the board of directors for the purposes of this section by being co-opted by the board of directors and such director shall hold office from the date of the appointment to the next following annual general meeting of the credit union or, if it is earlier, the next special general meeting at which an election is held for members of the board of directors.”.
NEW SECTION
Amendment agreed to.
Section 31, as amended, agreed to.
Sections 32 to 35, inclusive, agreed to.
I move amendment No. 98:
In page 62, before section 36, to insert the following new section:
36.—Sections 33ANA and 33ANB of the Central Bank Act 1942 are repealed.”.
This is a technical amendment.
Amendment agreed to.
Section 36 agreed to.
SECTION 37
I move amendment No. 99:
In page 63, lines 6 and 7, to delete paragraph (c).
Amendment agreed to.
Section 37, as amended, agreed to.
Section 38 agreed to.
SECTION 39
I move amendment No. 100:
In page 63, line 20, after “Part” to insert the following:
“, or anything stated or done (nor the fact of something not having been stated or done) by an employee of the Bank appointed as a non-voting member to ReBo in accordance with section 49(1),”.
Amendment agreed to.
Amendment No. 101 not moved.
Section 39, as amended, agreed to.
Sections 40 to 42, inclusive, agreed to.
SECTION 43
I move amendment No. 102:
In page 64, subsection (1), line 33, after “Part” to insert the following:
“to support the financial stability and long term sustainability of credit unions generally”.
This is a technical amendment.
SECTION 49
Amendment agreed to.
Section 43, as amended, agreed to.
Sections 44 to 48, inclusive, agreed to.
I move amendment No. 103:
In page 68, subsection (6), lines 32 and 33, to delete “May 2009” and substitute “in May 2009”.
This is a technical amendment.
Amendment agreed to.
Section 49, as amended, agreed to.
SECTION 50
I move amendment No. 104:
In page 69, subsection (1)(e), line 14, to delete “appointed by ReBo;” and substitute the following:
“of ReBo or appointed in any other capacity by ReBo;”.
Amendment agreed to.
Section 50, as amended, agreed to.
Sections 51 to 56, inclusive, agreed to.
SECTION 57
I move amendment No. 105:
In page 73, between lines 37 and 38, to insert the following subsection:
“(10) Only moneys received under section 58 for the purposes of providing stabilisation support under Part 4 may be used for the purposes outlined in subsection (2)(b).”.
This is a technical amendment.
Amendment agreed to.
Section 57, as amended, agreed to.
Section 58 agreed to.
SECTION 59
Amendments Nos. 106 and 107 are related and may be discussed together.
I move amendment No. 106:
In page 74, lines 17 to 19, to delete subsection (2) and substitute the following:
“(2) The Minister may make regulations prescribing the rate of contribution, or a method of calculating the rate of contribution, to the Credit Union Fund by a credit union under this section for the purpose of reimbursing the Minister for the provision of financial support under section 57(5) which is not recouped, or which, in the opinion of the Minister, is not recoupable in full, in accordance with the terms and conditions of that financial support from the credit union to which such financial support was provided.”.
Amendment agreed to.
I move amendment No. 107:
In page 74, subsection (5)(b), line 49, to delete “as ReBo considers” and substitute “as the Minister considers”.
Section 59, as amended, agreed to.
Amendment agreed to.
Sections 60 and 61 agreed to.
Amendment No. 108 not moved.
Section 62 agreed to.
Sections 63 and 64 agreed to.
SECTION 65
I move amendment No. 109:
In page 76, subsection (3)(c)(i), line 42, to delete “regulatory”.
SCHEDULE
Amendment agreed to.
Section 65, as amended, agreed to.
Sections 66 to 68, inclusive, agreed to.
Amendments No. 110 to 112, inclusive, not moved.
Amendments Nos. 113, 115, 119, 120, 121 and 128 are related and may be discussed together.
I move amendment No. 113:
In page 80, between lines 15 and 16, to insert the following:
"
|
12 |
Section 31(4) |
Delete. |
".
Amendment agreed to.
I move amendment No. 114:
In page 80, line 58, to delete item 13.
Amendment agreed to.
I move amendment No. 115:
In page 81, between lines 23 and 24, to insert the following:
"
|
17 |
Section 36(6) |
Delete. |
".
Amendment agreed to.
Amendments Nos. 116 to 118, inclusive, are related and may be discussed together.
I move amendment No. 116:
In page 81, between lines 30 and 31, to insert the following:
"
|
19 |
Section 37A(2) |
Substitute: “(2) A notice under subsection (1) may be in a form that, when endorsed by the member on accepting a loan offered by the credit union, constitutes a credit agreement for the purposes of— (a) sections 37B and 37C, or (b) where the loan is for an amount between €200 and €75,000, the European Communities (Consumer Credit Agreements) Regulations 2010 (S.I. No. 281 of 2010).”. |
".
Amendment agreed to.
I move amendment No. 117:
In page 81, lines 31 to 35, to delete item 19 and substitute the following:
"
|
19 |
Section 37B(2) |
Substitute: “(2) For the purposes of this section, a contract of guarantee— (a) includes, where the member is not of full age, an indemnity provided by a parent or guardian of the member or by another person approved by the board of directors, and (b) may form part of the relevant agreement or may be in a separate document.”. |
".
Amendment agreed to.
I move amendment No. 118:
In page 81, lines 36 to 43, to delete item 20 and substitute the following:
"
|
20 |
Section 37C(2) |
Substitute: “(2) The credit union shall also ensure that the agreement specifies a cooling-off period under which the member has a right to withdraw from the agreement without penalty if the member gives to the credit union a written notice to that effect within 14 days after— (a) the day on which the credit agreement was concluded, or (b) the day of which the member receives contractual terms and conditions and information in accordance with section 37C if that date is later than the date referred to in paragraph (a).”. |
|
21 |
Section 37C(3) |
Delete. |
|
22 |
Section 37C |
Insert after subsection (4): “(5) This section does not apply to credit agreements covered by the European Communities (Consumer Credit Agreements) Regulations 2010.”. |
|
23 |
Section 37D |
Insert after subsection (2): “(3) This section does not apply to credit agreements covered by the European Communities (Consumer Credit Agreements) Regulations 2010.”. |
|
24 |
Section 37E |
Substitute: “37E.—(1) For the purposes of sections 37C and 37D ‘annual percentage rate of charge’, in relation to a credit agreement entered into between a credit union and a member, means the annual percentage rate of charge as defined under Regulation 6 of the European Communities (Consumer Credit Agreements) Regulations 2010. (2) The annual percentage rate of charge specified in a credit agreement shall be in accordance with Part 5 of the European Communities (Consumer Credit Agreements) Regulations 2010.”. |
|
25 |
Section 37F |
Delete. |
".
Amendment agreed to.
I move amendment No. 119:
In page 81, between lines 43 and 44, to insert the following:
"
|
21 |
Section 38(2) |
Substitute: “(2) If a credit union knowingly charges or accepts interest on a loan at a rate greater than that permitted under this section— (a) all the interest agreed to be paid by the member shall be deemed to have been waived by the credit union; and (b) any interest paid on the loan shall be recoverable summarily by the member (or his personal representative) as a simple contract debt.”. |
".
Amendment agreed to.
I move amendment No. 120:
In page 81, between lines 49 and 50, to insert the following:
"
|
22 |
Section 41(6) |
Delete. |
".
Amendment agreed to.
I move amendment No. 121:
In page 82, between lines 2 and 3, to insert the following:
"
|
25 |
Section 47(2) |
Delete. |
".
Amendment agreed to.
I move amendment No. 122:
In page 82, line 20, to delete “no risk” and substitute “no undue risk”.
Amendment agreed to.
Amendments Nos. 123 and 124 are related and may be discussed together.
I move amendment No. 123:
In page 84, line 16, to delete item 42 and substitute the following:
"
|
42 |
Section 64(1) |
Substitute: “(1) The treasurer of a credit union shall be responsible for ensuring the timely preparation of accounts and their presentation to members at general meetings.”. |
".
I suggest we hear the Minister's note on the role of treasurer. It might make the discussion more informed.
The governance requirements recommended by the commission set out the roles and responsibilities of two key positions within the credit union, those of chairman of the board and manager of the credit union. Under existing legislation, the treasurer is identified as the managing director of the credit union. His or her responsibilities include executive responsibilities such as submitting financial statements to the board. To ensure the roles and responsibilities of the board and management do not overlap and that board members have governance rather than executive responsibilities, the commission recommended that the 1997 Act be amended to remove the role of treasurer and assign executive responsibilities to the management of the credit union.
This is an important amendment. A convincing case was made to me by the credit unions and the Irish League of Credit Unions to the effect that this threatened the democratic ethos of the credit unions.
Whereas the credit unions recognise that certain functions are executive functions, the treasurer is elected directly by the members and is then responsible for preparing accounts and making sure everything is above board with regard to what the members want and what their priorities are and has oversight of the accounts of the credit union. Removing that role from someone who is directly elected by the members is problematic and undermines a key plank of what a credit union is. The credit unions accept that there is a division of labour between officers elected by members and the executive functions of full-time staff but they fear this measure is going too far towards putting all that power, or responsibility, into the hands of people who are not directly accountable to the members. That seems like a reasonable case.
This is about maintaining the fundamentally democratic ethos and character of what a credit union is and not turning it into something that begins to look more like a bank, I suppose.
Deputy Boyd Barrett should take the train to Charleville and look at the credit union building down there.
The credit unions accept that much of the operational stuff has to be done by the managing director, but that there is a role for a directly elected treasurer who has oversight of the accounts. That seems to be to be a reasonable position and I do not see why the Minister would not see the need at least to take on board what is being said here, as he has been very reasonable on other matters, and try to find a way to deal with these concerns and what is a legitimate point made by the members of the credit unions and the organisations that represent them.
I listened to the Minister's note. We all agree that the definition in the Act of the role of the treasurer is outdated and needs to be changed. Sinn Féin has no argument with that. There needs to be change there.
Amendment No. 123 proposes that "the treasurer of a credit union shall be responsible for ensuring the timely preparation of accounts and their presentation to members at general meetings". What would be the reason not to have a treasurer with that function at board level? Forgetting for the moment about the role a treasurer has in the existing legislation, should we not define the role of a treasurer on that basis?
From an operational point of view, the role of the treasurer and the manager has become so intertwined that it is hard to have any clear line of responsibility. I agree that there should be a very clear role for the manager and I agree with the principle that there is no longer a need for a treasurer. I see merit, however, in the board having the support of an individual who may have previously served as a treasurer and has a level of skill. There could be a role for such a person, perhaps on a finance committee of the board that would examine the figures being presented to the board by the manager. The finance committee could examine those figures, present them to the board and support the board in its work. At the AGM, the chairperson of that finance committee could present the figures to the membership. I think that would be worth looking at. The Minister might consider that.
I concur with Deputy Humphreys. We discussed this matter on a previous occasion when credit unions came before the committee. The role of treasurer or chairman of a finance committee was very important in the volunteerism of credit unions. One could set up a finance committee whose chair could have the role previously filled by the treasurer. The chief executive officer might bring the accounts to the finance committee before they go to the board and they could be presented jointly by the CEO and the chair of the finance committee to the AGM. This might be a way of strengthening governance, which we all want, while reflecting the strengths of the credit union movement in terms of volunteerism.
In many credit unions the role of treasurer has been subsumed into the work of the executive because of its nature and complexity. It is no longer the kind of work a volunteer could reasonably be expected to do. Nevertheless, I have a sense that the credit unions want the office of treasurer to be retained. They want a treasurer to have a role, perhaps in chairing a finance committee and presenting accounts. They accept, however, that the treasurer's function is now more limited and that the role of a treasurer has changed. That has happened anyway and the Bill reflects that. There remains an attachment to the role of treasurer in credit unions, given their voluntary ethos. If there is a way of squaring the circle we should do so.
Deputies Humphreys and O'Donnell come closest to how I am thinking of resolving this. The amendment is in the same area.
The board has a role, under section 53, of reporting to the credit union members, so there is still a function there. Under the old legislation, the treasurer is identified as the managing director of the credit union. The treasurer's responsibilities include executive responsibilities such as submitting financial statements to the board. We are trying to ensure that the role and responsibilities of the board and management do not overlap and that board members have governance rather than executive responsibilities, as I said in the note.
I will give consideration to bringing forward an amendment on Report Stage to allow one of the directors to take over the role of presenting the accounts to the AGM, which was formerly performed by the treasurer. The role of preparing the accounts would have to rest with the manager. Would that settle it? I will do that.
Amendment, by leave, withdrawn.
I move amendment No. 124:
In page 84, between lines 16 and 17, to insert the following:
"
|
43 |
Section 64(2) |
Delete. |
".
Amendment, by leave, withdrawn.
I move amendment No. 125:
In page 84, lines 17 to 21, to delete item 43.
Amendment agreed to.
Amendments Nos. 126 and 127 are related and will be discussed together.
I move amendment No. 126:
In page 86, lines 31 to 39, to delete item 66.
Amendment agreed to.
I move amendment No. 127:
In page 86, lines 40 to 42, to delete item 67.
Amendment agreed to.
I move amendment No. 128:
In page 86, lines 55 to 56, to delete all words from and including "under" in line 55, down to and including "or" in line 56 and substitute the following:
"an offence under section 27(2) or section 33(6) or".
Amendment agreed to.
I move amendment No. 129:
In page 87, lines 36 and 37, to delete "being voluntary" and substitute " being a voluntary".
Amendment agreed to.
I move amendment No. 130:
In page 88, between lines 56 and 57, to insert the following:
"
|
93 |
Section 114(1) |
Substitute: “(1) A person shall not be qualified for election as auditor of a credit union unless the person— (a) is a member of a recognised accountancy body within the meaning of the European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010 (S.I. No. 220 of 2010) and holds a valid practising certificate, or (b) is otherwise for the time being authorised by the Supervisory Authority under any provision of the Companies Acts to be appointed as a public auditor.”. |
".
Amendment agreed to.
I move amendment No. 131:
In page 89, lines 12 to 16, to delete item 98.
Amendment agreed to.
I move amendment No. 132:
In page 90, line 14, to delete “sends notice” and substitute “serves notice”.
Amendment agreed to.
Schedule, as amended, agreed to.
Title agreed to.
I thank the Minister and his officials for their attendance.
I thank the Vice Chairman and, in his absence, the Chairman, Deputy Ciarán Lynch, for what has been a very pleasant Committee Stage stage. I thank all Deputies for their co-operation and very good amendments. I also thank my officials who were up until 4 a.m. in order to prepare for the Committee Stage debate. I acknowledge their very hard work. Very often civil servants are given no credit, only abuse in the media. Of course, we are used to this because Deputies are subject to abuse also.
I have conceded so many amendments that I will now have to have them cleared by the Cabinet, but there will be no Cabinet meeting before Report Stage. I will report progress on Report Stage on how the amendments are being dealt with and I will introduce them on Committee Stage in the Seanad. The procedure is that any amendment accepted by the Seanad must be referred back to the Dáil, even though the Dáil will have dealt with all Stages of the Bill. I need to keep my lines clear and ensure I am not proposing anything that has not been agreed to by the Government. There is a slight change in procedure. I wanted to explain this to committee members in case they thought I was playing some trick on them.
Bill reported with amendments.