29 Nov 2017, 12.07
The Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach has published its Report on the Review of the Credit Union Sector.
As part of its wider examination of the financial sector, the Committee deemed it opportune to review the health of the credit union sector - particularly in light of the publication of the Credit Union Advisory Committee (CUAC) Report in June 2016, and the completion by the Credit Union Restructuring Board (ReBo) of its work.
The Committee reviewed the impact on the sector of key regulations introduced in the aftermath of the financial crisis. The Committee’s report highlights the strides made by the sector to meet the new regulatory regime.
The Report identifies the significant challenges confronting credit unions including: expanding loan offerings, attracting a younger and broader customer base, securing additional and diverse investment opportunities for asset holdings, formulating a strategic plan and blueprint that sets out a vision for the future operations and long-term sustainability of the sector.
The Report makes a number of recommendations which the Committee believe can assist in bolstering the presence of the credit union sector as a vital financial service provider to citizens of this State.
The Report concludes that the credit union movement has the capacity to survive and flourish into the future. Change will be part of the process. All parties and stakeholders involved will have to engage in transparent and open dialogue to ensure the sector receives the best possible support to achieve its potential.
Committee Chairman, John McGuinness TD, says, “Credit unions play a crucial part in Ireland’s financial system but, like all financial institutions, they were hit by the recession. The Committee recognised that now was an opportune time to review the sector and has made a number of recommendations under seven broad headings that it believes would help in addressing the significant challenges faced by the sector. The Committee calls for the introduction of a new appeals mechanism which would allow credit unions to appeal all regulatory-related decisions made by the Central Bank to an independent body.”
“All Committee members acknowledged that the credit unions’ community-led approach and emphasis on social inclusion is an innovative one which has contributed much to Irish society. The Committee recommends that the credit union movement be empowered to contribute to alleviating the current housing crisis in the State. Serious consideration should be given to enabling credit unions to utilise their substantial assets to lend to approved housing bodies and help alleviate the housing and homelessness crisis.”
“The Committee endorses the CUAC recommendation for a full review of the Section 35 lending limits and concentration limits. It is imperative that credit unions evolve and grow beyond the current permitted lending and concentration limits in a meaningful way, which would allow qualifying credit unions to make the necessary infrastructure investment into new areas such as mortgages.”
“Credit unions must grow and develop if they are to survive in such a competitive financial market, while continuing to serve the needs of their communities and practise responsible lending. This report strikes a balance between advocating a partial transformation of the sector in order to allow it to flourish, while also maintaining its community-based ethos.”
Some of the report’s key recommendations include:
• That a timely review of the legislative framework and regulatory requirements applicable to the credit union sector occurs to ensure that they are fit-for-purpose and proportionate in the context of the post economic – crisis period;
• That the tiered regulation of credit unions, as recommended in the Commission on Credit Unions Report, is implemented to ensure a proportionate application of the regulations and to take into account the individuality and diversity of credit unions within the broader movement;
• That the Committee recognises the unique and distinct characteristics ‘Common Bond’ structure of credit unions and supports its retention;
• That the Credit Union movement be empowered to contribute to alleviating the housing crisis in the state and that existing regulations are reviewed to facilitate this objective;
• That the Implementation Group established following the publication of the credit Union Advisory Committee (CUAC) report meet regularly and as necessary to oversee the implementation of the Report’s seven key recommendations;
• That the Registrar provide clear, explicit and specific feedback to any future applications, plans and development proposals presented by credit unions and further clarify the process and standards required to support a positive application process;
• The current average loans-to-assets ratio of 26% is an issue of serious concern in terms of the future viability of the credit union movement. The figure should at a minimum be in the 40-50% ratio range and on that basis the Committee recommends that the issue be addressed by all stakeholders as a matter of urgency;
• That the Department of Finance take responsibility for any legislative changes and that the Registrar take responsibility for any regulatory changes required to support business model development proposals of credit unions in a structured, timely and appropriate manner and that clear service level agreements are published by the Central Bank to support this;
• Regarding the Consultation Paper on Credit Union Investment Framework, the Committee recommends that all parties constructively participate to identifying potential investment streams that enable the sector to diversify its investment portfolio whilst simultaneously maintaining the primary objective of safeguarding members’ funds and financial stability;
• That greater emphasis is placed on the issue of financial inclusion. The Committee notes the absence of a body in Ireland to examine/research responsible credit. The Committee recommends the establishment of an independent body to examine and report to Government on an ongoing basis in regard to credit within the Irish financial services sector.
Read the report here
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