I am grateful to the committee for inviting the Irish League of Credit Unions to make a presentation to the members on the reform of financial regulatory structures and its impact on credit unions. I am joined today by the chief executive of the league, Mr. Kieron Brennan, our head of legal, Ms Fiona Cullen, our head of monitoring, Mr. Tom Kiely, and Mr. Pat Fay, league director.
Our primary reason for seeking to meet with the committee today is because we have serious concerns around the future regulation of credit unions in this jurisdiction. In particular, we are deeply concerned that the new regulatory structures that are being proposed to deal with failures in banking regulation will adopt a one-size-fits-all approach. The position and perspective of credit unions as the largest movement of community-based volunteers in the State need to be recognised and addressed in the months ahead. As matters stand, we are concerned that the position of credit unions in the reform of financial regulatory structures has been put on the long finger and this is of deep concern. Inappropriate regulatory structures for credit unions have the potential to do serious damage to our movement. All too often the consideration of regulatory structures is a matter that is reserved to experts, or consultants. We welcome the fact that a committee of the Houses, comprising public representatives, has a remit to review regulatory structures. Such a review has never been more critical than now, in light of the clear failure of existing regulatory structures as they apply to banks and building societies in the State.
As members will know, credit unions play a vital role in the provision of financial services in Ireland. There are 505 credit unions on the island affiliated to the ILCU, with 103 in Northern Ireland and 402 in the Republic. For the year ending December 2009, credit unions had assets totalling €13.9 billion. Credit unions are operating in every county in Ireland and are an essential part of the local community infrastructure.
Credit unions are different from banks. In current circumstances it is probably useful if I highlight some of those differences. Every credit union is owned by the members with each member having one vote. There are 2.96 million members of credit unions throughout Ireland. Membership of a credit union is open to people who have a common bond with all other members. In other words they share something that links them to that particular credit union, such as being residents of a particular district or sharing a common vocational interest.
Credit unions are not-for-profit financial co-operatives. Any surplus income generated is used to bolster reserves, to develop additional services for members or is returned to members either by way of a dividend on shares, interest on deposits or a rebate of loan interest which has been paid by borrowing members during the course of the year. Credit unions, unlike banks, do not levy any transaction charges on loans or savings accounts and loans are insured at no direct cost to the member. Credit unions also offer members the facility to make larger repayments on loans than initially agreed with no penalty.
Credit unions are an integral part of the communities in which they operate and provide a wide range of social capital to those communities. Some examples of this support are the following: the provision of finance to build local crèches, providing both a crucial service and employment within communities; the development of enterprise centres which house local start-up businesses which again provide employment; special loan funds, run in conjunction with MABS, which provide low interest rate loans to assist people involved with moneylenders; and the building of a neighbourhood village as a public-private partnership in conjunction with a city council, the health board and Enterprise Ireland. The project has won numerous national and international awards, including the excellence in community development award, the Taoiseach's public service excellence award and the UN World Habitat award.
The most significant distinction between credit unions and banks is that credit unions operate collectively as a not-for-profit, volunteer-based movement throughout the country with over 9,200 active volunteers involved in the management and control of their credit unions and over 3,500 employees.
The governance of credit unions is very much grounded in a membership-based structure. The members of the credit union elect their own board. The board is responsible for the control, direction and management of the affairs, funds and records of the credit union and only credit union members are eligible for election to the board and its committees. The board governs the credit union and elects a chairman, vice chairman, secretary and treasurer. It also appoints committees necessary for the governance and operation of the individual credit unions, such as the credit committee, credit control committee and membership committee, all in accordance with the Credit Union Act 1997. Members of the credit union elect a supervisory committee which is responsible for overseeing the board in the performance of its duties. The supervisors must be members of the credit union and ensure that the board is acting within the law and in the best interest of the members.
Another important distinction between banks and credit unions is that, by law, members of the board and supervisors of credit unions must serve without pay. Each credit union is an autonomous organisation which manages its own affairs. As a credit union grows, so does its workload and the board may, of course, employ full-time staff members who are responsible to the directors for the day-to-day management of the credit union.
The ILCU plays a significant role in training and up-skilling both volunteers and staff members working within credit unions. For example, in 2009 the ILCU ran 366 individual courses on aspects of the operation, management and governance of credit unions. Currently, 425 students will participate in the ILCU-developed, University of Ulster-accredited and Financial Regulator-approved advanced certificate in credit union practice during 2010.
Credit unions were initially established to offer savings accounts to members to allow them to obtain loans from credit unions. The Credit Union Act 1997 also enables credit unions to offer additional services such as bureau de change and to undertake third party payments in accordance with the Credit Union Act 1997 (Exemption from Additional Services Requirements) Regulations 2004 and 2007.
Credit unions are regulated by the Registry of Credit Unions which is responsible for their registration, regulation and supervision. The statutory position of the Registrar of Credit Unions is created within the Financial Regulator to assume responsibility for the day-to-day regulation of credit unions. Under the current regulatory regime, the registrar works under the direction of the chief executive of the Financial Regulator who, in turn, is responsible to the board of the Irish Financial Services Regulatory Authority.
The functions of the registrar are to regulate credit unions with a view to the protection, by each credit union, of the funds of its members and the maintenance of the financial stability and well-being of credit unions generally. The Registry of Credit Unions undertakes its regulatory function through a combination of off-site analysis and on-site inspections. Credit unions submit regular returns to the registrar to assist regulatory overview. Our head of monitoring, Mr. Tom Kiely, has experience of working in regulatory compliance in mainstream banking and has noted, since joining the league, that credit unions here are regulated much more intensively than banks.
Generally, the regulatory structure for credit unions has worked effectively. It has been said by some volunteers in the credit union movement that the approach adopted by the registrar has, at times, been excessively zealous and intense, without taking due consideration of the voluntary and community based ethos of credit unions. Others point to the contrast between the strong position of credit unions subject to such regulation and the banks, which have clearly been subject to a lighter touch of regulation and have needed direct support from the Exchequer through recapitalisation or nationalisation. The simple fact remains that despite an extremely tough climate last year, with major challenges for individual credit unions and their members, credit unions remain robust, stable and prudentially sound. Regrettably and much to our collective cost, the same cannot be said for many of our main banks and building societies.
Our primary concern around the new regulatory structure and the reason we sought an opportunity to speak before the joint committee is that the proposed reforms to the financial regulatory structure will directly impact on credit unions, given that we are regulated within the current financial regulatory structure.
The Irish League of Credit Unions is also deeply concerned that in the redesign of regulation for financial institutions which currently includes credit unions, new structures would be put in place to address the worst excesses of banking in Ireland. This could have an adverse effect on credit unions. Our main concern is that the regulation of credit unions will be excessive, disproportionate and approached on the basis that one size fits all in the measures which will be applied to every institution involved in the provision of financial services. In other words, credit unions would be tainted by a regulatory response proportionate to the excesses and inadequacies of how banks and building societies have operated without due consideration of its suitability or otherwise for credit unions.
The Irish League of Credit Unions is equally concerned that in the new regulatory structure the role, function, ethos and mission of credit unions will be neglected and become lost within the regulatory attention and priority afforded to banks and building societies. In this context, we seek recognition within a new regulatory structure that credit unions operate to a different mandate, with entirely different objectives from the country's banks and building societies. Our concerns in this regard have been heightened by the recent news that the Registrar of Credit Unions, when recruited, will report to the newly appointed assistant director general for financial supervision, rather than the director general-CEO, as is currently the case. If the Registrar of Credit Unions is to stay within the new Central Bank of Ireland structure — that is a big "if" — the registrar should, at minimum, report directly to the director general, rather than playing second fiddle lower down the management chain.
A significant question arises as to whether the Registrar of Credit Unions should remain within the current financial regulatory structure under the proposed one size fits all approach. There is an argument that credit unions, as voluntary based community or vocational organisations providing financial services only to members, should be regulated in a structure outside the Central Bank commission.
In several other jurisdictions, including the United States, the unique and particular position of credit unions as community based financial co-operatives has been recognised through the formal establishment of a regulatory structure that is separate and distinct from banks and building societies. This approach makes sense as it allows the Financial Regulator to concentrate on regulating the activities and behaviour of those who have presented problems. In seeking to have such an approach adopted, the Irish League of Credit Unions does not propose less regulation but for regulation to take place on a basis which recognises the difference between banks, building societies and credit unions and ultimately allows the regulator of banks and building societies to focus on the areas where problems have arisen in recent years. It would be a travesty if the regulatory failures in the banking sector resulted in regulatory structures for credit unions within the new Central Bank commission which were burdensome, excessive and failed to take account of their unique and special role.
The Irish League of Credit Unions has advised the Minister for Finance of our views in this regard, prompted by his recent request that the Financial Regulator carry out a strategic review of the credit union sector. The Financial Regulator published a tender for the review on 22 December 2009 and is seeking a consultancy firm to conduct the review. The review will examine the structure, operation, regulation and legislation of the credit union sector, with a view to providing a report which will make recommendations to advise, inform and assess the future strategic direction of credit unions.
The Irish League of Credit Unions is unsure of the timescale for the review. We are concerned that nothing should be done in the context of the general legislation to regulate financial institutions across the board which would preclude the adoption of a new regulatory structure for credit unions. We are also concerned that the Department of Finance has asked the Financial Regulator to get involved in the formulation of strategic policy on credit unions. Surely strategic policy formation is a matter that should properly rest within the movement, to be negotiated with the Department of Finance rather than outsourced to the Financial Regulator or, worse still, a consultancy firm chosen and hired by the Financial Regulator to produce such a report.
In this context, a consensus is emerging in the credit union movement, as endorsed by the board of the Irish League of Credit Unions at a meeting on 16 January last, that the regulation of credit unions in a manner which secures strong prudential regulation while recognising the ethos, social and community focus of credit unions will best be secured through the establishment of an independent credit union regulator. Increasingly, questions are being asked as to whether policy on the regulation of credit unions should remain in the Department of Finance where it appears issues concerning the movement will always play second fiddle to larger policy considerations.
In light of this, the board of the Irish League of Credit Unions proposes that a new independent credit union regulator be established under the auspices of the Department of Enterprise, Trade and Employment. As members will be aware, this Department already has responsibility for policy concerning the regulation of friendly societies, co-operatives and trade unions, as well as policy areas concerning consumer protection, corporate social responsibility, better regulation and competition. It is telling that an agency established under the Department of Enterprise, Trade and Employment will shortly be granted power in the area of financial services consumer protection issues, a function previously exercised by the Financial Regulator.
The future of credit unions in Ireland is of vital importance to the members we serve and the communities in which credit unions are based. At a time when the banking and building society structures in Ireland have utterly failed people and exposed citizens to considerable additional liabilities, it is important that community and co-operative based voluntary financial services structures are recognised and encouraged. As organisations rooted in the communities they serve, credit unions and their members have been affected by the recession. Some credit unions have faced challenges in recent, difficult years. We are, however, confident that they can endure and work with their members, the Irish League of Credit Unions and the Registrar of Credit Unions to continue their crucial role in the provision of financial services.
I urge members of the joint committee, as representatives of the people of Ireland, to retain an active interest in this debate and act to influence it as it unfolds. The development of regulations, particularly in financial services as they apply to credit unions, is not a remote and abstract matter that should be left for consultants to decide. The impact of the new regulatory structures will have real and meaningful consequences for our citizens, whether members of credit unions or customers of banks. It is vital that the regulatory models that are devised and implemented have, at the core of their objectives, the interests and requirements of all citizens. I thank members for their time. My colleagues and I will be pleased to answer any questions they may have.