JOINT COMMITTEE ON ECONOMIC REGULATORY AFFAIRS díospóireacht -
Tuesday, 2 Feb 2010

Financial Regulation of Credit Unions: Discussion with Irish League of Credit Unions.

Chairman

The next item is a discussion with the Irish League of Credit Unions on a new regulatory structure for the financial services sector and the impact it is having on credit unions. On behalf of the committee I welcome the following: Mr. Mark Bailey, president of the league; Mr. Kieron Brennan, chief executive officer; Ms Fiona Cullen, head of legal; Mr. Tom Kiely, head of monitoring; and Mr. Pat Fay, league director.

Before beginning, I draw witnesses' attention to the fact that, while members of the committee have absolute privilege, it does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

I call on Mr. Bailey to make his presentation.

Mr. Mark Bailey

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.

Senator Paul Coghlan

I extend a warm welcome to representatives of the Irish League of Credit Unions. I declare an interest in this matter to the extent that I am a long-standing member of a credit union.

In light of the concern expressed by the joint committee about the failure of the banks, I am pleased to learn that the credit unions are in robust health. I wish them success and salute their social responsibility. I strongly agree with the functions exercised by the credit unions and their ethos. As a badly needed bulwark, they must remain strong.

I share the concerns expressed by the president of the Irish League of Credit Unions, Mr. Bailey, about regulation. Credit unions have been a success and have not required State funding. I do not believe any credit union will go belly up. The delegation will, I am sure, be honest and honourable and inform the joint committee if there is any danger of such an eventuality. None is on the horizon. Mr. Bailey stated that credit unions are robustly managed and governed. Will the delegation provide further assurance in that regard?

The Irish League of Credit Unions is seeking to have an independent regulator established under the auspices of the Department of Enterprise, Trade and Employment. That is the correct approach because credit unions are different from banks. The 505 credit unions operate on a not-for-profit basis and have 2.96 million members. They provide tremendous employment and have almost €14 billion in well managed assets. I ask for further assurance in that regard.

Credit unions have a proud history and an honourable record. Not one member credit union has collapsed, whereas the banks have spectacularly collapsed owing to the reckless lending in which they engaged and the State has come to their rescue. Members want absolute assurance, backed by facts, that if we were to agree to recommend to the Government that it adopt the proposal on regulation made by the Irish League of Credit Unions, including the in-built risk assessment procedure, there would be no danger of failure. Given that bankers told blatant lies before this and other committees, I and other members seek further assurances, based on facts, that no danger arises. I salute the work of the Irish League of Credit Unions and look forward to the rest of the discussion.

Mr. Pat Fay

I will briefly respond to Senator Coghlan. The credit union movement was formed in a time of need and has been in operation for more than 50 years. Every community and many workplaces and vocations, from the Garda Síochána and Army to dentists and the employees of ACC bank, have their own credit union. As the Senator correctly noted, the credit union network is extensive and serves an important need in the community.

It is important to recognise that credit unions are social as well as financial institutions. Their social role is underlined by the ten principles governing the credit union movement. These include the encouragement of thrift, education of people, involvement of the community and distribution of surpluses among members. Credit unions are basically financial co-operatives.

On the issue of differentiating credit unions from banks, Senator Coghlan is correct that credit unions and banks are entirely different. The latter are for-profit institutions which report to a small group of shareholders and are driven by an imperative to increase profits. The former, on the other hand, are owned and controlled by members. The people involved in them are simply facilitators and servants of almost 3 million members who have chosen to establish a credit union to provide financial services for themselves, particularly saving and lending facilities. Credit unions are run by volunteers on a democratic, one member one vote basis as part of the community.

Senator Coghlan is correct to underline the importance of differentiating the regulation of credit unions from the regulation of banks and building societies. The latter have caused great damage to shareholders, savers and pension holders in the community. Regrettably, credit unions have been the victims of some of this activity because some of their investments have not performed as well as may have been expected.

I am not aware of any credit union which is insolvent, incapable of meeting its outgoings as they fall due or unable to repay savings, shares and deposits when demanded by members. My colleagues will, if members wish, provide specific figures on this matter.

On the issue of regulation, to which the Senator referred, the Irish League of Credit Unions places particular emphasis on the necessity to ensure that credit unions are not captured or tainted by the increasingly harsh regulatory regime which is emerging from the 27 member states of the European Union and which will, correctly, be implemented here to regulate banks, building societies and other for-profit entities. Credit unions should not suffer under such a regime because they have not caused the problems and are not part of the problem.

The Irish League of Credit Unions advocates the establishment of a special regulator for credit unions. Credit unions were always subject to a special and separate regulatory regime under the Industrial and Provident Societies Act of 1893 through to the Credit Union Acts of 1966 and 1997. Mr. Bailey has made the case strongly that a facility and culture exist for regulating not-for-profit entities within the Department of Enterprise, Trade and Employment. Serious consideration should be given to recognising that credit unions are different. Their regulation should be underlined as different and proportionate in that regard.

Deputy Seán Ardagh

I welcome the delegation from the Irish League of Credit Unions. The credit union movement is a very important part of the financial structure, particularly for the 2.96 million members of credit unions. People who come to my constituency clinics tell me about the loans they have taken out with the credit union and if they need money they go to the credit union to get the few bob. It is very much an integral part of the fabric of Irish society. I value the work of the credit union movement, particularly the fact that it is a community-based volunteer service. There are more than 9,000 active volunteers. The people who are involved take a very serious view of their duties and responsibilities once they accept them.

Has the delegation a view on the regulations which apply to banks and how they should differ from those applied to credit unions?

Mr. Kieron Brennan

I will respond to the points raised by Senator Coghlan on the health of credit unions. The figures we cite are derived directly from the prudential returns made to the Registrar of Credit Unions. The registrar was quoted late last year as saying that the credit union model was very robust and had proven its worth in the current financial crisis. The model for credit unions is that lending is made only on the basis of funds taken in. Across the credit union movement only €50 of every €100 taken in is lent out. That is a very different scenario from the banks who have loaned many multiples, 40 and 50 times, their deposit base. That is a very different system.

The credit union movement has €12.5 billion in assets. Of that €12.5 billion, €1.5 billion are reserves, which is a significant proportion of the total. The liquidity rate is 30% and the solvency rate is 117%. These figures are illustrative of the strength and soundness, safety and security of the credit union movement.

We can say that the registrar regulates in a robust fashion. The Irish League of Credit Unions has its own monitoring system which also enhances the strength and soundness of credit unions. We are very grateful that we have the Government guarantee on savings up to €100,000 since September 2008. We also have a credit union savings protection scheme, a substantial fund put in place more than 20 years ago on the initiative of the Irish League of Credit Unions. I think members will agree when one considers all those figures that there is safety, security and soundness in the movement.

In response to Deputy Ardagh's question on regulation, we would like to be in a different category from banks. The credit union model is very different from that operated by banks. The governance arrangements are very different from that operated by banks. My colleague has described the non-profit nature of our service. We are concerned that there is a backlash afoot in terms of regulatory oversight within financial institutions. We do not wish to be tarred with the same brush. The president of the Irish League of Credit Unions referred earlier to the proposed arrangement that have been put forward, whereby the Registrar of Credit Unions who presently reports to the chief executive of IFSRA has now been demoted to reporting to an assistant director general for banking. The Irish League of Credit Unions has gone from a position where we had a separate arrangement whereby the registrar reports to the chief executive of IFSRA to where he will now report to an assistant director general for banking. That is not acceptable. We merit separate regulation for the credit union movement.

Deputy Seán Ardagh

I mean no disrespect to the credit union movement, but it appears that it could be perceived as territorial in that the league is seeking to be regulated through the Department of Enterprise, Trade and Employment and as such would be outside the remit the Irish Financial Services Regulatory Authority, IFSRA. I very much applaud the liquidity of ILCU, the fact that there is no wholesale borrowing on the international market and that the solvency ratios are excellent, but €13.9 billion is a very significant sum. It appears that very definite regulation is required and that credit unions should come under the Department of Finance.

Mr. Kieron Brennan

There are other big movements in the world but the best example I can give is to quote the president who referred to the American movement. The American movement has assets of between $800 billion and $900 billion, many multiples of what we have. It was recognised some considerable time ago that they needed an entirely separate regulatory authority to manage that sector and they have managed it very successfully. The Irish League of Credit Unions is the fourth largest movement in the world but we are behind the United States and Canada who all have separate regulation. All large developed countries of the Western world that have credit union movements have separate regulation for them. That regulation is in no way lesser but it is different from that applied to banks, and we contend it is more appropriate. Our principle is that we would have separate but not necessarily lesser regulation.

Deputy Seán Ardagh

How does Mr. Brennan see the regulation that he expects to come on-line being excessive or disproportionate?

Mr. Kieron Brennan

We are alarmed at the proposal to locate that regulatory regime in a subset of a banking regulatory system. At present the Registrar of Credit Unions functions separately and reports directly to the IFSRA board via the chief executive of that organisation. That is a separate regulatory regime, recognising a need to regulate separately. Now suddenly the proposal is that we would report within the banking regulatory regime, in fact we have moved two steps down the ladder in IFSRA. I am sure everybody is well aware of the need to review and restructure the regulatory authorities. We are all aware of the failures of regulation in the financial regulatory system at large and we are aware that there may be a certain zealousness around that. We do not wish to suffer unduly because the credit union movement is in no way responsible and does not exhibit the excessive or deficient behaviour of other financial institutions. We do not wish to suffer because of it.

Deputy Seán Ardagh

I do not know if Mr. Brennan answered my question. He states that the approach adopted by the registrar has, at times, been overzealous and intense without taking due regard of the community. How has it been overzealous or too intense?

Mr. Kieron Brennan

The president used two quotations. In one, he quoted credit unions as saying that, at times, they felt the registrar might be overzealous and too intense.

Deputy Seán Ardagh

Some volunteers said that.

Mr. Kieron Brennan

He also states that it is recognised that the credit union system in Ireland is very robust and that a large measure of that is due to the activity of the Registrar of Credit Unions.

Deputy Seán Ardagh

Everybody else wishes to ask a question so I will be brief. Mr. Brennan said that credit unions only lent out 50% of the money they took in but there have been questions over how credit unions have used some of the investments they have attracted in the past. How does the credit union choose what to invest in? Have there been problems and have some investments, in hindsight, been badly chosen? To what extent do credit unions have autonomy in investments? Is there any regulatory framework attached to their investments?

Mr. Kieron Brennan

We do not wish to talk about difficulties there have been in particular credit unions in the past. In addition, a number of the issues to which the Deputy referred are in the courts. My colleague will talk about how credit decisions are made——

Deputy Seán Ardagh

I asked about investment decisions, rather than credit decisions.

Mr. Kieron Brennan

——and the regulatory limitations around investments.

Deputy Damien English

Can the delegation explain where the league can and cannot invest?

Mr. Tom Kiely

The league and the regulator have set guidelines on investment decisions. In 2009 some credit unions realised losses on the back of some of those guidelines. Towards the end of the year, however, things changed for the better and the overall position is now quite strong. The emphasis now and in the recent past has been on guaranteed investments to ensure a certain percentage for investors.

Deputy Kieran O’Donnell

How did the league deal with the tier 1 perpetual bonds in which credit unions invested? They are the riskiest bonds of all and many are outside the State so are not covered by the Government guarantee scheme. We are discussing the protection of members' funds but how did that arise? It must have put many small credit unions under tremendous pressure.

Mr. Kieron Brennan

Some of these investments were made several years ago.

Deputy Kieran O’Donnell

They were not guaranteed.

Chairman

Allow the guests to reply.

Mr. Mark Bailey

The individual credit unions have their own professional advisers who have their own finance houses and banks throughout the country. Various investments were advised to credit union boards by professional financial advisers. As a result, there have been some losses and complaints have now been made to the Financial Services Ombudsman, FSO, and the Commercial Court. In all the cases put before him the FSO has found in favour of the credit unions. The decisions were not made by 15 members of a board. Instead, the unions took advice and where they found themselves sitting on losses as a result they have resorted to various recovery methods.

Deputy Seán Sherlock

I welcome the delegates to the joint committee. On page 7, the submission states: "Our concerns in this regard have already 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 in general, rather than the Director General or CEO, as is currently the case." On page 9 it states: "In light of this, the ILCU board is proposing that a new independent credit union regulator be established under the auspices of the Department of Enterprise, Trade and Employment." Even if the regulatory regime was such that the ILCU reported directly to a director general under the auspices of the Central Bank, what is the difference between that and a new regulatory regime under the auspices of the Department of Enterprise, Trade and Employment?

We all recognise the role of credit unions and the amazing work they do. As Deputy Ardagh said, they have provided a backbone for many communities because their ethos is very different from that of banks and other financial institutions. We want to find a compromise that will ensure the future growth of the credit union movement and put in place a regulatory regime that ensures there is confidence. If the new regulatory regime was under the Central Bank would it not be a safer house, given that the regulatory regime should change for the better once the de Larosière and European Commission proposals are introduced?

Mr. Kieron Brennan

We are trying to establish the difference between credit unions and banking. Under the current regime, that is recognised to some extent in that there is a separation of banking regulation within the IFSRA structure and regulation of credit unions. That is to be welcomed and when the arrangements were being negotiated a greater degree of separation was envisaged but it did not come out at the end of the process. I tend not to focus on the Department of Enterprise, Trade and Employment angle because there is a history of association between the Department and the credit union movement, as there has been with co-operatives and friendly societies. Our principle is that there should be recognition of the different nature and ethos of the credit union movement.

As one of my colleagues said, we are a vast social movement here. We have demonstrated, via the registrar's figures, that we have managed the movement very well and it is very robust. We are aware of the proposed restructuring in banking and that this will result in a certain tightening of the screw that may be appropriate for the deficiencies that have arisen in the banking structures. However, we do not wish to be associated with an exercise designed to correct what went wrong with the banking structure. We could debate where any separate regulation should be housed but the important underlying principle is that the credit union movement deserves separate regulation.

I echo what Senator Paul Coghlan said earlier — the figures on this can be seen in today's edition of The Irish Times and were reported in various regional newspapers during the week — that credit is not available here for ordinary people. A piece in The Sligo Champion last week cited a survey undertaken by Peugeot on the issue of modest car loans. Some 71% of applications were turned down by financial institutions. The biggest lenders for car loans now are credit unions, at near 30%. Three of every ten car loans are financed by the credit unions. We are keeping people on the road. People are looking to politicians and to us to ensure the credit union movement is enabled — we do not just want separate legislation, but enabling legislation — to develop its range of services for members. As committee members are aware, we have a limited stock of offering currently.

Deputy Seán Sherlock

With regard to the availability of credit, the credit union movement has a particular view on section 35 of the Act. I understand section 35 provides that not more than 20% of credit unions' loan books may be out on loan for longer than five years. In these constrained times when vast numbers of people seek to reschedule their loans, does this have a negative impact on credit unions' ability to deliver a surplus, operate properly or allow a greater degree of flexibility for ordinary members throughout the country who might want to reschedule? Has the Minister given any consideration to amending section 35 to allow for that so that the people who take out the car loans and who cannot make payments can extend the life of the loan? Currently they are hampered from doing so because section 35 has not been amended. What is the view of the delegates on that? I understand a submission has been made in this regard, but we are unaware of the position on that currently.

Mr. Mark Bailey

I am pleased to report that over the past six to eight months we have been in negotiation with the Department and agreement has practically been reached. I understand the Minister has an order to sign shortly which will increase the provision to 30%. To be fair to the Government, there has been due recognition of the financial circumstances affecting credit union members, and we appreciate that.

Deputy Seán Sherlock

Has the Minister given a specific date for that order?

Mr. Mark Bailey

I understand that the various representative organisations and the registrar have agreed this in the past week or two. I am not sure of the date for the order and we will leave that to the Department. As far as the credit union movement is concerned, discussions have been taking place over a period of months and we are pleased to say they have been finalised.

Mr. Tom Kiely

In addition, with regard to section 35 which was under discussion with the regulator and the Department, there will be some developments with regard to rescheduling, controls around it and reporting of it. This is welcome also for credit unions and their members.

Deputy Seán Sherlock

With respect for the submission made, I have yet to be convinced. We all recognise that a different ethos exists within the credit union movement from that which created the fiasco that was the banking crisis, with some notable exceptions within the credit union movement. However, as a percentage of overall credit union activity, the less than kosher practices used in some credit unions seem minuscule. By and large we all agree credit unions are well marshalled because of the individual ethos of members and boards at local level who do a great job in ensuring the ethos is maintained. However, if the movement is to convince me, as one humble member of this committee, that it should have an independent regulator, it would need to make a stronger case for inclusion under the current central bank commission than that it is separating from the banking regime. The changes that will come down the line in that regard will be stringent. If the credit union movement, where the regulatory regime is already quite strong, is within that framework, I do not see how this would be a problem for them.

Ms Fiona Cullen

Deputy Sherlock raised the point we have made. There is nothing wrong with the regulation of credit unions. If credit unions could be affected by measures being introduced with very different motivation, this would be something the league would not be in position to support.

There seems to be a school of thought in certain areas that the regulation of credit unions is not as stringent as it should be. That is not the case. Once a society is registered as a credit union under the 1997 Act, it becomes a body corporate, with similar characteristics to a company in that it is known by its registered name, may sue and be sued and has perpetual succession, a common seal and limited liability. Therefore, for all intents and purposes it is similar to a company, but is not a company under the Companies Acts. It is a credit union under the Credit Union Act 1997. Within the provisions of that Act, the registrar and the Central Bank are the last tier in the process.

The regulation of credit unions starts at credit union level. A board of between seven and 15 people is elected from the members. It has the general duty of the control and management of the union, including some 18 specific statutory duties, functions and powers it must carry out. Members also elect the next tier, a supervisory committee which exists to oversee the directors in the performance of their functions. Above this tier, members of the league — the 505 credit unions we have as members — benefit from the league's monitoring service, which provides field visits and an early warning system for any difficulties that arise. Behind the monitoring service lies the savings protection scheme, SPS, fund, which currently stands at €117 million. This is of massive benefit to the members of the league and is used to assist any credit union in difficulty. On top of that, Part 6 of the 1997 Act is devoted to giving powers to the Central Bank, through the Office of the Registrar of Credit Unions, to regulate credit unions. As Mr. Bailey mentioned already, we have many examples of member credit unions that would say there is nothing wrong with this and that these powers are used widely. The point is, it is the regulation of banks that has failed, not the regulation of credit unions.

Mr. Pat Fay

I would like to add one comment. Credit unions, unlike banks, are subject to a range of caps and limits with regard to the amount of savings, shares, deposits and lending they can have. Their lending is limited by the total assets of the credit union and so on. There is a range of limits and restrictions on credit unions. This differentiates them from banks, and rightly so because they are different. It is interesting that the Basel Committee on Banking Supervision, following the last G20 meeting, has said for the first time that co-operatives and similar bodies, such as credit unions, should not now be subject to tier 2 and tier 3 capitalisation requirements. This is fundamental. This is the first time that body, an international regulatory body for banks, has recognised that credit unions are different.

I had the good fortune, along with some of my colleagues, to visit the United States recently. This visit was with reference to the National Credit Union Administration, which is a body, separate and entirely distinct from the banking, SNL, and insurance industry regulation in the United States. This body is charged specifically with regulating credit unions in the United States. As committee members are probably aware, there are three separate funds, one for shares and loans, one for the banks and a separate fund dedicated entirely to the protection of credit unions in the United States. We could also look at Canada. In nine of the provinces of Canada, there is a distinct separation of credit union regulation at provincial level. This varies then to a combination of regulation as it goes forward.

In France there is the Crédit Mutuel which is regulated distinctly differently and in Austria the Raiffeisen banks have their own separate regulation and so on. Therefore, there is a precedent for credit unions not being regulated within the for profit financial services industry sector. The import of our argument is that credit unions should be carved out of that regulatory regime in this country and put into a regulatory system where the regulator has knowledge and understanding of and empathy with the voluntary nature of credit unions and all their other aspects. We were asked if we could advance our argument a bit further. Substantial argument can be made for best practice and regulation that these credit unions be separated entirely from banks.

Deputy Kieran O’Donnell

I welcome the members of the Irish League of Credit Unions. I have two questions. Looking at the ratios for credit unions, if some of the banks were to adopt those ratios, we would probably be in a much healthier position. The credit union movement overall is fantastic. Many small businesses owe their existence over the past ten to 15 years to the credit union movement. Notwithstanding that, I would like to probe a little further.

The one issue that has arisen during the banking crisis has been the investments by the credit union movement. It is the only issue that has surfaced. It has a level of bad debts as well. Does the Irish League of Credit Unions set down standards or recommendations stating with whom credit unions should invest or the type of investment they should make? While very good people run credit unions, many may not necessarily have the financial expertise. That is a view expressed by themselves. Certainly there were highly risky investments. Many tier 1 perpetual bonds were not guaranteed and the majority were outside the bank guarantee scheme. Some were tier 2 but if they were lower tier 2, they would have been inside the bank guarantee scheme. Will the witnesses explain the structure within the Irish League of Credit Unions? Does it set down guidance, rules and regulations in regard to the type of investments individual credit unions can make?

Are the witnesses sufficiently happy with the regulation of the credit union movement by the Financial Regulator in recent years? The credit union movement has made a case for stand-alone regulation, such as in Canada and America. If a person at the same rank as the assistant director for financial supervision — a separate rank at the same level — was to be the current regulator of the credit unions, would the Irish League of Credit Unions be satisfied with that type of structure in terms of regulation? I am looking at the position from the point of view of assets valued at €39 billion which is a phenomenal level of assets. The Irish taxpayers put €11 billion into the banks. The credit union movement is in every single parish, involves local people and has the personal contact, but the question is about moving forward. Are there particular matters the credit union movement has learned from the recent crisis and would it like to see changes in terms of regulation and the way it does business?

I ask the witnesses to return to the tier 1 terms and recommendations from the Irish League of Credit Unions to individual credit unions. If a registrar of credit unions was created alongside the assistant director for financial supervision, would the Irish League of Credit Unions be happy? What issues have arisen and what lessons have been learned?

Mr. Tom Kiely

I will take the first part of the question. In regard to investments, from the perspective of the Irish League of Credit Unions, the regulator plays a key role in terms of the guidance note and the documentation the regulator would have for credit unions. As a consequence, it has a significant number of controls in place which cover some of the indicators we talked about, for example, the liquidity controls the regulator would ensure are in place in each credit union. That is monitored every quarter. If credit unions follow that guidance note, we would be satisfied that they would be well covered in terms of investments.

Deputy Kieran O’Donnell

That is the 20% liquidity.

Mr. Tom Kiely

It is the 20% liquidity. It is not the role of the league to be investment advisers. Each credit union would take its independent investment advice on the back of the guidance notes——

Deputy Kieran O’Donnell

From the Financial Regulator.

Mr. Tom Kiely

That is the Financial Regulator.

Deputy Kieran O’Donnell

So the Irish League of Credit Unions would play no role in that.

Mr. Tom Kiely

We would obviously encourage them at every opportunity and play a role in terms of recommending best practice investment advice, especially in regard to the controls around the indicators to which we have referred and having the products in place to satisfy those controls, whether they would be short-term realisable products that would be on a guaranteed basis or whatever. That is the emphasis we place on it.

Deputy Kieran O’Donnell

Okay.

Mr. Kieron Brennan

Perhaps I can offer an additional clarification. The Irish League of Credit Unions is not a regulated financial adviser so it would be improper of us to offer that kind of advice to credit unions. We can offer general guidance and we can promote the registrar's investment order which sets out the type of investments in which credit unions should be involved. In terms of the Deputy's second question, I cannot state strongly enough that it is the preference of the Irish League of Credit Unions that separate and distinct regulation would be our first port of call. In the event that were not possible, we would expect that the motion in the current proposals would be rectified probably along the lines the Deputy suggests.

Deputy Kieran O’Donnell

What are the lessons learned and the changes the Irish League of Credit Unions consider should be implemented arising from the financial crisis, from the credit unions' perspective?

Mr. Kieron Brennan

How long have we got? To re-emphasise one point I have made, we are all spending a good deal of time today talking about prudential control, safety, security and so on. It is natural in the light of the financial crisis that we would do that but we should not forget, especially in relation to credit unions, that there should be an enabling element to regulation. It is not just about controlling or limiting what one does, it is also about enabling the movement to develop its range of services. I echo the point made earlier that there is an increasing dependence on credit unions and that will only be enhanced as banks try to clean up their balance sheets.

Deputy John O’Donoghue

I join the Chairman and other members in welcome members of the Irish League of Credit Unions before the committee. It is important to acknowledge the role played by the credit union movement in Ireland without being in any way patronising. Unquestionably for more than 50 years the ethos and philosophy which has underpinned the credit union movement has had a beneficial effect on every parish in the country. The co-operative nature of its work and non-profit motivation are issues which every citizen, irrespective of whether he or she is a member, would have to admire.

That said, I wish to ask some questions of the representatives present. I note that, historically, the league has on occasion had what I may describe as an uneasy relationship with the Department of Finance. Its president, Mr. Bailey, makes it very clear that as far as he is concerned, the credit union movement, if it remains within the remit of the Department of Finance, will always play second fiddle to bigger policy considerations. Will Mr. Bailey expand on that and say why precisely he feels this is the position, and why he feels it would be different if it came under the remit of the Department of Enterprise, Trade and Employment.

On another question, am I to take it that the Irish League of Credit Unions is not looking for less regulation but different regulation, or that it is looking for less and different regulation, or that it is looking for the same regulation but under a different regime?

Mr. Mark Bailey

I will take the first part. We can give one or two examples of where we have found ourselves playing second fiddle within the Department. Deputy O'Donnell asked about section 35. Some 12 to 15 months ago, we first made representations as pressure was coming from member credit unions on the section 35 limits. As far back as April last year, at our AGM, various commitments were given that the issue would be considered. We accept that other issues took over and that the Government was under various pressures, but it has essentially taken nine months from the commitment being given last April. It took six or seven months just to get the stakeholders together to discuss where we go in this regard.

There are one or two examples such as that where we believe the priorities of credit unions are playing second fiddle, although over the past six months, to be fair, there were other serious priorities. It is our members — the constituents of the Deputies and Senators — who are feeling the pressure, week in, week out, due to jobs losses, hours being cut and so on. We are trying to respond to assist those members. At times, such as in regard to the example I gave, we have felt that perhaps we were not a priority.

Mr. Kieron Brennan

That is fair enough. No one would argue that fixing the banks and the economic fall-out from that is the No. 1 priority for the Department of Finance. However, the regulatory authority should be freed up to concentrate on the regulation of banking and should, by all means, get on with it. As the president said, it would only be natural, and I would be surprised, if the regulation of credit unions did not come second, third or fourth behind that current national priority.

In terms of the type of regulation we want, we have not come before the committee today to suggest that credit unions wish for lesser or lighter regulation than they have at present. To quote the president again, it is recognised that in contrast to the principled approach to banks and the lighter touch applied to banks, regulation of credit unions has been the exact opposite in that it has been very rigorous and interventionist — some would say we are the better for that. Our argument is not that we want a softer touch; we do not. We just want to be in a place where we are recognised as different and separate from banks.

At a time when the banking institutions have collapsed and the offices of State, including the regulatory authorities, are focused on fixing those issues, let them get on with it and let us exist in a separate, distinct and appropriate place, which can also give us the enabling legislation and regulation we spoke about earlier.

Deputy Tom Sheahan

I am an unequivocal supporter of the credit union movement. I take on board Mr. Brennan's point that he is not looking for softer regulation. It is amazing how the Financial Regulator has turned the spotlight on the credit unions because I did not expect him to be finished with the banks yet.

On the strategic review of the credit unions in regard to policy formation, is it correct that individual credit unions must submit to the Financial Regulator whom they are appointing as financial controller or auditor? This issue has come to my attention recently.

The credit union movement has €13.9 billion in assets because it minded its money. It is still in a very strong position despite taking into account the hit that was taken on certain bonds by the credit unions.

I questioned the Minister before Christmas with regard to section 35(2)(a) of the Credit Union Act. He indicated that there had been a meeting on 15 December and that agreement was imminent regarding the extension from 20% to 30%. One of the delegates stated earlier that a statutory instrument will be signed off by the Minister in the near future, despite him stating in April 2008 that he would look after the matter. Is there any sympathy for those whose credit rating has been affected since he gave the commitment in April 2008? I know of many people who were taking home €600 or €700 in earnings and making repayments of, say, €100 per week to credit unions, who then found themselves on €204 per week, having lost their jobs, so they were not in a position to make those repayments. The Minister gave that commitment in April 2008 but it has not been signed off yet despite it being February 2009. Many people have been hurt in the interim.

One of my colleagues stated that the economic qualifications within the credit union movement were not massive, and that outside assistance and advice had been sought. Believe it or not, only 17% of those in the Office of the Financial Regulator have economic qualifications.

I have always looked on the credit union as a safety net. Now more than ever, it is coming to light that it has been a safety net for ordinary, working class people who save on a regular basis and who have been looked after by the credit unions. There has been a heavy-handed approach to the credit unions by the Financial Regulator. When the Financial Regulator came before the committee, I told him that if the same blunt instrument had been used on the banking sector that was being applied to the credit union sector, the country would not be where it is today. The reason the Financial Regulator is using an outside consultancy agency is to undertake this review on the credit unions at arm's length, come what may. It is hoped the Minister will in the near future sign the agreement with the Irish League of Credit Unions in regard to the extension of loans for people who, through no fault of their own or owing to the economic crisis, may be out of work and not in a position to honour their financial commitments to the credit unions.

Mr. Mark Bailey

Deputy Sheahan's first point was in relation to notification of auditor. Section 113 of the Act requires a credit union, when changing an auditor, to notify the registrar.

Deputy Tom Sheahan

As I understand it, the credit union must first send the name of the auditor to be appointed to the Financial Regulator, who then has the wherewithal to agree or disagree with that appointment. Is that the position?

Ms Fiona Cullen

The Act provides that if the bank, being the Central Bank and Financial Services Authority, through the office of the registrar, is of the opinion that it would not be in the interests of the orderly and proper regulation of the business of a credit union or in its members' interests it may by notice in writing order the credit union not to elect or re-elect to the office of auditor a named person.

Mr. Mark Bailey

My apologies, I may have stated earlier that the Minister gave us a commitment in 2008. He gave us the commitment in April 2009. It has taken approximately seven or eight months to fulfil that commitment. We are happy with where we are now. We recognise that there were possibly pressing arguments for the State. We are happy that agreement has been reached and that the difficulties being experienced by our members has been recognised.

Deputy Damien English

While most of the questions I wished to ask have already been asked I have a few more for the delegation. I welcome this discussion with the Irish League of Credit Unions which does unbelievable work on behalf of the community. Many people would be suffering were it not for the credit unions. The credit union never turns its back on people but always helps them out when they are stuck. One can always depend on the credit union when things go wrong. Much of the feedback we receive from credit unions, including those in my own constituency, is very positive. Credit unions are strict but fair, which is all people ask for. Often banks are not considered to be fair. However, they are profit orientated and have different principles. The credit union movement is about people rather than profit, which is key. I acknowledge that when the Irish League of Credit Unions seeks to meet with us it is not in regard to the prevention of changes or in respect of profits, but to ensure they do a better job on behalf of the people. The credit union movement is not strangled by red tape or high costs.

It is often the case when new legislation or regulations are introduced to correct past mistakes that the innocent suffer. Often the person who has always done what was right ends up losing out under a new law. We must try to ensure this does not happen in terms of credit unions. I do not have any problem with the introduction of specific regulation for the credit union movement. However, I have a problem in regard to setting up a new office to administer it in so far as it will result in extra cost. I am not in principle objecting to the appointment of a specific regulator. However, doing so will result in excessive costs. I would favour, if at all possible, the introduction of separate regulation implemented through the same body which comprises a specific person who understands the ethos of the credit union movement. I am not against the appointment of a specific regulator but against the establishment of new bodies or quangos, which is simply money down the drain.

Obviously, current regulation in this area is working given taxpayers' money is not being used to recapitalise credit unions, they are not being bailed out and there is no crisis of confidence or run on funds in credit unions. As far as I can see credit unions are functioning properly and as such there is nothing wrong with current regulation in this area. I am interested to hear more from those who have stated the regulations are excessive, in particular in regard to bad debts. It has been stated that the regulations are forcing credit unions to move people to the bad debt category too quickly. Credit unions are slightly different to banks. People are more attached to their credit union and feel badly if they do not pay their debts to them. Writing them off too early in terms of bad debt is wrong. Where people continue to make payments, even if only €5 in respect of a €20,000 loan, that debt should not be considered bad debt. I get the impression that is what has been happening. Perhaps the delegation will state if that is the case. If so, we will try to address the issue.

It has been mentioned that Mr. Kiely is the head of monitoring. What specifically is Mr. Kiely's job? It has also been stated that Mr. Kiely has experience in banks which he believes are being regulated less intensively than credit unions. Perhaps Mr. Kiely will elaborate on that point. On the €13.9 million assets, I presume that relates to ownership of buildings and that they have been revalued. Some bodies do not properly revalue their assets which can lead to other problems. I presume the message has issued from the Irish League of Credit Unions that individual credit unions should have their property revalued.

It is important to have in charge a person who understands what it is the credit union movement does. Was the Irish League of Credit Unions involved in the review carried out by the outside consultants on behalf of the Financial Regulator? I understand no date has yet been given in regard to when that review will be completed. However, has the Irish League of Credit Unions met and spoken to the consultants? It is important it meets them rather than corresponds with them in writing. The American, Canadian and Austrian models have been mentioned. What is the norm in Europe in terms of regulation? It is important to have that information. I acknowledge that one cap will not fit all in regard to credit unions.

Mr. Tom Kiely

I will deal with the question in regard to monitoring and the role of the monitoring department within the Irish League of Credit Unions. The monitoring department attempts to pre-empt any issues facing credit unions from a financial or non-financial basis. We have a team of field officers who visit every credit union in every county in Ireland on a regular basis to ensure we are aware of issues arising and to ensure the prudential return information, which is submitted to the Financial Regulator and the monthly accounts information which is prepared by the credit union and sent off by its auditors is considered from the overall perspective of the credit unions under the various indicators of reserves, provisioning, bad debt provisioning, liquidity and so forth. We carry out a considerable number of reviews on an annual basis. This is followed up with recommendations to the credit unions to ensure they are brought up to the required level across the indicators deemed relevant not alone by us but by the Financial Regulator. Much of our work is around pre-empting issues that can arise. This system has been successful in bringing issues to the fore for the Irish League of Credit Unions and credit unions generally.

Deputy English asked about regulation of credit unions versus the banks. My experience, given it now covers the credit union sector as well as the banking sector, is that the credit union regulator is, as mentioned by the president in his submission, a hands-on regulator which gets involved in on-site inspections on a regular basis. Analysis of the prudential information is carried out by the regulatory department in a conservative and prudent manner. Also, there is huge focus on the key indicators. The difference in terms of credit unions and the banking sector is the complexity around the products and services offered by credit unions and the consequent information that comes from that whether balance sheet information, income and expenditure or whatever which is more straightforward in terms of the financial indicators it needs to assess. In terms of the banks, the various capital adequacy rules, the risk management techniques and various instruments utilised by banks for reducing and so forth makes the system much more complex and requires resources to be beefed up. That said, the credit union regulator and focus of inspections is the key in terms of concentrating on what is really important. It has been successful up to now.

Deputy Damien English

In other words, it is easier for credit unions to monitor themselves?

Mr. Tom Kiely

I would not suggest it is easier. It is more manageable given they have the resources in place.

Mr. Kieron Brennan

I will deal with the second part of Deputy English's question regarding the review of credit unions which has been mandated to be undertaken by the Financial Regulator and outsourced to a consultancy firm. We met the Minister in June of last year and discussed the need for a review of legislation on the regulatory issues of which we spoke and on the enabling issues mentioned earlier. It was our view that a review of the legislation was needed. What came to the fore on 22 December last was a review of the credit union movement, which is quite different. That is something which should properly be undertaken by Government, specifically by the Department of Finance. No one else can be independent and above the system. Anyone within the system is a dependant of an interested stakeholder. I would include the Financial Regulator in that. His role should also be assessed as part of the review. Given the financial crisis in which we find ourselves and the need to fix the system, surely the Department of Finance should deal with that review.

Deputy Damien English

I am not saying wrongdoing occurs. However, what procedures are followed if the Irish League of Credit Unions is aware that a credit union is doing something wrong? Would the league deal with such a matter or must an individual member of the credit union concerned follow it up? If a problem arises, what reporting system is in place?

Mr. Kieron Brennan

It would depend on the nature and extent of the problem.

Mr. Tom Kiely

It depends on the nature of the problem. We have an internal control structure. The monitoring department reports to the board of the league and the matter is discussed there. The emphasis is, generally, on making recommendations to the credit union on a timely basis so that the issues can be addressed. We do that with appropriate speed.

Deputy Damien English

Is the league allowed to report to a higher authority if it is felt that something wrong has been done?

Mr. Tom Kiely

It would be in the interest of maintaining the stability and robustness of credit unions to do so. Our objective would be to put appropriate actions in place so that the credit union concerned would get back on a stable footing. That is what we would aim for.

Deputy Tom Sheahan

I heard on a radio programme this morning that sales in the motor industry are expected to increase by 5% this year. How much of that business will depend on credit union finance, which is where people get finance to buy cars? I have come across many people who had to go to their credit union to get finance to buy a car. The motor industry is indebted to the credit union movement.

Deputy Damien English

My question about the European model was not answered.

Ms Fiona Cullen

Deputy English's question referred to the EU. However, I can give him some information about the various countries which have a regulator distinct from the banking regulator. They are Argentina, Brazil, Canada, France, Germany, Indonesia, Mexico, Russia, South Africa, South Korea and the United States, of which my colleagues have spoken.

Deputy Damien English

Did they have that system from the beginning or did they adopt it subsequently?

Ms Fiona Cullen

In the United States it has always been acknowledged that credit unions have a different status and that it is not appropriate to apply banking regulations to them. In the overhaul of financial regulation in the United States, the Senate has already indicated that credit unions will not be caught up in any single entity covered by new regulations. Argentina is regulated under a national institute of co-operative action, Indonesia under a department of co-operatives, South Africa under a co-operative development agency and the United States under the National Credit Union Administration. In France, financial co-operatives are regulated by the National Confederation of Crédit Mutuel, which is entirely separate from the banking regulator. In Germany, credit unions are regulated by a federal bank regulatory board, which sounds quite like a centralised system. This information comes from the World Council of Credit Unions, of which the league is a member. In Great Britain, as distinct from the United Kingdom because we have more than 100 members in Northern Ireland, credit unions are regulated by the Financial Services Authority. However, credit unions in Great Britain are very different from those in Ireland. We are regulated by the Financial Regulator at present.

My colleague, Mr. Pat Fay, has some comments on the situation in Poland.

Mr. Pat Fay

Ireland was instrumental in re-starting the credit union movement in Poland in 1990. I spent some time there at that time and we looked at all the existing legislation. The consensus was that credit unions should be established, especially in rural areas, and have separate regulation. The regulatory regime in Poland is essentially self-regulatory within the credit union movement and with government approval. In Macedonia, there is a small credit union movement. Credit unions there have great difficulty in generating capital in order to start. Similarly, in Latvia and Lithuania a small credit union movement is starting but there are problems in generating capital. Regulation is not an issue but approximately €1 million is required to start a credit union and it is difficult to raise this capital. We looked at the Hungarian co-operative model. There is a number of co-operative banking structures there. The one which is particularly close to the credit union is known as the Takarek bank. It has local and regional regulation.

Holland is the home of Rabobank, which we think of as a big international body. While it is, there are still local credit unions in towns and villages in Holland, Rabo being a combination of rural and urban groups which came together in the 1980s to form Rabobank. Many of those branches operate exactly as credit unions in their home base, underpinning the incredible international body which Rabobank is. Romania is of particular interest. There is a very old established movement in that country of about 4,000 credit unions. We have been working with a small section of that, bringing them up to international standards and applying our PEARLS and monitoring measurements to them. They are currently negotiating with their government to get regulation similar to what we have in Ireland. We assisted them in those negotiations.

In Albania, the only co-operative movement was that enforced by the Hoxha regime. Credit unions started there in 1990 and there are now approximately 40. There is self regulation within an organisation called Jehona, which is the Albanian word for echo. It refers to the practice of people calling across mountains to one another for help with work, like the Irish meitheal concept. Albanian credit unions are partly self-regulated and partly regulated through the Bank of Albania. The Irish league gives tutoring, input and support to the Bank of Albania so the movement is largely modelled on the Irish League of Credit Unions.

In Russia we now support three substantial development projects. We have made substantial input to the Parliament in Moscow. We have people in Moscow at present discussing and negotiating how the regulatory structure will emerge in Russia. It is likely that groups of 100 credit unions will be brought together in some form of local apex which would be the regulated entity. However, we do now know how it will turn out.

A credit union is a unique organisation, as members of the committee know. Regulation should be cognisant of the social and economic aspects which underpin a credit union. It should be differentiated from banking regulation. We should not be gathered up in the frenzy of regulation which is emerging from Washington, the G20 and Brussels, which will be quite draconian. This is because of the errors committed by banks and the detriment they caused to ordinary people. A credit union has not caused that. This is why it is the policy of the Irish League of Credit Unions, recently endorsed, that there should be separate regulation empathetic to credit unions. Ideally, the current regulatory expertise of IFSRA would be transferred to the Department of Enterprise, Trade and Employment or another body considered appropriate. This would prevent the establishment of another quango, which the Irish League of Credit Unions would not support. The league favours using available expertise, although we also want to ensure this expertise operates under a slightly different remit and ethos. While it should work in as involved and detailed a manner as heretofore, the emphasis should be on support, involvement, attendance at general meetings of credit unions at which governance and other problems arise and so forth.

Senator Ned O’Sullivan

As this has been a long meeting, I will be brief. The decision of the Irish League of Credit Unions to volunteer to appear before the joint committee is refreshing and positive. A number of its sister organisations appeared before us kicking and screaming, as it were, while a couple of others declined our invitation.

Credit unions are a good news story. Every community in every village and town is aware of the fantastic work being done by credit union volunteers. I have tremendous admiration for all those involved in credit unions, many of whom politicians encounter in their work. It is universally acknowledged that credit union staff are friendly and well disposed to their customers. I am not surprised, therefore, that the Irish League of Credit Unions wishes to create the greatest possible gap and differential between themselves and regular, or perhaps I should say "irregular", banks. I can understand the reason this proposal is being pursued. Separate and different regulatory regimes for banks and credit unions may well be the correct approach. I am not surprised, therefore, that the league is pursuing this option.

I do not expect the Irish League of Credit Unions to seek less regulation for credit unions, as such a proposal would not be granted in the current climate. The regime in place heretofore appears to have worked reasonably well. One wants a regulator to show vigilance, prudence, intelligence and understanding and I presume these requirements will be secured under the structure that is eventually established. Certainly, vigilance will be shown if it was lacking previously.

While I do not know who will decide what form of regulatory regime will be imposed on the credit unions, I would not like their status to be diminished in the new regime, as appears to have been suggested. I empathise with the view that such a scenario would not be satisfactory. Whether a completely separate regulator is required is a moot point and further discussion and persuasion will be required in this regard.

The chief executive put his finger on the issue when he stated that regulation must be complemented by enabling legislation that would allow the credit unions to progress. This argument will receive a sympathetic hearing in the current climate and it may be more important to the credit unions than the form of regulation applied.

I am positive about the role of credit unions. I was pleased to note, for example, the number of car loans they have provided. Does this mean credit union lending has not declined or are they in the same position as the banks? Has lending been frozen? I would be delighted to learn that credit union lending has not been frozen.

The delegation may find it strange to hear a politician ask if there is too much democracy in credit unions. Is that their Achilles heel? Has the regulator examined or raised this issue? I am aware of a small number of cases of public meetings being called to discuss controversies in individual credit unions. I refer to one such meeting, either an annual general or emergency general meeting, I attended in my home town of Listowel. Despite the conference hall booked for the meeting having a capacity of 400 people, the event had to be cancelled on health and safety grounds. The debate had nothing to do with financial issues but focused on personalities. Do such controversies undermine credit unions given that a person with money invested in a credit union would want its annual meeting to focus on investment and profit issues rather than democratic rows? While we have such rows in all organisations, whether the Fianna Fáil Party or the GAA, one does not want them in one's banking business.

Mr. Tom Kiely

In general, lending across credit unions has been relatively stable. Notwithstanding the challenging economic times of the past 18 to 24 months, lending has held up well which is welcome. In terms of lending decisions, appropriate decisions are made by the credit committees which are part of the internal structure of each credit union. The evidence shows there has not been a real decrease in overall lending across credit unions. In some cases, depending on the credit union involved, lending has increased but overall it has been stable. The controls in place are the key to this in terms of making the appropriate decisions in each case.

Mr. Mark Bailey

On Senator O'Sullivan's second point about democracy, one must bear in mind that almost 10,000 people are involved in the credit union movement on a voluntary basis. When one has this number of people coming together it is inevitable and at times regrettable that personality issues will arise on occasion. The Irish League of Credit Unions is concerned about good governance. I refer the Senator to my comment that we have set a challenge of improving governance in all our member credit unions in recent years. I refer specifically to the advanced certificate in credit union practice, through which we are upskilling people in personal skills and financial matters. While it is regrettable that personality issues arise from time to time, the real business is the work of the credit unions. On the whole, cases of this nature are few and far between.

Deputy John O’Donoghue

Let the record show that of the five members present at the end of the meeting, three were Kerrymen.

Chairman

I suppose the dispute is always on what side of the Cork-Kerry border the credit union movement was founded. We, on the Cork side of Ballydesmond, claim it was founded on the Cork side. I thank members of the delegation for coming before the joint committee and members of the joint committee for having a constructive meeting. The lengthy discussion reflected members' interest in and respect for the Irish League of Credit Unions and the credit union movement nationwide.

The joint committee adjourned at 6 p.m. until 3 p.m. on Tuesday, 16 February 2010.