I move: "That the Bill be now read a Second Time."
Ba mhaith liom fáilte a chur roimh an Aire. I appreciate the opportunity the Government has given me to debate this Bill in Government time. I cannot remember the last time I was given such an opportunity, but I am well entitled to it after 20 years in the House, a period slightly shorter than the length of time I have been involved in the credit union movement.
I declare my interest in the credit union movement and am a founder member of one of the larger credit unions, the INTO Credit Union. I have been committed to its philosophy and the philosophy of the Irish League of Credit Unions, ILCU, for many years. Nothing I will say is aimed at undermining or in any way taking from the extraordinary work of the ILCU. I admire it and hold it in the highest regard. We have a difference of opinion with regard to the Bill, but that is all it is, a difference of opinion.
My objective in introducing the legislation is to provide that where an independent broker, auditor, adviser, accountant or some such person is asked a simple question as to whether a person's savings in a credit union are as secure and guaranteed as in a bank or other financial institution, he or she may answer with a resounding "Yes". Until that is the case, we have left a gap in the area. It is not the case currently and my intention is to create a situation where it will be.
There are three means by which what I propose can be done. It could be done by operating under the section of the Credit Union Act which allows a credit union to operate. Talks have been ongoing between the Department of Finance, the Financial Regulator and the ILCU on that issue for the past three or four years, but they do not seem to have come to any conclusion. Something could be done under the Act. Another way to deal with the issue would be to operate a system like that of the Central Bank for the banks, namely, to have a reserve fund. A reserve fund exists for banks and perhaps we could have one now for credit unions. It could be brought in under the aegis of the Central Bank with a support structure at that level. The third way of dealing with the issue is the way I propose today in this Bill.
I am not saying the way I propose is better than the other two ways of dealing with the issue. It is the way I choose to bring forward to deal with this crucial issue. Without raising hares or making a tabloid issue of it, people should see we, as legislators, are concerned about the issues and want to fill the gap and meet a particular need.
The question might be asked as to why I have come to this position. I have arrived at it having looked at the available literature and evidence over the period of time I have been interested in the credit union movement. I will begin with the Department of Finance. Under the terms of the Credit Union Act, the Department and the Minister at the time established a credit union advisory committee. That committee wrote to the Minister for Finance, Deputy Cowen, in March 2005 and stated that since the appointment of the credit union advisory committee the previous September, it was concerned with the lack of any properly constituted savings protection scheme within the credit union movement.
Every Member and legislator should know savings protection is not just my idea, but also the main focus of the advice the Department has received from the advisory committee. Furthermore, the committee's letter to the Minister stated that as a result of its concern, it was now preparing a brief report on the desirability of introducing a savings protection scheme for the credit union movement. It proceeded to set out its recommendations at the end of the letter and those recommendations are in line with what I am trying to do in the Bill. The issue must be examined and it is crucial that we consider how to approach it. The advisory committee's letter refers to the existing and other situations that must be considered in that regard.
I wish to comment on the existing situation. The ILCU has a particular fund which is purported and is represented as doing what I am trying to achieve. I say without fear of contradiction that it does not do that and was not set up to do so. I will prove this. We need to make provision for savings protection.
At the world congress of credit unions last July, Mr. Pat Neary, the chief executive of the Financial Regulator, talked about the Irish credit union movement and its experience and raised issues of concern to him, for example, increasing delinquency, inadequate technology and issues of governance. I cannot imagine three more fundamental issues that should be of concern to us in that area. Mr. Neary said the situation here was beginning to mirror the international situation and, therefore, we need a savings protection scheme.
What is the situation currently? Currently, the ILCU has a savings protection scheme which is a discretionary fund that does not confer any statutory rights and is not independent. Due to the fact it is not a statutory scheme, it cannot insist its members follow strict instructions with regard to governance and how to run their operation. It is important to note also that a significant number of credit unions — a few dozen, some of which are quite large — are not members of the ILCU and do not have access to the discretionary fund.
The current scheme, therefore, does not do the business of what I am trying to do. It is not ring-fenced from the ILCU and is not a separate stand-alone fund. It has in the past been used to finance other areas. Members may recall problems the ILCU ran into on the introduction of new IT some years back, which cost a lot of money. Money came from the fund to meet those costs. Money also came from the fund to build the headquarters of the ILCU. There was nothing wrong with that as the ILCU was quite entitled to use the money that way.
My complaint is not about that aspect or about how the fund has been used to look after credit unions in difficulty. The current scheme is not independent. It is not statutory, which is a two-way track in that it, first, does not have the statutory authority to demand certain governance procedures in the credit unions and, second, does not give a statutory right of savings protection to savers. Their savings may be protected, if somebody decides to so provide, but there is not a statutory base like that required in every other such group.
There are systemic risks and those of which I spoke are important. The regulator has been clear in raising the issues in various speeches in recent years. Those issues include an increase and worsening bad debt profile, an increased investment risk, obsolete information technology in many cases, and governance and non-compliance with legislation and regulations. These are issues which are arising and being considered.
In addition, as the Minister of State, Deputy Parlon, and I will be aware, it is commendable that the credit unions have significantly developed their services. They now give much larger loans, some of which equate to mortgages in many ways, and many have also started business lending. There is nothing wrong with such services, except they involve new and additional complexity which requires newer and differing underwriting skills which did not exist previously. That is another reason we need to ensure a guarantee on savings and that these services are covered by regulation.
The regulator demands that such a scheme, whether known as a savings guarantee scheme or a savings protection scheme, must be run independently of anybody else, must be completely transparent, which probably goes without saying, and must ensure certainty of operation. Those are not my words. These three elements — independence, transparency and certainty of operation — are being demanded from the regulator and that is simply all that I am asking we provide for on this occasion. There is no easy way out of that in terms of moving the matter forward.
In reply to the debate I will probably return to the issue of where we are headed. It is crucial that we bring a sense of trust and confidence. I want to be able to say, if some time there is a difficulty in a credit union or a run on credit union money, that people would be aware there is a guarantee scheme in place. That is a requirement. We remember when the State had to bail out a bank 20 years ago and people thought it could never happen. It is an issue for which we must provide in this case.
An issue raised with me by people who were unhappy with what have I brought forward is that it does not meet all-island requirements. That would also be an issue of great concern to me and I have taken some advice on this subject. There are over 40 credit unions in the North which are members of the ILCU and the protection of the saving protection scheme, SPS, is available to them, but there are many others in the North which are not members. In the South, there are a growing number of credit unions which are not members of the ILCU. This is why there is a need to provide for this on a statutory basis. It is also why we need to look at something that will cover all credit unions on the island, if that is possible. That can be done in a number of ways: through financial instruments, inter-Government agreement, shadow legislation as outlined by the Good Friday Agreement and three or four other ways. Suffice it to say that I have looked carefully at and taken advice on this aspect and it can be done. There is chapter and verse on where this has been done in other countries. In the United States a number of credit unions in a number of states are covered by one guarantee system which is an overarching body, and that is another approach.
The advice that the credit union advisory committee gave to the Minister in 2005 included that it would be an independent savings protection scheme approved by the financial regulator; it would be a separate legal entity under the auspices of the Department of Finance or the regulator; membership would be obligatory on all credit unions in Ireland, which is crucial because every credit union must be a member in order to ensure that people know that their savings will be protected; the rules of compensation be clearly laid out; the power to request special levies of credit unions be given to it; that, crucially, it would have powers of examination and investigation; and that the appointments to the board of the savings protection scheme be made by the Minister for Finance.
On examination and investigation, I did not refer to the worrying anecdotal tales. I discussed them with the ILCU and I agree with it that they are only anecdotal. I want them to remain so. Issues of governance and bad debt provision, which have been raised with me, are enormously worrying and I hope they are not true.
The advice to which I refer forms the beginning. I did not go into the details of the Bill and I will refer to that in reply to Second Stage. In the meantime, I merely wanted to set the scene to state why this is necessary and why every Member of the House should share my concern and support the Bill.