Dáil Éireann Debate, Wednesday - 1 February 2012
7Deputy Robert Troy asked the Minister for Finance his plans to implement any of the recommendations of the interim report from the Commission on Credit Unions or if he intends to wait until the publication of the final report; and if he will make a statement on the matter. [5646/12]
Amharc ar fhreagraThe Government established the Commission on Credit Unions to review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for the sector. The commission is to take into account credit unions' not-for-profit mandate, volunteer ethos and community focus, while paying due regard to the need to fully protect depositors' savings and financial stability. The Commission on Credit Unions submitted its interim report to me on schedule at the end of September 2011 and it was published shortly thereafter. The interim report deals with phase one of the commission's work regarding the strengthening of the regulatory framework for credit unions, including more effective governance and regulatory requirements.
In summary, the interim report's recommendations are: the establishment of a credit union stabilisation mechanism; the introduction of a prudential rulebook for credit unions setting out a comprehensive framework of regulatory requirements; changes to credit union requirements on governance, competency, risk management, internal audit, lending, compliance, liquidity and other matters; the commencement of Part III of the Central Bank Reform Act 2010 for credit unions, which will provide the Central Bank with the powers to set out regulations and a code of fitness and probity for the credit union sector; the commencement of credit union contributions under the deposit guarantee scheme; enhanced Central Bank powers to inspect, investigate and gather information from credit unions; the extension of the Central Bank's administrative sanction regime to credit unions; and the application of the provisions of the Central Bank (Supervision and Enforcement) Bill 2011 to credit unions.
The interim report was well received by stakeholders and wider commentators. I have accepted the interim report recommendations and have asked my Department to prepare legislative proposals for inclusion in the credit union Bill to be published by the end of June under the EU-IMF programme. These proposals are to be discussed with the Commission on Credit Unions before being submitted to Government for approval.
Additional information not given on the floor of the House.
There are a number of recommendations which will be given effect in the meantime.
My Department is currently making the necessary arrangements to commence credit union contributions under the deposit guarantee scheme and will be discussing implementation issues and timelines with credit union stakeholders over the next few weeks.
In accordance with the commission's recommendations, I expect to be in a position to commence Part III of the Central Bank Reform Act 2010 shortly, which would apply the Central Bank's fitness and probity regime to credit unions. Once commenced the Central Bank will then have to formulate and consult on draft regulations and a draft code before the fitness and probity regime can come into full effect for credit unions.
The commission recommended that the resolution powers granted to the Central Bank under the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011 should be considered for those credit unions that meet the intervention conditions set out in the Act. The Central Bank recently undertook the first such action through the appointment of a special manager to Newbridge Credit Union.
The final report of the Commission on Credit Unions is due to be submitted to me by the end of March and I expect that it will deal with the remaining issues in the commission's terms of reference, including restructuring. I do not propose to bring forward proposals on these issues until I have had the benefit of considering the commission's recommendations.
I thank the Minister for his response. The interim commission report was a good day's work. There are a lot of sensible recommendations in it, many of which can be acted on in the short term. I understand the final report is due in March and that the Minister will come forward with the promised legislation to deal with the credit union sector. We need to give as much certainty as possible to those involved in the credit union sector that it has a strong role in the provision of financial services in this country going forward.
I have some concerns about the cost implications of some of the recommendations such as that each credit union would have an internal audit function, risk and compliance officers and so forth. Allied to that, when does the Minister expect to activate the resolution fund in terms of contributions going into it from credit unions and other regulated entities?
We are pursuing the commencement of the resolution fund at present. Discussions are going on between ourselves, the Central Bank and the credit union movement but a number of the recommendations of the interim report have already been implemented. I expect to be in a position shortly to commence Part 3 of the Central Bank Reform Act 2010, which would apply the Central Bank fitness and probity regime to credit unions. Once commenced, the Central Bank will then have to formulate and consult on draft regulations and a draft code before the fitness and probity regime can come into full effect for credit unions.
The commission also recommended that the resolution powers granted to the Central Bank under the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011 should be considered for those credit unions that meet the intervention conditions set out in the Act. The Central Bank recently undertook the first such action through the appointment of a special manager to the Newbridge Credit Union.
We will await the result of the commission's proposal. That will give us little enough time to formulate the Bill by June but in parallel with the final stages of the commission's consideration, we will run heads of the Bill by it for its views so that we are in a position to legislate as soon as its final report comes in.
Some months ago in the Seanad the Minister estimated that the overall bill for supporting credit unions could be somewhere between €0.5 billion and €1 billion. As I understand it, he has provided €0.25 billion this year and will provide a further €0.25 billion next year. Is that still a valid estimate following the stress tests which have now been completed?
I was asked a direct question in the Seanad and at the time, there were a lot of rumours going around about credit unions, which were exaggerated. They were applying the conditions that apply to a small minority of credit unions to the generality and I wanted to allay fears by saying that the Central Bank and the Government stood ready to support credit unions, their depositors and their borrowers. That position stands and that is what happened in Newbridge.
Is the estimate still broadly-----
I rely on the Central Bank and the registrar of credit unions. Effectively, what I was saying was that we will support the credit union movement and will ensure it remains solid.
I welcome the Minister's comments again today that the problem relates to a small number of credit unions. There was quite a bit of concern about, and criticism of, the Minister's handling of the intervention by the registrar of credit unions to appoint a special manager to Newbridge Credit Union. Thankfully, maybe because of the day that was in it, other news stories and the media acting responsibly on this issue, there was not widescale fear in regard to credit unions when this hit the news headlines. What was lacking was reinforcement of what the Minister echoed today that this was an exceptional matter and that the overwhelming majority of credit unions are on a sound financial footing.
Will the Minister reassure us and, indeed, the credit union movement that any future interventions by the registrar will be part of a wider reconstruction plan of the credit union movement?
The decision to intervene in Newbridge and to put in a special manager was a decision under law by the Central Bank. It was not my decision. Under the same legislation, the Central Bank had to consult me before it moved in. It had that consultation and deemed it necessary to intervene and then it did so. The function of the manager is to run the credit union in Newbridge on an ongoing basis and to come back with a report which will, effectively, be a business plan for the future running of the Newbridge Credit Union. While there was some nervousness over the first 24 or 48 hour period, it settled down and it is trading away. The manager went in on a Friday afternoon, the credit union opened on the Saturday morning and normal business was conducted and continues to go forward.
I draw the Deputy's attention to the interim report of the Commission on Credit Unions. It sets out data on credit unions over the years 2006-11. It states that 56 credit unions are under-capitalised with 27 of those considered to be significantly under-capitalised. That is out of a total of approximately 430 to 450 credit unions. We would want to get these things in proportion. We are really talking about 27 credit unions, some big but of a lot them small, which are seriously under-capitalised. Another 29 are under-capitalised. That is the quantum. That is the area of difficulty. I can tell the Deputy again that the Central Bank and the Government stand ready to support the credit union movement.
