Ms Anne Marie McKiernan:

I thank the Chair for the opportunity to respond. I would like to pick up on three points. I imagine that in every regulated sector, there is healthy tension and disagreement in the relationship between the regulator and those who are being regulated about how to take matters forward. We are absolutely clear that we want the same outcome as the sector and its representative bodies. I will not repeat myself by saying we want to see and support a thriving credit union sector that continues to provide valuable services to members in communities and across the financial system. We may differ in how we should get there. The picture we have gives us the advantage of seeing sector-wide practices and levels of regulatory compliance. We have called out the successes we have seen. However, we also have to call out the areas where further work needs to be done to best protect members' funds. Any business model proposals that are ambitious or otherwise should be built on solid foundations and should meet the requirements that apply to the current business approach, which is much less complex.

I know tiered regulation has been a central issue here. When we consulted the sector in 2014 on a form of tiering, it did not agree on a form to take forward at that stage. There were differences between the views of small and large credit unions. In our proposed model, we advocated that the smaller credit unions should be able to do more than those in the lowest category set out by the Commission on Credit Unions - type 1 - are currently able to do. Even though we expanded the range of services and opportunities available to credit unions in that category, the response from the sector at that stage was that smaller credit unions did not wish to be so confined. When we looked at this retrospectively, we found that if the form of tiering outlined in an example by the Commission on Credit Unions had been adopted, there would now be 30 credit unions in the type 1 system. One third of the credit unions in question are now in a transfer process. We would have built a system that would have eventually covered a very small proportion of the sector and we would have constrained it in what it could do. With the benefit of hindsight, it is probably just as well that we did not push ahead with the implementation of that kind of framework because it would eventually have become somewhat irrelevant. As we have said previously, we are not against any form of tiered regulation. We have sought to achieve the benefits of tiering within our existing framework. We do not assume that one size fits all. We have proportionality in our approach. We are very happy for anyone in the sector to challenge us on how alternative models could drive out more benefits than those we feel we can deliver within our approach.

As a result of our focused attention on reducing the number of outstanding AGMs, just 12 organisations in this sector, ten of which are currently in a transfer process, have outstanding AGMs at present. We are very keen to ensure AGMs happen as scheduled because they give members an opportunity to get the information they require to understand the strategic direction and financial position of their credit unions. Credit unions sometimes cannot hold AGMs because their financial accounts are not finalised due to factors within the credit union. I referred earlier to failings in basic financial management, including bank reconciliation. Such practices in a credit union will hold up the finalisation of its financial accounts. We sometimes require supervisory matters to be remediated. Due diligence in relation to a transfer of engagement sometimes needs to be finalised. I acknowledge that such matters can cause delays. The number of outstanding AGMs is significantly smaller than the numbers that were noted when practices in the sector were different in previous years. For example, 35 AGMs were outstanding at the beginning of 2015 and 29 AGMs were outstanding at the beginning of 2016. As I have said, just 12 AGMs are outstanding now.