Ms Fiona Cullen:

Exactly. It was the same with the RIAs. Having discussed it at length the commission came to the view that to write a statutory obligation into the legislation for the Central Bank to have to conduct an RIA in every circumstance would not be correct for issues that took up a lot of time at the commission table. So it was felt that legislation was not appropriate for that. We are not suggesting that an MOU would feature in the legislation. As a matter of good practice and as a sensible way forward when moving to something entirely different, we feel it is appropriate to set out clearly what is expected of each party. We feel it would be of benefit in the long term.

On the risk assessment issue, I will give some more information about the system in the UK. It has operated a system of version 1 and version 2 credit unions for ten years. Credit unions are taken to be version 1 credit unions, which is the smaller of the scale. A credit union can apply to become a version 2 credit union and if successful it can enter into more activities and services than a version 1 institution can. For example, in the area of investments version 1 credit unions may only invest for a term of 12 months, whereas version 2 credit unions can invest for five years. In the area of lending, version 1 credit unions may only lend £15,000 more than shareholding where version 2 institutions can lend the greater of £15,000 or 1.5% of the total shares of the credit union which could be a significant figure depending on the level of shareholding. On duration of loans, version 1 credit unions may lend for five years secured and ten years unsecured, whereas version 2 credit unions may lend for ten years secured and 25 years unsecured. On credit unions borrowing for their own purposes, a version 1 credit union may borrow 20% of its overall shares whereas a version 2 credit union may borrow up to 50% of its shares.

The biggest change between the two and probably the biggest regulatory consideration in deciding whether to admit a credit union to version 2 is the reserve requirement. The capital to asset ratio requirement for a version 1 credit union is 3% - the reserve requirement for credit unions in the Republic of Ireland at the moment is 10%, but that is a different conversation. A UK credit union moving from version 1 to version 2 moves from a 3% requirement to an 8% requirement. Fundamental to the FSA's decision whether to allow a credit union into version 2 thereby allowing it to offer enhanced services is the requirement to see a detailed plan as to how the credit union will hit the 8% minimum requirement and how it will maintain it. As part of the application process the FSA needs to see evidence of documented systems of control, organisational charts, details of experience, qualifications of key people within the credit union, a detailed business plan, full and up-to-date policies and procedures, and copies of liquidity management policy, lending policy and financial risk management policy.

So there is a process of assessment and this may be where we differ. If there is to be a tiered system of credit union regulation set by hard and fast asset-size boundaries, a credit union would be allotted into one of those tiers. For example an excellent €6 million credit union that is really restricted in what it can do would not get to be a tier 2 - the term used in the commission report - credit union without either substantially increasing its asset size of amalgamating with the credit union down the road. That is the problem we are experiencing. We are talking about a voluntary process of restructuring whereas in reality if a credit union wants to do anything other than the absolute basics, it is not voluntary at all.

The key thing is that the credit union should think long and hard about whether it wants to enhance the service it provides to members and it has the choice to make the application to the FSA and illustrate to it that it will be able to cope with being a version 2 credit union.