Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I thank Deputy Doherty for his remarks. I have been following the very constructive debate that has been taking place in the House and I hope that my entrance onto the pitch does not stale matters at this late juncture.

I am replying to amendments Nos. 6, 8, 9 and 10 and will go through the issues raised by the Deputies. Deputy Doherty moved amendment No. 6; Deputy Boyd Barrett tabled amendment No. 8; and Deputy Broughan tabled amendments Nos. 9 and 10. The first issue dealt with by these amendments is that of investment by credit unions in State projects. The commission report recommends that a formal process of engagement be established between the credit union representative bodies and Government to determine safe ways to invest collective credit union funds in community projects, employment initiatives and small co-operatives. The Minister remains open to proposals from the credit union movement on this front and the Department is available to engage with credit union groups and other relevant players to explore how this can be done. The Minister would like to hear more from credit unions about the types of projects they have in mind and how they see this working, whether in the form of a public private partnership or some other arrangement. However, I must emphasise that any such projects would have to accord with the main investment requirements in the Bill. First is the requirement that the investment would not involve undue risk to members' savings. It is important to remember that the billions in cash held by credit unions belong to the savers who can call their money on demand and it is not spare money, as such. Second, the potential impact on the credit union must be assessed beforehand, including the impact on the liquidity and financial positioning of the credit union. Third, the funds to be invested must be those which are surplus and not immediately required.

It is worth noting that section 44 of the Credit Union Act 1997 already provides for a credit union to establish a dedicated fund for social and cultural purposes and many credit unions use such funds to support local projects in their own area. An amendment is not required, in the view of the Government, in order to facilitate this as section 12, to which Deputy McGrath referred, is already broad enough to provide the necessary framework for such investments, provided they can be made without undue risk to members' savings. On Committee Stage the Minister undertook to examine the wording to see whether some further clarity could be provided and this is currently under discussion between the Department and the Office of the Attorney General. On that basis, I do not propose to accept the amendments concerned with investment in State projects.

The second issue raised by this group of amendments is that of shared services, which is also referred to in amendment No. 7. The commission report notes that services may be shared in a number of ways, including the establishment of central credit unions, corporate credit unions, credit union service organisations, CUSOs, or local alliances.

Shared service arrangements are already in operation in the credit union area, for example, the payments services provided by the Credit Union Services Co-operative. The commission recommended that the establishment of such shared service arrangements should be facilitated by legislation where necessary. The Government agrees that the sharing of services offers credit unions an opportunity to benefit from economies of scale and allows them to access expertise they may not otherwise have sufficient resources to engage. This may become more important in the future given the increasing complexity and running costs expected in a modernised regulatory framework and an enhanced service offering.

The Irish League of Credit Unions has accepted there is no obstacle to establishing shared service arrangements at credit union level. I do not propose to accept the amendments on CUSOs because there is no need to provide for them in legislation. CUSOs are not regulated financial services providers and do not require to be regulated as such by the Central Bank. The Bill already sets out provisions on outsourcing to ensure that services can be shared safely.

The concept of sharing of services at member level, which is more commonly referred to as shared branching, involves the establishment of an entity, usually a company or co-operative, to provide certain back office services to credit unions on a shared basis. This can reduce costs, enhance expertise and improve efficiency. Shared branching is a different concept which involves credit unions providing front of house services to each other's members and is an activity which operates primarily in the US credit union system. Shared branching was not considered by the commission and does not form part of its final report. Shared branching was not a key issue in the submissions received by credit unions and other stakeholders in the public consultation process nor did it emerge from survey returns from credit unions.

In simple terms, shared branching would allow a credit union member to use the services of another credit union. As the Minister noted on Committee Stage, for shared branching to work certain measures would have to be put in place. First, a settlement system would be needed to prevent an individual from withdrawing his or her savings several times over from different credit unions. Second, underwriting would be required to establish proper assessment of ability to repay at the credit union issuing the loan on behalf of a member's home credit union. We would also need to clarify whether the member's credit union or the issuing credit union would be responsible if a loan went into arrears. Third, an accompanying prudential framework would be required to ensure proper liquidity management practices are put in place to guard against large and unpredictable withdrawals at credit unions connected to larger institutions. Furthermore, shared branching raises fundamental questions about the common bond notwithstanding the commission recommendation that it should remain unchanged.

However, the fact that shared branching is apparently successful in other jurisdictions suggests that it is an option worth exploring. While I consider that it would be premature to provide in legislation for shared branching at this stage I am open to hearing the arguments for it. As the Minister indicated on Committee Stage, he has requested the credit union advisory committee to prepare a report on the possibility of shared branching within the credit union sector by the second quarter of next year. The report will involve an assessment of the current appetite for shared branching among credit unions and their members, an analysis of the framework requirements to support shared branching, an exploration of the various alternative approaches drawing on international expertise and best practice and the recommendation of the committee on any legislative changes that may be required. The report will be prepared through an open process involving consultation with credit union stakeholders, including representative bodies, the Central Bank and other experts, such as the credit union supplies forum. Officials from the Department of Finance are available to discuss further details. The consultation process will allow the committee to indicate what will be required in terms of legislation and whether an appetite exists for the kind of model my colleagues have described. When the report is furnished to the Minister he will consider it, bring it to Government and take action if appropriate.

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