Joe Costello (Dublin Central, Labour) | Oireachtas source

I thank the Deputy for raising this important issue. I would like to confirm the Minister's view that credit unions have an important role to play in providing credit in local communities around the country. The Minister is supportive of safe and responsible lending by credit unions.

The Government established the Commission on Credit Unions in May 2011. The commission was asked to make recommendations in relation to the most effective regulatory structure for credit unions, taking into account their not-for-profit mandate, volunteer ethos and community focus while paying due regard to the need to protect fully members' savings and financial stability. Membership of the commission included members of the credit union representative bodies.

The commission published its final report in March 2012 and it was agreed by all members. The Government has accepted fully the commission's recommendations, over 60 of which are currently being rolled out under the Credit Union and Co-operation with Overseas Regulators Act 2012.

One recommendation by the commission is the introduction of a tiered approach to regulation for credit unions. This tiered regulatory approach will see some credit unions taking on a more sophisticated business model. Such credit unions will be subject to increased regulatory requirements. This will offer a flexible approach to the regulation of credit unions and will assist credit unions in determining the business model they wish to adopt. This approach could include some credit unions lending to SMEs, as referred to in the Deputy's question. It is not by any means ruled out.

A proposed tiered regulatory approach was outlined by the Central Bank in its recent initial consultation paper. The deadline for submissions was extended on request by the sector. The consultation process provided an opportunity for stakeholders to set out their views across a range of issues. Interest in this topic was demonstrated by the number of submissions received by the Central Bank, which exceeded 160. An analysis of all submissions is being undertaken, and the Central Bank will communicate with credit unions and other stakeholders in regard to the proposed next steps.

In line with the introduction of the tiered regulatory approach and on foot of recommendations from the Commission on Credit Unions, section 11 of the Credit Union and Co-operation with Overseas Regulators Act 2012 amends current lending provisions. These amendments provide for new Central Bank regulations to deal with a range of lending issues including the classes of lending that a credit union may engage in, for example, business lending; the duration of loans; large exposures; and concentration limits.

Section 11 will be commenced in tandem with new Central Bank regulations on lending, which are to be introduced as part of the tiered regulatory approach. This tiered approach will address a range of areas, including lending, investments, savings, borrowings, additional services, reserves and liquidity. These changes will help bring about developments in the credit union sector, which will see an expansion in the range of services and products being offered.

It must be acknowledged that credit unions have faced a huge amount of change in recent times and continue to face more change. It is a testament to the sector that it has embraced these changes and faced up to its challenges. While some of these changes will support a number of credit unions in taking on a more sophisticated business model, which could include business lending, lending to SMEs is a specialised form of lending. This type of lending is risky and clearly requires specific skills and expertise.

The Government recognises that the credit union sector nationally plays an important role in providing financial services. However, the Registrar of Credit Unions in its recently published, Credit Union PRISM Risk Assessments: Supervisory Commentary, highlighted that the majority of credit unions visited have been required to implement actions to remediate risk and substantially improve their lending and credit risk.

Indeed, even the banking sector, which has a high level of expertise, continues to seek an appropriate mechanism for safe SME lending.

See this speech in context