Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

On behalf of the Minister for Finance, Public Expenditure and Reform, I drew the Government's attention to the joint committee's report. The motion offers a welcome opportunity to address the House on the importance of the credit union sector and, in particular, to discuss the report of the joint committee, which followed the credit union advisory committee, CUAC, report in 2016. I welcome the committee's comprehensive report and I thank the Chairman, Deputy McGuinness, and members for their work as well as those who made contributions before them. It is a tribute to the committee that there was cross-party support for a range of recommendations designed to support further development and growth of the credit union sector. The report, along with the CUAC report and its forerunner, the Commission on Credit Unions report, makes an important contribution to the debate on credit union reform.

The Minister is pleased that the committee acknowledges the unique role credit unions have played, and continue to play, throughout society. The Government supports the invaluable role of credit unions in Ireland, managing €16.8 billion of assets and providing €2.4 billion of new lending, primarily consumer lending, in the year to September 2017.

In line with the Government's position, the Minister believes that credit unions have a key role to play in providing access to credit and other important services in local communities. The Government has put in place a number of measures to ensure that credit unions can continue to provide these services to their members and to ensure the stability of the sector into the future.

These measures include the establishment of the Commission on Credit Unions in 2011; the Credit Union and Co-operation with Overseas Regulators Act 2012; the establishment of the Credit Union Restructuring Board, ReBo; the availability of €500 million to support the stability of the credit union movement; the introduction of the stabilisation support scheme; the request to CUAC to review all recommendations in the commission report; and the establishment of an implementation group to oversee implementation of CUAC's recommendations.

I wish to highlight that much of what the committee is recommending is already under way in terms of the work of CUAC, the CUAC report implementation group, the Central Bank and the Department of Finance.

The committee makes 27 recommendations around a number of themes many of which are common to the CUAC report, such as, tiered regulation; business model development; and consultation and engagement. The committee report also expands on a number of additional areas: review of legislative framework and regulatory requirements; introduction of a new appeals mechanism to allow credit unions appeal regulatory-related decisions by the Central Bank to an independent body; levies clarification and communication to the credit union sector around the Minister's intention surrounding future contributions and levies; and the development by the Department of Finance of a policy for credit unions that sets out their current and future role and function, their position vis-à-visother financial institutions in Ireland and the future vision for the sector.

In response to the committee's report and to address the issues referred to above, the Minister wrote to the committee in December 2017 to update it on the work of the implementation group. It is intended that a further update will be issued to the committee at the end of the first quarter of 2018.

On the committee's call for a review of legislative framework and regulatory requirements, I would make the point that a considerable amount of work has been done by credit union stakeholders in establishing more effective governance and regulatory requirements.

The Commission on Credit Unions, with extensive stakeholder involvement, produced a detailed review of the sector and proposed a wide range of legislative and regulatory reforms which were in the main introduced in legislation in 2012-2013 and in subsequent regulations issued by the Central Bank. This was the first new credit union legislation since 1997. Most of these regulations were introduced on 1 January 2016 following a detailed consultation process by the Central Bank with the sector.

Furthermore, as required in law, the Central Bank was the subject of a peer review of credit union regulation in 2015. The next peer review of the Central Bank is required by 2019 and preparations for that will begin this year.

The committee recommends the introduction of a new appeals mechanism for credit unions relating to all regulatory decisions made by the Central Bank. I can advise that there is a complaints procedure already in place whereby a number of decisions of the Central Bank are appealable under the Credit Union Act 1997. There is also an element of appeal built into many other regulatory interactions with credit unions.

An alternative dispute resolution which rests with the Minister is also recommended by the committee. The role of the Minister is to ensure that the legal framework for credit unions is appropriate for the effective operation and supervision of credit unions. The Registrar of Credit Unions at the Central Bank has responsibility for the regulation and supervision of credit unions. The two roles in relation to the credit union sector are distinct.

The functions of the Central Bank are to administer the system of regulation and supervision of credit unions. As such, it exists to achieve objectives deemed by Government to be in the public interest. The separation of powers must be respected and it would, therefore, not be appropriate for a dispute mechanism to rest with the Minister on matters which require regulatory expertise.

With reference to the committee's recommendations on business model development, I can advise that a consultation in relation to the investment framework has just been finalised by the Central Bank, which allows for investment in social housing through investments in approved housing bodies, AHBs, subject to certain requirements and limits. At a sector level, the concentration limit could facilitate a sector-wide investment of €698 million in tier 3 AHBs.

The committee recommends that responsibility for assessing business model proposals be removed from the registrar and given to the Department of Finance. It is the responsibility of the regulator to assess business model proposals for the credit union sector. The Central Bank is best placed to continue that role, both in aggregate and for individual credit unions. As previously stated, the separation of powers must be respected and it would not be appropriate for the Department of Finance to assess credit union business model proposals.

The implementation group has held discussions on business model development and is finalising a paper outlining some of the key areas which are, and could be, developed further by credit unions and representative bodies without changes to regulations. CUAC will also focus on this matter during 2018. In addition, and as recommended by CUAC in its 2016 report, CUAC submitted three policy papers to the implementation group in December 2017 on the following: common bond; alternative means of voting by members; and loan interest rate cap.

Another recommendation is that the Minister clarify and communicate to the credit union sector his intention surrounding future contributions and levies. To address any lack of clarity around levies charged to credit unions, the Department of Finance will shortly publish an information note to explain the levies and charges the sector pays.

With reference to the development by the Department of Finance of a policy for credit unions that sets out their current and future role and function, their position vis-à-visother financial institutions and the future vision for the sector, the current position is that the Department of Finance has policy oversight for the credit union sector, which is member-owned, and is committed to implementation of all the recommendations of the CUAC in a cohesive manner. Members and credit unions should have their own vision, tailored to the needs of their common bond.

The credit union policy team within the Department of Finance is well resourced and in order to assist its work, it has ongoing communication with credit union representative bodies, the Central Bank and other credit union stakeholders on a wide range of matters, both formally and informally, and regularly attends at sectoral events.

By way of update, on 3 November 2017, the Minister provided the committee with two documents prepared by the implementation group and submitted by the group to the Central Bank.

The first document relates to section 35 of the Credit Union Act 1997, as amended, which provides for the making of loans by credit unions. The paper details a range of proposals for consideration in the Central Bank review of section 35 which could provide for a material increase in long-term lending for those credit unions that would have the capability to do so.

The consultation and engagement paper sets out key principles for consideration by the Central Bank which may assist in progressing the CUAC recommendation. The introduction of such an agreement is a matter for the Central Bank but the CUAC and the CUAC implementation group have strongly recommended its introduction.

The Minister wrote to the Central Bank Governor recently to outline his support for these matters being progressed in early 2018 and is advised that both matters are included in the Central Bank work plans for 2018.

The committee's report also make recommendations around financial inclusion. In that regard, I can advise that a number of credit unions are involved in the personal micro-credit scheme, which was established by the Department of Employment Affairs and Social Protection and which is aimed at moving people in the wider local community away from the use of high-cost moneylenders and providing an alternative, legitimate and low-cost personal loan scheme. Credit unions are offering it-makes-sense loans, at reasonable rates, to people struggling to get credit elsewhere.

Members will be aware that in 2011 the Government established a Commission on Credit Unions, with extensive stakeholder involvement, which produced a detailed review of the sector and proposed a wide range of legislative and regulatory reforms which were in the main introduced in legislation in 2012-2013 and in subsequent regulations issued by the Central Bank. Most of these regulations were introduced on 1 January 2016 following a detailed consultation process with the sector.

As required in law, the Central Bank was the subject of a peer review of credit union regulation in 2015.

Separately, the CUAC reported to the Minister in June 2016 on the implementation of the recommendations in the report of the Commission on Credit Unions. CUAC's recommendations, the most relevant of which relate to long-term lending, tiered regulation and consultation and engagement, are being progressed by an implementation group. As stated previously, the implementation group has submitted papers on long-term lending and consultation and engagement to the Central Bank.

Tiered regulation was the subject of consultation in 2013 by the Central Bank which proposed a two-tier regulatory model. However, the sector was not amenable to this approach at the time and it was unclear what form of tiered regulation it wanted. In light of the feedback received, the Central Bank did not propose to introduce a tiered regulatory framework for credit unions at that time. The implementation group continues to consider tiered regulation and will report to the Minister shortly. The work outlined above, particularly that being progressed by the CUAC and the CUAC implementation group, is well under way and covers almost all of the substantive issues raised in the recent committee report. The progress to date provides a solid platform from which to proceed with future reforms.

In summary, the Government recognises the important role of credit unions as a volunteer co-operative movement in Ireland and has a clear policy to support their strategic growth and development. The Government wants not only strong, vibrant credit unions offering a safe and secure place for members' savings but also credit unions which are appropriately positioned to offer their members a wide range of services. The Minister is committed to implementation of all the recommendations of the CUAC report in a cohesive manner. He looks forward to continuing to work together with all stakeholders in making progressive and effective changes to the credit union sector. I thank the House for its attention and I thank the committee for its work on the report. I look forward to hearing the views of Members from across the House.

See this speech in context