Dan Boyle (Cork South Central, Green Party)
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Question 47: To ask the Minister for Finance his plans to review and amend the Credit Union Act 1997 to lift the current operating restrictions being encountered by the Irish League of Credit Unions. [8067/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Credit Union Act 1997 provides the legal framework for the regulation of credit unions. The Act was designed to provide the credit union movement with a regulatory structure that reflected and promoted the particular ethos and philosophy of the credit union movement, its strong tradition of volunteer service and the core objective of providing opportunities for saving and lending for members of credit unions. In the context of this legislative framework, the Registrar of Credit Unions, within the Office of the Financial Regulator, is responsible for the operation of the regulatory and supervisory regime for credit unions.

The Credit Union Act has provided the legal and regulatory framework within which the credit union movement in Ireland has continued to grow and develop over recent years. The assets of credit unions, largely comprising members' savings, have increased to €11.5 billion. This highlights the continued success of credit unions in meeting the financial needs of local communities and occupational groups falling within the common bond.

The rules-based approach to the regulation embodied in the Credit Union Act has served the credit union movement well by providing clarity and certainty to individual credit unions, their directors and members. It has helped support the continued stability of the credit union movement and safeguard the members' savings during a period of rapid growth. The Act provides some discretion to the Registrar of Credit Unions to issue regulatory directions to individual credit unions in these matters.

As Minister of Finance, my role is to ensure that the legal framework for credit unions is appropriate for the effective operation and supervision of credit unions in light of the current state of development, capacity and capabilities of credit unions as a whole. A range of issues arising in that context, including savings protection, investment rules and proposed legislative and regulatory changes, is under examination by my Department with the assistance of the Registrar of Credit Unions and is the subject of consultations with the representative bodies for credit unions. I assure the Deputy that these issues will be assessed on their own merits with a view to establishing an appropriate balance in the regulation of credit unions between the need to facilitate credit unions in adapting to the changes taking place in Irish society and ensuring the stability and financial sustainability of credit unions and the safeguarding of the very significant savings entrusted to them by their members.

My decisions in these matters will be based on the advice and information provided by the Registrar of Credit Unions, the Credit Union Advisory Committee — the statutory advisory body on credit union matters — and the credit union movement itself.

Dan Boyle (Cork South Central, Green Party)
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Does the Minister feel that after nine years, the Credit Union Act 1997 is badly in need of reform given that significant problems have arisen particularly regarding the asset to loan ratio of credit unions, which at the time of the introduction of the Act was 2:3 and is now approximately half of the asset base of credit unions? Further difficulties arise in terms of the ability to put money on deposit with credit unions as opposed to holding shares, given that the current limit of €26,000 set by the 1997 Act puts credit unions at a severe disadvantage particularly with the maturation of the special saving investment accounts. A limit of closer to €100,000 would be more appropriate.

The restrictions on investments as a result of the Credit Union Act mean that many credit unions now have debt capital and are forced to invest in a very restrained way which yields little return. Would the Minister agree that credit unions should be free to invest in the same way as other financial institutions and in the same way that the National Pension Reserve Fund is allowed to invest particularly regarding equities? Can the Minister confirm that the only legislative proposals on the table at the moment emanate from the Financial Regulator regarding changing the terms of the savings protection scheme for credit unions, which will threaten the ability of credit unions to operate on an all-island basis because of their membership of credit unions in Northern Ireland?

The Minister for Finance is obliged to make new legislative proposals for credit unions owing to the current fraught relationship between credit unions and the regulator for credit unions because, as many of us feared at the passing of the Central Bank and Financial Services Authority of Ireland Act, having the regulator for credit unions included within the Office of the Financial Regulator has compromised the ability of credit unions to be treated in a distinct way. This is especially true now, nine years after the introduction of the Credit Union Act.

Brian Cowen (Laois-Offaly, Fianna Fail)
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A number of general points need to be made in response to the Deputy's questions. Significant funds are held in the credit unions and we all agree that a regulatory framework is required to deal with them. When we consider the investment issues for credit unions and how we can proceed, in the light of the high proportion of credit union assets now invested, the registrar has highlighted that under the current investment rules credit unions are not precluded from taking on inappropriate levels of risk. The registrar made proposals in November 2005 for a new investment framework to protect and safeguard the risk profile for credit unions and ensure that members' savings continue to be safeguarded.

The registrar is consulting the representative bodies for credit unions with a view to securing an agreed approach to the measures and to the implementation of the proposed new investment framework. Notwithstanding the continuing discussions regarding certain details of the new rules, there is a broad consensus that a tightening up of investment rules is required, taking into account the need for credit unions to generate a reasonable return on their investments. My intention is, therefore, to submit both the registrar's proposals for the new investment framework and the league's proposals for regulatory and legal changes to the Credit Union Advisory Committee, which is the statutory advisory body for credit unions under the Credit Union Act, at an early date for its views in order to inform my decision on the next steps required.

In addressing these matters my priorities will remain the need to ensure the interests of members of credit unions are protected and that the regulatory system operates effectively. This will underpin the continued stability and financial sustainability of the credit union movement and provide a framework which supports the continued growth and development of the movement.

The legal framework for credit unions has worked well and has met the needs of the credit union movement to date. This is not to say that the Credit Union Act is perfect and is not in need of some amendment. However, the legislation has enabled the movement to respond to the changing environment and the changing financial needs of its members, by introducing a wider range of savings products, insurance products, foreign exchange etc. The ability of the movement to respond to SSIAs and to take on board a significant chunk of this market is also an indicator that the framework works and is adaptable and reasonably responsive to the movement's needs.

A discourse is ongoing and we will refer all those matters to the Credit Union Advisory Committee and take our next steps from there.

Dan Boyle (Cork South Central, Green Party)
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Would the Minister not accept that the tightening of regulations in investment to which he referred is putting credit unions at a competitive disadvantage and if applied directly now credit unions would lose €60 million in a given year? While the Minister might need to reply to this by letter, I ask him to reply on an itemised basis to the concerns I raised in my question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy asked for my plans to review and amend the Credit Union Act 1997 in order to lift the current operating restrictions being encountered by the Irish League of Credit Unions.

Dan Boyle (Cork South Central, Green Party)
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I asked about the asset to loan ratio, the investment restriction and the savings protection scheme.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Those matters are all being considered through the various mechanisms I have discussed and will be forwarded to the Credit Union Advisory Committee for further consideration. One must balance the question of what is prudential, what is the right allocation of risk, what is the right risk to take on, given the nature of the institutions concerned and the amounts of money involved while at the same time being as flexible and responsible as one can be with regard to some of their requirements. It is important that balance be achieved. It is not simply a question of whether one accedes to certain requests without taking into account other considerations, nor is it expected that I would do so. However, a process is in place which could involve further future amendments and changes including those the Deputy has specifically mentioned regarding the ILCU submissions that have been made. However, those must be taken in the context of a series of considerations and not taken in isolation.

Séamus Pattison (Carlow-Kilkenny, Labour)
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As Deputy Paul McGrath is not present Question No. 48 falls.