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

I thank the Senator for raising this issue. She is aware that the Government established the Commission on Credit Unions in May 2011. The Government also published an agreed final report in March 2012 and has accepted fully the commission's recommendations. Over 60 of its recommendations are being rolled out under the Credit Union and Co-operation with Overseas Regulators Act. The legislation contains measures which will reform and strengthen credit unions and deals with four broad areas, namely: prudential regulation; governance; restructuring, including the establishment of the credit union restructuring board called ReBo; and of course stabilisation.
During the passage of the Bill through the Houses of the Oireachtas there was extensive engagement and debate on the subject of credit union investments. Partly in response to the debate in this House, an amendment was made to the Bill to include a specific reference to credit unions investing in projects of a public nature. I recall, although I did not take it here, that I took Report Stage for the Minister for Finance in the other House and remember bringing forward the amendment myself, following the debate that occurred in this House.
The Commission on Credit Unions Implementation Group was set up to monitor progress on implementation of the recommendations. Membership of the group includes the credit union representative bodies and the Registrar of Credit Unions and it is chaired by the Department of Finance. The group reports to the Minister for Finance directly and quarterly on its progress.
As part of the implementation of the commission's report, investments in State projects for credit unions, which was raised by the Senator, was added to the agenda of the Commission on Credit Unions implementation group in the second half of 2013. That was due to the fact that when the commission was initiated this was not an issue. It was not raised as a result of the recommendations and only came about as a result of the debate in both Houses of the Oireachtas, and correctly as a result of that debate.
The Department of Finance invited credit union representative bodies to bring forward proposals for credit union investments in State projects. Proposals were received from the Irish League of Credit Unions and the Credit Union Development Association. The Department of Finance facilitated engagement between the Irish League of Credit Unions, the Credit Union Development Association, the Central Bank and the NTMA to see if the suggestion of a specific credit union bond could be progressed.
A number of issues were raised regarding the possibility of a credit union bond. They were as follows: that a bond would not be liquid, as credit unions would only be able to sell to other credit unions and, therefore, there would be a very limited market for disposals; it would not be optimal for the NTMA to structure bonds for separate areas of Government policy, for example housing and schools, rather than funding more generally because when we go to the market we go for a specific amount of money which we then use for specific purposes as against for purposes by themselves; and any proposal for a bond which would be callable before maturity date and would affect the total return on the bond with the yield reducing accordingly. A number of alternative approaches were explored as follows: investing in sovereign bonds for a long-term investments of say ten years; and using short-term products, for example Exchequer notes or similar, for short-term investment. These may have a very low rate of return but are callable at any time.
On foot of the NTMA engagement, credit union representative bodies were asked to reflect on the issues raised regarding a credit union bond. They have been invited to consider the next steps, including an alternative proposal under which credit unions could invest in State projects. Any such proposals would need to be approved by the Registrar of Credit Unions. In 2006 the Registrar of Credit Unions issued a guidance note on investment limits for credit unions investing in Irish and EMU State Securities as follows: maturity date shall not exceed ten years; not be more than 30% of holding shall be held in bonds maturing after seven years; and holding shall not exceed 70% of the total value of the credit union's investment portfolio. Most of the proposals would meet the criteria in these cases. Any proposals, therefore, will have to be in line with this guidance and considered in the context of the tiered regulatory approach.
The Commission on Credit Unions made recommendations for a tiered regulatory approach which could see some credit unions take on a more sophisticated business model with increased regulatory requirements. The Central Bank is proposing a two category approach to the introduction of a tiered regulatory approach for the credit union sector.
Under the proposals currently being considered category 1 credit unions would be limited to basic investments and Government bonds within specified limits. Credit unions that are capable of, and wish to undertake a wider range of activities and services, could apply to become a category 2 credit union. This category would allow for a wider range of investments with longer maturities and in Government bonds, along with the ability to offer certain additional services. Category 2 credit unions will be subject to additional regulatory requirements, as one would expect, given the fact that the risk would be higher.
The Central Bank held an informal consultation process with all credit union stakeholders on their proposal for a tiered regulatory approach. Consultation Paper CP76 was published on the Central Bank's website on 23 December 2013 and closing date for receipt of submissions was the end of March 2014. A further consultation and regulatory impact assessment is to follow later this year.
I wish to assure the Senator that both the Minister and his officials in the Department of Finance will continue to work with the representative bodies to explore and find alternative ways for credit unions to invest in State projects. I look forward to hearing from them in respect of alternative proposals that they may have on the matter.
Finally, I thank the House for giving me an opportunity to discuss this important issue and allowing me to put on record the work that has taken place behind the scenes with credit unions. This issue has not been left in abeyance. On the contrary, a lot of work has already occurred, as I think Senators will see from my remarks here this evening. We now have a broad proposal to make about two tiers of credit unions which could pitch for investments. What is required now is a wider engagement to see if we can tease out those issues through the various different bodies.