Tom Hayes (Tipperary South, Fine Gael) | Oireachtas source

I thank Senator Bradford for raising this important matter. We are all aware of what credit unions have done for people throughout the country.

The Credit Union and Co-operation with Overseas Regulators Act 2012 was signed into law by the President of Ireland on 19 December 2012. Following on from that, an implementation plan put was put in place which was agreed by all stakeholders. It was agreed that such a plan was necessary for the coherent and timely commencement of all sections of the Act.

Credit unions are regulated and supervised by the Registrar of Credit Unions at the Central Bank, who is the independent regulator for credit unions. Within her independent regulatory discretion, the Registrar acts to support the prudential soundness of individual credit unions, to maintain sectoral stability and to protect the savings of credit union members. The role of the Minister for Finance is to ensure that the legal framework for credit unions is appropriate for their effective operation and supervision.

The outstanding sections of the 2012 Act relate to savings, borrowing, lending, investments, reserves and liquidity. The Minister has been informed by the Central Bank that the draft regulations set out in consultation paper 88 will be introduced on commencement of the remaining sections of the 2012 Act at the end of December 2015. The regulations will replace and, where appropriate, amend a number of requirements that currently exist in legislation and guidance. Additional requirements have also been included in the regulations where necessary to strengthen the regulatory framework.

The Minister is aware that a number of issues have been raised regarding the proposed regulations. The main issues are the introduction of a savings cap, the development of the credit union business model and the imposition of lending restrictions. Following consultation on the regulations, the Central Bank has introduced a number of changes. The introduction of a maximum individual member savings limit of €100,000 is to ensure the protection of members' savings and also to ensure that credit union funding is sufficiently diversified and not dependent on a small number of members. Following consultation with the credit union sector and representative bodies, the Central Bank amended the transitional arrangement for the savings regulations to provide for credit unions that have individual member savings in excess of €100,000 at the commencement of the regulations to apply to the Central Bank to retain these savings where they can demonstrate that it is appropriate and prudent for them to do so. The Minister has been informed by the Registrar of Credit Unions that information relating to this matter and details of the application process will be available to credit unions before commencement of the regulations at the end of 2015.

The Central Bank is currently refining its application criteria for retention of savings in excess of €100,000 to include the following: the asset size of the credit union, with a minimum asset size of €10,000,000; the credit union's liquidity ratio, with a minimum liquidity ratio of 25%; and the level of additional reserves in excess of the minimum 10% level, taking account of the scale, complexity and risk to the credit union. Consideration will also be given to other supervisory information, including whether a credit union has a regulatory direction or a business restriction.

The Registry of Credit Unions intends to engage with the representative bodies and to invite comments from them prior to the finalisation of this application process. When the application process is finalised, the registry will provide an application form and explanatory notes in order to assist credit unions in making such an application. It is anticipated that application forms will be available during December 2015. The Central Bank envisages that applications will be accepted in the first quarter of 2016 and that applicant credit unions will be informed by the end of the second quarter of 2016 on the outcome of the process, which is well within the 12-month transitional period. Where a credit union has demonstrated that it meets the criteria, it will be in a position to retain members' savings in excess of €100,000 held at the commencement of the regulations. The Central Bank has also informed the Minister that it is committed to undertaking a review of the continued appropriateness of the savings limit once the impact of the restructuring process can be assessed. It is expected that this review will commence within three years of the introduction of the regulations. The Central Bank has agreed to provide regular updates to the Department of Finance on this matter.

The Central Bank has further informed the Minister that it is open to working with the credit union sector to ensure that prudent and appropriate business development can be facilitated within the regulatory framework. As set out in the feedback statement on consultation paper 88, the Central Bank intends to invite interested parties to discuss business model development in the coming months. While to date the Central Bank has not received any specific proposals regarding investment projects of a public nature, the bank has indicated that it is willing to consider such proposals, including the type of regulations that would be required to facilitate them.

It is worth noting that the credit union sector is currently being restructured on a voluntary, incentivised and time-bound basis. The Central Bank is taking a proactive approach to facilitating restructuring and is working closely with the Credit Union Restructuring Board, ReBo, and individual credit unions on restructuring proposals. The Central Bank supports restructuring proposals that are financially sound, supported by proper risk and control frameworks and have clear leadership and vision for the future direction of the merged credit union. The important objective is to ensure that restructuring achieves better outcomes for current and prospective members, enhances the financial soundness of credit unions and acts as an enabler for future growth and development, setting the sector up for a viable and successful future. The Central Bank is currently carrying out a lending restriction review programme and has invited credit unions with lending restrictions to apply to have those restrictions reduced or lifted. The closing date for receipt of applications is today, 30 September 2015. The Minister has been informed that, of the credit unions that applied for a review of their lending restrictions, 45% have had them lifted. A number of applications received are still in the review process. Credit unions will be able to apply to the Central Bank for an extension of longer term lending limits. Approval will be subject to conditions set out by the Central Bank. The Minister for Finance has been consulted on the regulation, as was the Credit Union Advisory Committee, as required under section 84A of the Credit Union Act 1997. It is the Minister's intention to commence the remaining section of the 2012 Act by the end of 2015 in line with the introduction of the regulation. This will provide time for credit unions to ensure clarity in terms of what is required and to make any changes that are necessary.

The Government recognises the important role of credit unions as a volunteer co-operative movement in this country. While the Minister and the Central Bank have distinct roles in the credit union sector, they are both working to protect members' savings and maintain the financial stability and well-being of the credit union. As I have stated, the credit unions are working with the officials. I do not think the meeting should be held until much of the background work has been done, but I think the Minister, Deputy Noonan, will meet representatives of the credit union movement, because it is, as the Senator has stated, a huge part of what the country is, and it is important in protecting families in particular.