Michael Healy-Rae (Kerry South, Independent)
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62. To ask the Minister for Finance his views on a matter (details supplied) regarding the Consultation Paper 88; and if he will make a statement on the matter. [40761/15]

Michael Healy-Rae (Kerry South, Independent)
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63. To ask the Minister for Finance his views on a matter (details supplied) regarding the Consultation Paper 88 and lending restrictions; and if he will make a statement on the matter. [40762/15]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 62 and 63 together.

The Credit Union and Co-operation with Overseas Regulators Act 2012 (the "2012 Act") was signed into law by the President in December 2012.

It was agreed at that time that it would be neither practical nor feasible to commence the 2012 Act in its entirety in one fell swoop. Following on from that, an implementation timetable for the 2012 Act was devised in consultation with stakeholders, including credit union representative bodies.

Commencement of all sections of the 2012 Act has been aligned with the credit union financial year and the introduction of the underpinning Central Bank regulations, with a view to implementation of the 2012 Act in a coherent and cohesive manner. This has provided credit unions with the time necessary to ensure that the required processes and procedures are in place prior to implementation of each tranche.

I have met with the three credit union representative bodies and the perceived impact of the new regulations was discussed. It is my intention to commence the remaining sections of the 2012 Act on 31 December 2015 in line with the introduction of the regulations by the Registrar of Credit Unions. These sections of the 2012 Act, when commenced, will replace, amend or supplement existing sections of the 1997 Act.

As outlined in the Central Bank's feedback statement on CP88, as part of the consultation process I proposed that in the interests of clarity and fairness, credit unions are provided with details of the process of applying for a retention of savings above the limit amount.  I have been informed by the Registry of Credit Unions that all credit unions have been contacted giving further information on its application criteria for the retention of savings in excess of €100,000.  The Registry of Credit Unions intends to engage with the representative bodies and to invite comments from them prior to finalisation of the application process. When the application process is finalised, the Registry will provide an application form and explanatory notes in order to assist credit unions. It is anticipated that application forms will be available during December 2015.  It is envisaged 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.

I welcome the steps that have been taken to provide clarity for credit unions on the criteria for the retention of savings over €100,000 and also welcome the Central Bank proposed engagement with the representative bodies to seek their comments on the application process.

The Central Bank has also informed me 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 envisaged that this review will commence within three years of the introduction of the regulations. My officials have asked the Central Bank to consider accelerating this review and this is under consideration by the Central Bank. The Central Bank has agreed to provide regular updates to my Department on developments in this matter.  

I have been informed by the Central Bank that it has been necessary to put lending restrictions in place in credit unions where there are regulatory concerns and resultant risk to members' savings. These lending restrictions are reviewed on a regular basis to determine whether or not they are still set at appropriate levels.

In February 2015 the Central Bank commenced a lending restriction review initiative, whereby credit unions that are subject to a lending restriction, but are satisfied that they have made the necessary improvements and have embedded these improvements in robust risk sensitive lending practices, could apply for a review of their lending restriction. The closing date for receipt of applications to review lending restrictions under this initiative was 30 September 2015.

The Central Bank further informs me that 59% of applications received have been reviewed.  Of the applications which have been fully reviewed, 83% have had their lending restriction lifted and are now operating under the board's stated credit risk appetite. C.40% of credit unions that applied made their application in September. These applications are currently under review.

This review has reduced the number of credit unions with lending restrictions as currently approximately 39% of credit unions have a lending restriction compared with 52% at the start of the review process.

As indicated in the Central Bank consultation paper CP88, where credit unions can demonstrate improvements in their credit risk management practices in line with strengthened regulatory framework, it is anticipated that the use of credit union specific lending restrictions as a regulatory tool will reduce over time.

The Central Bank has further informed me that it has now contacted all credit unions inviting them to attend upcoming information seminars being held around the country from 17 to 30 November. These seminars will provide credit unions with the opportunity to engage with the Central Bank  on the new regulations and to discuss development of the credit union business model, including any changes to the regulatory framework that might be required to facilitate those developments.  This engagement will also enable the Central Bank gain a better understanding of the sector's objectives regarding longer term lending, including the provision of  mortgages to members. and to review the conditions that currently apply for credit unions to be approved to extend their longer term lending limits.

The Government's priorities remain the protection of members' savings, the financial stability of credit unions and the sector overall and it is absolutely determined to continue to support a strengthened and growing credit union movement.

Michael Healy-Rae (Kerry South, Independent)
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64. To ask the Minister for Finance his views on a matter (details supplied) regarding credit unions and the regulatory reserve ratio; and if he will make a statement on the matter. [40764/15]

Michael Noonan (Limerick City, Fine Gael)
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The issue of the regulatory reserve ratio for credit unions is a matter for 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 sector stability and to protect the savings of credit union members.

I have been informed by the Central Bank that the rationale for the introduction of a 10% Regulatory Reserve Ratio in 2009 took account of a number of factors including the World Council of Credit Unions (WOCCU) recommendation of 10% of assets, the level of reserves in the sector at that time and the limited ability for Irish credit unions to raise capital compared to credit unions in other jurisdictions and other financial institutions (credit union reserves are only generated from retained earnings).

I have further been informed that in relation to a risk weighted approach to reserves, as previously indicated consideration will be given to a risk weighted approach by the Central Bank post sector restructuring.

The Government's priorities remain the protection of members' savings, the financial stability of credit unions and the sector overall and it is absolutely determined to continue to support a strengthened and growing credit union movement.

Michael Healy-Rae (Kerry South, Independent)
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65. To ask the Minister for Finance his views on a matter (details supplied) regarding credit unions and the use of surplus funds; and if he will make a statement on the matter. [40765/15]

Michael Noonan (Limerick City, Fine Gael)
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The issue of credit union investments is a matter for 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 sector stability and to protect the savings of credit union members.

Section 44 of the Credit Union Act, 1997 provides that a credit union may establish a special fund to be used by the credit union for such social, cultural or charitable purposes (including community development) where it is approved by a resolution passed by a majority of its members present and voting at a general meeting. Funds established under section 44 do not require the approval of the Central Bank.

The Central Bank has informed me that it is supportive of such initiatives by credit unions provided they fall within the provisions of section 44. These provisions include a requirement that funds paid into such a special fund can only be paid out of the annual operating surplus of a credit union and that no funds may be paid into such a special fund unless adequate provision has been made out of the annual surplus to cover all current and contingent liabilities and to maintain proper reserves. The payment of funds into the special fund should not affect the financial stability of the credit union. In addition section 44(3) of the 1997 Act specifies that the amount of funds which may be paid out of the annual operating surplus into such special fund shall not exceed 0.5% of the value of the credit union's assets. Where an individual credit union intends to establish such a fund, the Central Bank informs me that it would expect the credit union to also take account of the need to ensure the protection of the funds of its members.

While section 44 is not being replaced or amended, the remaining sections of the Credit Union and Co-operation with Overseas Regulators Act 2012, when commenced, will replace, amend or supplement certain existing sections of the 1997 Act which will, in effect, remove some of the requirements (including limits) that currently exist in certain sections and will provide regulation making powers to the Central Bank.

The power to make regulations in relation to investments in projects of a public nature is specifically referenced in the legislation and therefore such investments could be facilitated by future regulations, where appropriate, when specific proposals are formed by the credit union sector. The Central Bank will be engaging with the credit union sector in the coming months with a view to gaining a better understanding of how credit unions want to develop their business model and to identify whether any changes are required to the regulatory framework to facilitate prudent development. The Central Bank is open to considering well thought through business proposals in this area including the type of regulations that would be required to facilitate proposals.

The Government's priorities remain the protection of members' savings, the financial stability of credit unions and the sector overall and it is absolutely determined to continue to support a strengthened and growing credit union movement.