Date06 Nov 2023
The Credit Union (Amendment) Bill 2022 as recently amended in the Select Committee on Finance, (the “2022 Bill”) introduces a whole variety of options and opportunities for credit unions in terms of greater potential collaboration between individual credit unions in terms of services to respective members; greater scope for lending to SMEs; greater access to mutual funding and lending opportunities; more opportunities for streamlined division of responsibilities between the board of directors of credit unions in terms of strategic decision making and operational management decision making; and a variety of other miscellaneous changes.
As is well reflected in the Credit Union Handbook, the regulation of credit unions by the Central Bank of Ireland (“CBI”) has undergone wholesale revision by way of legislation and regulations since 2010.
The principal enactment for establishment and operation of credit unions is set out in the Credit Union Act 1997 (as amended, the Act) as revised in the Credit Union and Cooperation with Overseas Regulators Act, 2012 in terms of prudential supervision (the “2012 Act”), as further refined in the Regulations issued by the Central Bank in the Credit Union Act 1997 (Regulatory requirements) Regulations 2016, and further supplemented by Guidance Notes issued by the CBI, in each case as further amended from time to time.
The 2022 Bill follows on from the Review of Policy Framework of Credit Unions and coincides with the Department of Finance Report of the Retail Banking Review of 2022 (the “Review”).
In their report, the Review team noted that credit unions play an important role in provision of consumer credit and are making significant inroads in the current account, mortgages, and SME segments of the market and that these developments, coupled with their collectively strong levels of capital and deposit bases led the Review team to conclude that credit unions are to be encouraged to play a greater role in the provision of retail banking products and services in the coming years.
The 2022 Bill has been three years in development. It was initiated in the Dail in November, 2022 and it recently passed the Committee Stage of the Dail last month, and is now at the final report stage, with enactment expected before the end of the year.
The 2022 Bill as passed in the Committee stage broadly resembles the bill as initiated (with 57 amendments) but with a couple of important revisions, including allowing credit unions to engage in loan participations and syndications and to allow credit unions to refer members to other credit unions in all circumstances, regardless whether or not the referring credit union provides the services that the member is seeking.
The Credit Union (Amendment) Bill 2022
The 2022 Bill includes extensive provisions for credit unions to operate in a more liberal way than heretofore.
The principal provisions of the 2022 Bill include:
Corporate Credit Unions
The 2022 Bill provides for the creation of corporate credit unions in which groups of credit unions may invest as shareholder members, thereby enabling credit unions to collaborate on pooling resources and providing access to greater potential funding and lending opportunities, including credit cards, mortgages, commercial loans etc. (Section 4 of the 2022 Bill).
Provision of Services to members of other Credit Unions
The 2022 Bill enables collaboration between credit unions by allowing credit unions to refer members to other credit unions to avail of a service that the original credit union does not provide, such as e.g., mortgages (Section 26 of the 2022 Bill).
The 2022 Bill includes power of a credit unions to invest surplus funds in shares, stock, deposits, and loans of a corporate credit union and corporate ventures supporting the activities of individual credit unions, (Section 24 of the 2022 Bill).
Loan Participation and Syndication
The 2022 Bill also enables collaboration between credit unions to participate in loans made by another credit union and/or participate with other credit unions in syndicated loans, thereby enabling risk sharing between credit unions and the potential to offer larger loans to members through e.g. membership by individual credit unions in a corporate credit union (Sections 4 of the 2022 Bill).
Revisions to Corporate Governance
Two key provisions include the ability for the appointment of a credit union manager to be appointed to the board of directors by the board rather than by election at a general meeting of members (Section 34 of the 2022 Bill) and secondly the reduction in the minimum number of board meetings in an annual period to be reduced from ten to six. (Section 28 of the 2022 Bill).
However, a manager cannot sit on the nomination committee of a credit unions and membership is restricted to board members who have been co-opted or elected (Section 31 of the 2022 Bill).
The 2022 Bill also permits a reduction in the number of board oversight committee meetings (Section 47 of the 2022 Bill) and removes the requirement for the board oversight committee to sign the audited annual accounts (Section 57 of the 2022 Bill), and, furthermore, extends the permitted period of review of policies and procedures by the board of directors from one to three years (Section 29 of the 2022 Bill).
Lending to SMEs
The Bill enhances the possibility for credit unions to make loans to SMEs by enabling credit unions to include corporate bodies as members of a credit union, with the same rights and obligations as a natural person, provided that the majority of the members of the corporate member are eligible to join the credit union and the corporate entity meets the requirements of the common bond (Section 9 of the 2022 Bill).
Regulation of Maximum Permitted Interest Rates
The 2022 Bill removes the maximum cap on interest rates chargeable to member of 1% per month and instead enable the Minister for Finance to establish by order the maximum amount of interest rates chargeable from time to time to enable credit union to have more flexibility to price risk in a rising interest rate environment (Section 22 of the 2022 Bill).
Outlook for the 2022 Bill
The outlook for the 2022 Bill is that it is expected to be enacted by the end of the year with the likelihood that there will be an early take up of enabling provisions on collaboration on referrals, and loan syndications and a potentially slower take-up on segregation of strategic and operational management issues, owing to the voluntary nature of the movement and notwithstanding the disapplication of the individual accountability regime to credit unions.
Credit Unions and Azets Ireland
We have an experienced team of FS professionals in terms of Audit, Advisory Services, and Regulation led by Darren Shipp, Yvonne O’Connor and a team of auditors and advisors, supported by Joe Gavin, who is an expert in EU and Irish Financial Regulation, and was General Counsel to the Central Bank of Ireland between 2009 and 2015.
We are well equipped to audit and advise individual credit unions and representative bodies in relation to: