Proposals published in 2022 indicate new opportunities for the Credit Union sector as well as confidence in its future as an essential part of the Financial Services Sector
By Caoimhín Broderick F.C.A., P.I.I.A.
Credit Unions play a significant role in the Irish financial sector with the total value of loans on their books currently around €5 billion and total savings of about €16 billion.
With offices in cities, towns and villages throughout the island, credit unions provide services to about 3.6 million members across Ireland.
They are established as not-for-profit organisations which are owned and controlled by the communities which they serve. Their business model is very different from that of a retail bank. Credit Unions offer a face-to-face customer experience at a time when other financial institutions ae moving away from physically meeting customers. Each credit union is an independent, not-for-profit organisation that exists solely for the benefit of its members.
Two developments in late 2022 have the potential to enable Credit Unions to change their business models and enhance their services to their existing and potential members.
CREDIT UNION (AMENDMENT) BILL 2022
The main pieces of legislation for the sector are the Credit Union Act 1997 and the Credit Union and Co-operation with Overseas Regulators Act 2012 in addition to regulations set out by the Central Bank.
The 2022 Credit Union (Amendment) Bill comes after two years of stakeholder engagement and is currently before the Dáil where amendments will be considered. There is no timeline for its enactment or for the commencement of the new provisions it contains. These may be phased in as the Central Bank will have to amend some of its regulations to accommodate the new provisions.
The Bill is very technical, but its main provisions include:
- The establishment of ‘corporate credit unions’
- Participation in loans to members of other credit unions
- Provision of services to members of other credit unions
- Changes to the governance of credit unions
- Amendments to credit unions’ membership requirements
Collaboration between credit unions
There are a number of provisions in the bill aimed at greater collaboration between credit unions.
For example, a ‘corporate credit union’ would be a new form of regulated entity which would allow a number of credit unions come together to pool resources and lend funds to credit unions which are members of the group.
Under the Bill, a credit union could participate in a loan being made to a member of another credit union which would facilitate risk sharing and allow individual credit unions offer larger loans.
In addition, the Bill would allow a credit union refer members to another credit union to avail of a service the original one doesn’t provide.
Governance and Membership
The Bill provides the option for a credit union to appoint its manager/chief executive to its board and also reduces the minimum number of board meetings required from ten to six per year.
A further key provision will allow ‘bodies’ (incorporated or not) to become members of credit unions with the same rights and obligations as ‘natural persons’. However, there are some conditions including that a majority of the members of the body must be eligible to join the credit union.
This will make it easier for credit unions to lend to such bodies and is principally aimed at the SME sector.
Each of these are options and credit unions may choose not to implement any or all of them.
RETAIL BANKING REVIEW 2022
In November 2022, the government published the report of the Retail Banking Review. With the departure of KBC and Ulster Bank from the market this review of retail banking included the credit union sector.
It recommended that, while continuing to be community-based, the sector develop strategic plans to develop a universal, sustainable offering to its members. These plans could include:
- Offering products such as SME loans or mortgages
- Standardising products across all credit unions
- Offering in-branch services for members of all credit unions
Both the Bill and Review offer exciting new opportunities for the sector and demonstrate great confidence its future. To be successful in exploiting these opportunities for the benefit of members, credit unions must continue to display high levels of governance so that regulators as well as the public can continue to have confidence in the sector.