Central Bank proposes raft of new rules for Irish credit unions

The Central Bank of Ireland has proposed a raft of new regulations for credit unions, covering a number of areas including reserves, liquidity, lending, investments, controls, and reporting requirements.

The draft regulations are designed to ensure that “appropriate limits and requirements” are in place for the credit union sector.

Under the new rules, the maximum amount that somebody can save with a credit union will be limited to €100,000, half the level currently in place. This is to ensure that credit unions’ funding is “sufficiently diversified” while “also protecting members’ savings”.

It is proposed that credit unions will be given six months to bring any savings that do no meet the terms of the new regulation into compliance.

In addition, credit unions will be limited to borrowing up to 25 per cent of their aggregate savings, half the level that currently exists.

A number of requirements relate to the lending framework. The large exposure limit is now the greater of €39,000, or 10 per cent of the regulatory reserve. The existing requirement is the greater of €39,000 or 1.5 per cent of assets.

This change is designed to ensure that lending takes account of the credit union’s ability to absorb any losses that may arise from credit risk.

A maximum maturity limit of 25 years is also proposed along with limits on the concentration of certain loans.

Commercial lending can be no more than half the regulatory reserve, under the new rules. Community lending would be limited to 25 per cent and lending to other credit unions at 12.5 per cent.

The draft rules also propose an initial reserve requirement for newly-registered credit unions while a short-term liquidity ratio of 10 per cent is included along with an expanded definition of liquid assets.

Credit unions are currently required to maintain a regulatory reserve ratio of at least 10 per cent continually. This is retained in the draft regulations along with a proposal that newly-registered credit unions maintain “initial reserves sufficient to support the credit union’s anticipated growth and take account of expected operating losses”.

Commenting on the proposals, the registrar of credit unions, Anne-Marie McKiernan said: “These regulations will foster a safer stronger credit union sector, through an enhanced regulatory framework. The regulations reflect existing requirements, some of which have been amended, and also propose a number of additional requirements.”

The regulator wants to introduce the new rules by the end of 2015 to coincide with the commencement of the remaining sections of the Credit Union and Co-operation with Overseas Regulators Act 2012.

It has opened up a consultation process, with submissions sought by February 27th. As part of this process, the Central Bank will hold a series of information seminars around the country over the next two weeks.

The introduction of the strengthened regulatory framework for credit unions began in the second half of 2013. The Central Bank said that once this strengthened regulatory framework has been embedded in credit unions, the introduction of a tiered regulatory approach will facilitate the prudent development of the sector within an appropriate regulatory framework.