Regulator gets ready to lay down law for credit unions

IFSRA's Brendan Logue will oversee the regulation of an organisation with 535 outlets, more than 2½ million members and assets that exceed €8 billion, writes Dominic Coyle

Settling into his seat on the seventh floor of the Central Bank building, Brendan Logue is welcoming if cautious.

It's hardly surprising. He is only hours into a new job that promises to be both challenging and high profile.

As registrar of the credit unions, he will oversee the regulation of an organisation with 535 outlets, more than 2½ million members and assets that exceed €8 billion.

It's a group that has been in the news for all the wrong reasons in the recent past. An effort to put in place an organisation-wide technology network, ISIS, turned into a €34 million fiasco.

More recently, it has found itself in the High Court following attempts to eject member unions for not using an in-house insurance policy in a move that the Competition Authority says is an abuse of competition law.

Questions have been raised about practices in individual credit unions.

On top of all that, Mr Logue is fully aware that the credit union movement lobbied hard to avoid oversight from his office, which forms part of the new single financial regulator, IFSRA.

The Irish League of Credit Unions (ILCU) argued that bringing its members under the umbrella of IFSRA would blur the lines between its "unique" not-for-profit organisation and the commercial financial institutions. It thought it had persuaded the Minister for Finance, Mr McCreevy, to retain a regulator independent of IFSRA only to find itself outflanked.

If the challenges ahead worry Mr Logue, he doesn't show it.

"We are both working to the same agenda, although we are coming at it from different directions," he says. "I think it is absolutely vital that the credit union movement be properly regulated. If its regulation does not work well, it is the members' savings that will suffer."

At the same time, he draws a firm line between regulating and running the credit unions. "It is not our job to manage the credit union movement; it is more our job to prevent it being mismanaged," he says.

"Credit unions operate through a relationship that is built on trust and therefore a high level of transparency needs to be present. The monies that circulate through the movement belong to the members. It is extremely important that their interests are protected."

He believes that the democracy that exists within the credit union movement is one of its greatest strengths - an element that sets it apart from the "hard-nosed" and anonymous approach of the high street banks, "but it needs structures. Democracy doesn't function without structures".

Ensuring those structures are in place is where the registrar's office comes in, he argues. He sees his office as responsible for ensuring that there is proper governance with the organisation, that reasonable transparency exists and the people are given a fair deal. A credit union member himself - all his family are also members and his wife is heavily involved in a credit union - he accepts ILCU's argument that credit unions do require a different regulatory touch than mainstream financial institutions. But that does not mean simply preserving the status quo.

"The credit union movement has to evolve, not only in response to changes in legislation both here and in Europe, but also to take account of changes in society," he says.

"The credit union movement has a completely different client base now than when it started. What has worked well in the past will not necessarily continue to work.

"While in days gone by, there might have been an acceptance of a top-down, even paternalistic, approach, people are now more educated and inclined to question things. Credit unions needs to recognise this and learn how to address it."

He says one of the biggest changes under the new era of regulation will be in how it is resourced.

The IFSRA legislation has not changed much the underlying legal structure governing the movement, the Credit Unions Act of 1997, he says, but the new era will see a regulatory structure that has the funds to do its job.

"The one thing that will change is that where up to now the regulatory function was under-resourced, it is now going to receive a good dollop of resources. Exactly how that will affect things is hard to say because that is only now starting to happen."

The new registrar, however, is determined that it will lead to a supervisory role that is more proactive than reactive.

The issue of resources is still subject to debate. IFSRA is close to starting a consultative process with the bodies it regulates, including the credit unions, about the funding of the office. It is anticipated that the industry will be asked to foot much, if not all, of the bill for its supervision.

Credit unions have paid fees and charges under the previous regulatory regime but the cost to the movement if it is asked to fund the new, more extensive structures will rise.

IFSRA chief executive Mr Liam O'Reilly has indicated that he hopes to have a funding system in place for next year.

Another key issue for the credit unions is technology.

Mr Logue understands that enthusiasm for harnessing technology within the movement has been badly dented by the ISIS fiasco, but he insists the issue cannot be ignored.

"Managing the members' money requires a high degree of risk analysis," he says.

From his previous job as IDA Ireland's point man in the International Financial Services Centre, he is well aware of the contribution technology came bring to this.

"It is important to have some technological solution. It is a sore and difficult subject but the issue cannot be dodged for long, never mind about forever."

Since the announcement of his appointment, the registrar's office has already seen a significant number of submissions. While welcome, Mr Logue is keen to stress that his role is limited.

"People are getting in touch about all sorts of things they think need to be addressed, not just in the area of regulatory matters. Some of them we can solve, some we cannot. What we can do is lay down the law, no more," he says.