Global Regulatory Update

World Council's twice yearly electronic newsletter of regulatory issues throughout the world

September 2015: Issue 18


The Australian Prudential Regulation Authority (APRA) has agreed to implement several important recommendations made by the Australian government's recently completed independent Financial System Inquiry. Most notably, APRA is progressing work on two key recommendations that will improve competitive neutrality in the Australian banking sector by requiring the largest banks to hold more capital. The first recommendation is that banks using the Basel III internal ratings-based approach to calculate risk-based capital will need to increase the average risk weight applied to their residential mortgages to 25 per cent starting in July 2016 (currently the residential mortgage risk weights for internal ratings-based banks average around 16 per cent). Secondly, APRA has accepted the Inquiry's recommendation that major bank capital levels be set at "unquestionably strong" levels. APRA has estimated that these banks' capital adequacy ratios would need to increase by "at least 200 basis points" to meet the Inquiry's suggested benchmark.

APRA has also introduced macro-prudential measures aimed at reducing over-exuberance in the Australian real estate market by slowing the growth of mortgage borrowing for investment properties (such as when a borrower buys a residential property because of its potential return as an investment and does not plan to occupy the premises as his or her primary residence). APRA has introduced a 10% cap on the growth of institutions' investor mortgage lending programs, and this new limitation applies to all Australian deposit-taking institutions. Many banks have responded by significantly increasing interest rates and introducing lower loan-to-value ratio requirements on mortgages for non-owner-occupied properties.

Source: COBA—Customer Owned Banking Association,



In August, Brazil's National Monetary Council approved Resolution No. 4,434, which establishes a new regulatory framework for Brazilian credit unions. Changes stemming from the resolution include new rules on the opening and closing of credit unions, new credit union accounting standards, clarification of the corporate governance responsibilities of the credit union's management and board of directors, new standards on how individual credit unions can disaffiliate from federations, and a new credit union regulatory capital and prompt corrective action regime.

Source: SICREDI—Confederação Interestadual das Cooperativas Ligadas ao Sicredi,




Canada is currently in the midst of a federal election campaign. With the election scheduled for October 19th, the 78-day campaign will be the longest in recent memory. During this election period there will be little in the way of official policy development, including with respect to Credit Union Central of Canada's (CUCC's) concerted efforts last year and early in 2015 to obtain a tax credit for credit unions to replace a deduction that was eliminated in the 2013 budget.

Despite the election season, however, CUCC — soon to become the Canadian Credit Union Association (CCUA) — is continuing to engage with policymakers, particularly those in agencies and Crown corporations that are further removed from the political process, on three major technical issues.

The first issue is the treatment of credit union shares as regulatory capital under Basel III. CUCC is working with the Office of the Superintendent of Financial Institutions (OSFI), Canada's federal financial regulatory agency, on OSFI's efforts to adapt existing guidance on Basel III capital definitions to the cooperative form. Basel III-consistent guidance on this matter has been in place for joint-stock banks and other financial institutions since December 2014. While credit unions are still regulated prudentially at the provincial level, regulators in those jurisdictions will be watching federal developments closely as they attempt to harmonize their rules.

CUCC is also continuing to engage policymakers on the second issue, which is the federal government's proposed charter conversion approach for provincially chartered credit unions that are interested in converting to a federal credit union charter. Currently all Canadian credit unions are provincially chartered but the legal authority for federally chartered credit unions exists. The federal government's proposed charter transition measures are designed to address challenges which may arise from transitioning to the federal credit union regulations from a provincial rulebook (for example, some provinces have unlimited deposit insurance for credit union members' savings whereas the federal standard maximum amount of deposit insurance is CAN 100,000 per member).

Finally, CUCC continues to work in collaboration with its member central credit unions to re-imagine its group clearing structure. The group clearing framework has allowed the credit union system to achieve economies of scale in national clearing and settlement processes, but must now be adapted to meet the expectations of provincial regulators in the wake of OSFI's decision to disengage from regulating provincial centrals.

Source: CUCC—Credit Union Central of Canada,


Great Britain

This summer the Bank of England-Prudential Regulation Authority proposed revisions to British credit union safety and soundness rules that are likely to impact credit union operations and growth significantly if finalized as proposed. In particular, the Authority has proposed to cap the amount of savings that a member can place with his or her credit union at the standard maximum level of deposit insurance protection provided by the Financial Services Compensation Scheme (which will be GBP 75,000 per member in 2016). The Authority is also proposing to require larger and more sophisticated credit unions to meet a 10% capital-to-assets leverage ratio, to cap the maximum value of loans a credit union can make at no more than GBP 500,000, and to require credit unions wishing to engage in complex financial activities to meet financial ratio targets which are based on elements of the PEARLS Monitoring System.

The Association of British Credit Unions Limited (ABCUL) is very concerned that the Authority's proposal, if finalized without significant revisions, may make it more difficult for the British credit union movement to grow and could also put credit unions at a competitive disadvantage relative to other British deposit-taking institutions like banks and building societies.

Bank deposits made by British credit unions and other European financial institutions have also recently lost their deposit insurance protection under the Financial Services Compensation Scheme. This change is a result of European Union (EU) policies which abolished deposit insurance protection for bank deposits made by other financial institutions; the EU's thinking is that the elimination of deposit insurance protection for these accounts will help reduce moral hazard. In addition, British credit unions are facing strict new fitness and propriety requirements for credit union senior managers which will take effect in early 2016.

ABCUL also anticipates that the new Conservative majority government will launch a review of credit union legislation in the near future, as the Conservative party committed to do during the 2015 general election campaign in the United Kingdom.

Source: ABCUL—Association of British Credit Unions Ltd.,



In the Republic of Ireland, the Central Bank of Ireland has issued final regulations for credit unions which are scheduled to take effect on December 31, 2015. These regulations set forth prudential requirements for all credit unions in a number of key areas including reserve requirements, liquidity, lending, investments, savings, borrowing, internal controls, and reporting arrangements.

In particular, the regulations impose a limit on the maximum amount of savings that an individual member can place with his or her credit union of EUR 100,000 (which is equal to the standard maximum amount of deposit insurance available to credit union members in the Republic of Ireland). The regulations also finalize a minimum leverage ratio requirement of 10% capital-to-total assets for credit unions, and establish limits on loans with a tenor of more than 5 years (which are limited to no more than 30% of the loan book) and loans with a tenor of more than 10 years (which are limited to no more than 10% of the loan book). Concentration limits on categories of lending, such as mortgage lending have also been imposed.

In Northern Ireland, the long awaited Credit Union Bill has been introduced to the Northern Ireland Assembly. The Bill includes a provision to allow corporate entities to join credit unions, introduces interest bearing shares and makes a number of other technical amendments to the Credit Unions (Northern Ireland) Order 1985. It is expected that the Bill will be introduced at the committee level for debate this autumn.

The Bank of England-Prudential Regulation Authority and the Financial Conduct Authority have also issued a consultation paper to review the regulatory rulebook for credit unions in the United Kingdom. The review proposes significant changes to credit union prudential rules, and will require credit unions to comply with enhanced prudential ratios in order to be approved to undertake some types of business activities such as mortgage lending and payment services. The Authority has also proposed to limit the amount of savings that an individual member can place with his or her credit union to no more than the Financial Services Compensation Scheme's standard maximum amount of deposit insurance (which will be GBP 75,000 per member in 2016).

Source: ILCU—Irish League of Credit Unions,


In June 2015, Kenya's National Treasury Cabinet Secretary, Mr. Henry Rotich, made recommendations for the Savings and Credit Cooperative Societies (SACCOs) subsector in his 2015–2016 budget speech that were intended to enhance public confidence in the SACCO movement. Secretary Rotich's two most important recommendations were for theSacco Societies Regulatory Authority (SASRA) to strengthen the supervision of deposit-taking SACCOs, and to allow SACCOs and banks to share information about members' loan payment histories. Other policy proposals includeoperationalizing Kenya's Deposit Guarantee Fund for SACCOs (the legal authority for this fund is already in place) and establishing a central liquidity facility for deposit-taking SACCOs. These policy reforms will be subject to consultation with Kenyan SACCOs after the draft legal amendments are published.

Source: SASRA-Sacco Societies Regulatory Authority,


Macedonian regulators have recently amended the rules affecting credit unions in Macedonia, including mandating a minimum capital ratio of 20% capital-to-assets but also repealing a rule which formerly limited the amount of deposits a credit union could hold to no more than twice its total capital (which, if the credit union had no external borrowings, effectively required the institution to have a 33% capital-to-assets ratio). In addition, these new rules obligate credit unions to establish controls for managing foreign currency risk, and set new information security requirements that are intended to bring Macedonia's data protection rules closer to the International Organization for Standardization's ISO 27001 standard.

Source: FULM Savings House,

New Zealand

The regulatory and legislative landscape affecting financial market participants has evolved rapidly in New Zealand over the last 12 months, with these changes arising from the New Zealand government's desire to protect investors further following the Global Financial Crisis. All credit unions are now licensed to act as deposit takers by the Reserve Bank of New Zealand (RBNZ). This process required a lengthy review by the RBNZ of individual credit unions' financial soundness and the robustness of their risk management policies and practices.

New Zealand has also recently made major changes in its consumer financial protection laws. The Financial Markets Conduct Act (2014) comprehensively reformed New Zealand's regulations governing how financial products are created, promoted and sold, and also changed the ongoing responsibilities of those who offer, deal and trade them. Amendments adopted in 2015 to the Credit Contracts and Consumer Finance Act further tightened New Zealand's consumer financial protection rules. These legislative changes included a new Responsible Lending Code which has required all New Zealand credit unions to review their loan contract forms and establish new practices and procedures regarding how they communicate with borrowers over the life of a loan.

Source: Co-op Money NZ,


Since 2008, the Registry of Co-Operative Societies has introduced a series of new rules for credit co-operatives in Singapore. This regulatory reform process continues and the Parliament of Singapore will in 2016 consider a proposed set of amendments that would affect credit cooperatives' operations in a number of areas including the minimum amount of liquid assets a credit union must hold, minimum capital requirements, corporate governance standards, and management capability and capacity building.

Source: Singapore National Co-Operative Federation,

United States

In June, the National Credit Union Administration (NCUA) proposed an overhaul of its member business lending regulations for federally insured credit unions. The proposal would remove many of the rules' business lending restrictions that are not required by the Federal Credit Union Act and, if finalized as proposed, the revised rules would enable credit unions to serve more fully their members who are business owners. CUNA generally supports NCUA's proposal but plans to submit comments to the agency on how to improve its member business lending rules further. Most federally insured credit unions will remain subject to the Federal Credit Union Act's statutory limit on member business loans of approximately 12.25% of assets, although credit unions with a low-income designation or which were established primarily for business lending purposes are exempt from this cap.

US credit unions are also preparing for anticipated rulemakings from the Consumer Financial Protection Bureau related to payday lending and overdraft protection programs. The overdraft protection proposal in particular could have a significant impact on credit unions' ability to serve members who have low balances in their share draft accounts.

In Congress, credit unions are advocating for regulatory relief legislation that would expand credit unions' ability to become members of Federal Home Loan Banks, improve the transparency of NCUA's budget, and reduce regulatory burdens stemming from the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act. CUNA is also working closely with other financial services trade groups to advance legislation on data security which would help to ensure that merchants which accept plastic cards for payment are held to data security standards that are similar to those applicable to credit unions and banks.

Source: CUNA—Credit Union National Association,