Global Regulatory Update

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

December 2014: Issue 17

Brazil: Central Bank Authorizes Secondary Capital for Credit Unions

Brazil's Central Bank in November published Resolution 4.382, which will allow credit unions to issue secondary capital instruments called “financial bills.” The Bank authorized these new secondary capital instruments in order to help Brazilian credit unions increase their capital ratios over the medium- and long-term. SICREDI predicts that the new rules will help reduce credit unions’ operating costs and provide better conditions for growth.

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

Australia: Financial System Inquiry Recommendations Would Benefit Mutuals

An independent inquiry into Australia’s financial system has recommended changes to promote competition which would benefit small banks and credit unions.

The Financial System Inquiry (FSI) chaired by former banker David Murray has recommended higher capital requirements for large banks. If implemented, these changes will give customer-owned banking institutions greater capacity to apply sustainable competitive pressure on major banks and win back market share.

The FSI final report also recommended a review of competition in the banking market every three years and better reporting by regulators about how they balance competition against their prudential regulatory objectives.

In addition, the report recommends that the Basel III capital risk weights on home loans applied by major banks using the Internal Ratings Based approach to risk-based capital be increased from around 18 percent to 25–30 percent. The report also recommends that capital levels for large Australian banks to be increased by up to two percentage points, implying that major banks will have to raise an additional AUS 25–30 billion in Common Equity Tier 1 capital.

The Australian Government is consulting on the recommendations and will announce its response in 2015.

Source: COBA―Customer Owned Banking Association,

Canada: Business Development Bank of Canada Legislative Review

The federal government of Canada has been reviewing the legislation governing the operations of the Business Development Bank of Canada (BDC), the federal government-sponsored enterprise which lends to small businesses. Canadian credit unions have expressed concerns that the BDC has been behaving aggressively in the marketplace, contrary to the legislative requirement that it “complement” the lending activities of private sector lenders. In response, Canadian Central opposed the BDC’s request that the federal government lift the limit on its paid-in capital, which provides an important break on any expansionary tendencies at BDC, and recommended that the BDC provide a better accounting of how it complies with its requirement not to crowd out private-sector lenders. Canadian Central engaged in significant lobby work to support these recommendations.

In August, the Government of Canada released a position paper that was consistent with Canadian Central’s recommendations and, by November, introduced legislative amendments (Bill C-43) that included a clear requirement that any new powers be carried out by BDC in a manner that complements private sector lending activities. There also was no increase in the BDC’s paid-in capital limit. Canadian Central has welcomed these new developments.

The federal government has also proposed legislation to give effect to its earlier announcement that it intends to withdraw from supervising the “credit union Centrals,” Canada’s central credit unions, which is a role the federal government has shared to this point with provincial governments. The credit union system, as well as provincial governments and regulatory authorities, are continuing to assess the implications of this move and weigh how best to manage the transition to a provincial-only regulatory regime for central credit unions. The federal government has committed to working with the credit union system to ensure a smooth transition.

Canada’s credit unions have also recently increased their grassroots advocacy to promote the idea of a capital growth tax credit for credit unions in the next federal budget. Regulation of large Canadian banks dominates the federal financial policy arena, making it difficult for credit unions to be heard and understood in Ottawa. To make up for this disadvantage, credit unions, through Canadian Central, launched a broad grassroots campaign urging their members as well as other Canadians to tell federal legislators that “My Credit Union Matters!” The proposed capital growth tax credit is intended to create a more competitive balance in the federal tax code between credit unions and their joint-stock bank competitors, and would allow an estimated CAN 700 million in new lending a year to small businesses and families. The campaign’s website is and in French at

Source: CUCC―Credit Union Central of Canada,

Kenya: Integration of Saccos Loans into Credit Bureau Reporting

Sacco Societies Regulatory Authority (SASRA) recently partnered with the Association of Kenya Credit Providers (AKCP) and the Kenya Union of Savings and Credit Co-operatives (KUSCCO) to assist Saccos in furnishing information to and receiving information from credit bureaus. The initiative will enable Saccos to share and access consumers’ credit information in the Credit Reference Bureaus (CRBs) and thus assist in improving the quality of their loan books.

In addition, SASRA has completed a survey called “the extent to which deposit taking Saccos provide financial services to Micro, small and medium enterprises” (MSMEs). The findings of the survey indicate that 63.7% of the Saccos in Kenya had loan products targeting the MSMEs and that 35.9% of loan disbursements is lent to business customers. A copy of this report can be downloaded at

Source: SASRA―Sacco Societies Regulatory Authority,

Macedonia: New Credit Bureau Rules

A new regulation issued by the National Bank of the Republic of Macedonia regarding the governmental credit bureau operated by the Bank, called the “Credit Registry,” revises the rules on the types of data and information which must be submitted to the Credit Registry. Financial institutions are adjusting to the new rules which change the manner and the timeframes for submission of loan data and arrearage information to the Credit Registry; as well as new rules on the conditions for using Credit Registry data and information to make credit decisions.

The Republic of Macedonia has also enacted a new law on anti-money laundering and countering the financing of terrorism (AML/CFT). The new law changes the AML/CFT customer due diligence rules including the rules requiring verification of the beneficial ownership of legal entities. Confusingly, the new law requires financial institutions to verify this information from “reliable and independent sources” but does not define the types of sources that are considered “reliable and independent sources.”

Source: FULM―FULM Savings House,

New Zealand: The Financial Markets Conduct Act Seeks to Promote Transparency

New Zealand is undergoing the largest statutory change in its financial service markets in 30 years through the Financial Markets Conduct Act (the Act). The Act aims to promote and facilitate the development of fair, efficient, and transparent financial markets and ensure confident and informed participation of businesses, investors and consumers.

Under this Act, credit unions and building societies will be able to provide simplified product disclosure statements to their members rather than complex prospectuses and investment statements.

New Zealand credit unions and building societies are also working their way through a new licensing requirement as Non-bank deposit takers (NBDT) with the Reserve Bank of New Zealand. Two Co-op Money NZ member credit unions recently became the first NBDTs to receive a license, well ahead of the May 2015 deadline.

Source: Co-op Money NZ (f/k/a New Zealand Association of Credit Unions),

Estonia: Credit Union Sector Continues to Grow

In Estonia, the credit union sector continues to grow as people become disillusioned with commercial banks. The Estonian Union of Credit Cooperatives (EUCC) has recently welcomed a new member credit union, and the credit union sector has experienced a 17 percent growth in natural person membership as well as significant deposit growth. Continuing to attract new young people to credit unions will be a key to the system’s long term sustainability.

Disappointingly, however, it remains difficult for credit unions to offer payment services because regulators have not approved a proposed payments credit union service organization. This is problematic as new payment systems are needed for faster cross-border payments. SWIFT wire system capabilities are slowly being built by credit unions, but for the moment most credit unions must rely on an automated clearing house system that is slow to clear cross-border transactions.

Source: EUCC―Estonian Union of Credit Cooperatives,

Great Britain: Continuation of Regulatory Reform

The British credit union regulatory environment continues to see a fast pace of reform. Following various scandals during the financial crisis, both Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are consulting on a new Senior Mangers Regime to strengthen accountability in deposit-taker corporate governance. Thankfully credit unions will generally receive a lighter-touch version of the regime.

Elsewhere, thanks to efforts by the European Network of Credit Unions, the credit union sector will be exempted from the European Union’s (EU) new Mortgage Credit Directive giving the sector a competitive advantage. The government has also legislated to create a Payment Systems Regulator aimed at improving competition and innovation in payment systems which should improve access terms for credit unions using payment systems. A full review of credit union prudential regulation is anticipated at some time during 2015 as part of the continuing process of regulatory reform.

The United Kingdom (UK) Government’s investment in the Credit Union Expansion Project, which is being implemented by the Association of British Credit Unions, Ltd. (ABCUL) and its subsidiary Cornerstone Mutual Services, gathers pace with credit unions now considering the business case for committing to a shared way of doing business through a credit union service organization.

Government investment has unlocked significant savings for the procurement of a shared banking platform and shared operating model which will allow credit unions to expand and become more competitive through greater economies of scale, increased revenue and making credit union services more convenient and accessible, notably through digital channels. HM Treasury—the UK’s financial ministry—has also recently consulted on what more can be done to support credit union growth and expansion and ABCUL expects announcements as to how the government intends on pursuing this in the next few weeks.

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

Ireland: Transitions for Regulation of Credit Unions

These are interesting times for credit unions in Northern Ireland following the transition of responsibility for credit union regulation from the Financial Services Authority (FSA) to the United Kingdom’s Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA). Although the details of the new credit union rulebook are not yet final, the Northern Ireland government has recently approved funding to support credit unions and the Northern Ireland Assembly’s only recent unanimous votes have been on credit union issues.

In the Republic of Ireland, any credit union having over EUR 5 million in assets is now subject to on-site examination by the Central Bank of Ireland. Overall this applies to around 60 credit unions. The Irish League of Credit Union (ILCU) is also continuing a dialogue with the Bank concerning a variety of regulatory issues affecting credit unions, including bad debt reserve methodologies and the Basel III liquidity rules’ impact on credit unions that invest in bank deposits.

Source: ILCU―Irish League of Credit Unions,

Poland: Tax Waiver for Stabilization Assistance Pending

Despite challenging new regulatory requirements, Polish credit unions have experienced stable growth both in terms of new membership and loan portfolios. Some smaller credit unions (50,000–100,000 members) are struggling to meet the capital requirements of the new laws, but according to media reports commercial banks are not inclined to take over struggling credit unions because of possible negative public reaction.

Furthermore there is an outstanding issue of a tax waiver from the European Union (EU) regarding possible governmental assistance (i.e. state aid) to facilitate acquisitions of troubled credit unions, whether the acquiring institution is a bank or another credit union. The tax waiver will apply to merger assistance from the Banking Guarantee Fund (Poland’s national savings guarantee scheme) and without the waiver this merger assistance would likely be subject to corporate income taxation.

The National Association of Co-operative Savings and Credit Unions (NACSCU) has also asked for the tax waiver to apply to stabilization assistance that from the credit union movement’s private-sector Stabilization Fund. Like with assistance from the Banking Guarantee Fund, Stabilization Fund moneys used for merger assistance or other stabilization measures would likely be subject to income taxation without the tax waiver.

Source: NACSCU―National Association of Co-operative Savings & Credit Unions,

United States: CUNA Supports NCUA Working Groups

The National Credit Union Administration (NCUA) has announced the development of two working groups to explore regulatory approaches to credit union common bond and capital rules. One group will address possible changes in common bond rules for credit unions while the other working group will address supplemental capital options. The Credit Union National Association (CUNA) has helped spark NCUA’s formation of these working groups by urging NCUA to consider adding a supplemental capital provision as part of its revised risk-based capital regulation, and also by pushing major changes on field-of-membership rules along with new recommendations to facilitate greater service to underserved communities.

Regarding consumer protection, CUNA filed a comment letter on December 17th in support of the Consumer Financial Protection Bureau’s (CFPB) proposed policy on No-Action Letters (NAL). The policy would allow CFPB to issue NALs to specific applicants involving “financial products or services that promise substantial consumer benefit where there is substantial [regulatory] uncertainty.” CUNA supports the proposed policy and has offered suggestions on further improvements to the proposal.

Source: CUNA―Credit Union National Association,