Global Regulatory Update

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

January 2011 | Issue 10

Australia: Implementing New Responsible Lending Requirements


The Australian government has announced it will take action to help build a new pillar in Australia's banking system "from the combined competitive power of our mutual credit unions and building societies." The promise is contained in a Government policy statement Competitive and Sustainable Banking System.

The government plans to launch a community awareness and education campaign in early 2011 under the banner Bank on a Better Deal. "We'll put our mutual credit unions and building societies together with our regional and other smaller banks, right at the centre of this awareness campaign, to properly inform consumers about the safe and competitive alternatives they offer to the big banks," the government statement said.

"This will include the introduction of a new official ‘Government Protected Deposits' symbol, which will help consumers easily identify that mutuals are as safe as banks and support this critical funding source for our credit unions and building societies: mutual credit unions and building societies meet the same high standards of prudential regulation as banks, as they are supervised by APRA [Australian Prudential Regulation Authority] [and] all deposits held with a mutual are backed by the Government's Financial Claims Scheme — just like bank deposits. The Treasury will continue to actively facilitate the efforts of mutual credit unions and building societies to develop aggregated structures for mutuals to pool together and raise cheaper funding. The Gillard Government believes strongly in the capacity of Australia's mutual credit unions and building societies to provide a safe and competitive alternative to the big banks. Most importantly, as mutual organisations, credit unions and building societies always put their customers first. They are not-for-profit lenders — so they put their profits back into cheaper interest rates, lower fees and better customer service," the statement said.

The policy package announced by the government also includes measures to make it easier for customers to switch financial institutions, such as a ban on exit fees on new home loans.

Read the full government policy statement Competitive and Sustainable Banking System.

Source: Abacus - Australian Mutuals,


Barbados: Ministry of Finance Removes Tax Exemption on CU Members' Savings

On November 22, 2010, in presenting the budgetary proposals for 2010/2011, the Minister of Finance announced his decision to remove the income tax exemption for credit union member savings. Introduced in the mid 1970s, this exemption has contributed to significant growth in the credit union sector and savings accumulations for members. The removal of the tax exemption on credit union savings will bring an additional BB$9 million (US$4.6 million) in government income.

The announcement has come as a shock to the movement, since it is in stark contrast to government's earlier intention to promote indigenous savings and investments. Minister of Finance the Hon. Christopher Sinckler, in presenting the budgetary proposals for 2010/2011 in the lower House of Parliament, said, "The allowance for investing in mutual funds and savings with credit unions was useful as a means of stimulating investment using these two vehicles. There is no doubt that it has contributed to the growth of credit unions and today one of the largest credit unions is the owner of a mortgage company. The credit unions now control significant assets in the country and the larger ones such as Public Workers are bigger than some banks. There is therefore no need for an allowance to encourage persons to save with credit unions. I will remove this allowance with effect from income year 2011. This will result in a saving of BB$9 million."

Credit unions in the region have been surprised by this new approach, since for many years other countries have sought to replicate the Barbados model. Based on available data, credit union savings in Barbados represent only 8% of the savings market, while loans represent 12% of the market.

Source: Caribbean Confederation of Credit Unions,


Canada: Drafting Regulations for Federal Credit Unions

Legislation to allow for the establishment of federal credit unions was adopted by the Canadian Parliament in July 2010. However, the legislation will not come into force until regulations have been adopted. The regulations will, among other things, outline transitional rules for provincial credit unions whose members elect to become federal credit unions. Credit Union Central of Canada (CUCC) expects that the federal government will publish these regulations for public comment in the spring of 2011, with the goal of adoption by the end of the year.

The federal government has also begun its regular five-year review of financial institution legislation. CUCC's submission to the review process is aimed at modernizing provisions governing existing co-operative credit associations, as well as signalling needed improvements to the aforementioned federal credit union legislation. Among these are controls on membership lists and protecting the place of federal credit unions among the credit union group within the Canadian Payments Association. The five-year review will be completed by the spring of 2012.

View the December 2010 edition of the CUCC Policy and Advocacy Report.

Source: Credit Union Central of Canada,

Great Britain: 2011 Brings Enactment of Major Reforms to CU Law and Regulations

Long-awaited reforms to the Credit Unions Act and parallel changes to prudential regulation for credit unions are expected to come into force in the spring of 2011. These will allow credit unions to serve many more groups, pay interest on deposits and serve organisations as well as individuals for the first time. This will free credit unions to significantly expand fields of membership and services over the coming years.

Reforms to the regulatory framework for financial services in Great Britain are under development, with the Bank of England taking control of prudential regulation and the Financial Services Authority, the former regulatory body, set for abolishment. In a process set to take a period of 2 years, credit unions' priority is to retain proportionate treatment as a sector under the new rules.

The government continues to make supportive statements regarding making credit union services available via the government post office network of 11,500 branches. If implemented, such a partnership could make credit union services accessible on almost every main street in Britain.

Source: Association of British Credit Unions, Ltd.,


Ireland: Final Phase of the CU Strategic Review to Start in January

December 2010 marked the completion of Phase I of the strategic review of the credit union sector requested by the Minister for Finance and overseen by the Central Bank of Ireland. Phase I, which started in August 2010, was principally a data-gathering process through completion of surveys and on-site reviews of a sample of credit unions to establish their financial position and risk profile. Phase II of the strategic review, which will involve developing proposals on the future strategic direction of credit unions and the supporting regulatory and legislative framework, is expected to commence in January 2011 with the final report to be issued three months later. The completion of the strategic review was included in the International Monetary Fund's bailout package for Ireland.

Read the press release on the Financial Regulator announcement of the Strategic Review of the Credit Union Sector.


Northern Ireland: Delayed Transfer of CU Regulation and Registration

The regulatory and legislative review of credit unions in Northern Ireland is ongoing. The policy decision has been made at the government level to transfer both the regulation and registration of credit unions to the Financial Services Authority (FSA) or its successor. Due to the legal complexities involved, it may be some time before the transfer of regulation and registration takes place, and initial indications suggest changes may occur towards the end of 2011. The FSA has indicated that they are currently considering what transitional arrangements will need to be put in place to ensure a smooth transfer of regulation for credit unions in Northern Ireland.

Source: Irish League of Credit Unions,

New Zealand: Changes to the 1982 CU Act Are Introduced To Parliament

Long-awaited changes to the 1982 Friendly Societies and Credit Union Act have finally been introduced to Parliament. The majority represent the removal of restrictions that are now outdated or superseded by the significant regulations for non-bank deposit-takers. The government is currently consulting on regulations for governing bodies, which will include elements of ‘fit and proper' tests introduced elsewhere. Anti-money laundering regulations will also be issued in early 2011.


World News: Basel Committee Publishes Final Basel III Rules

In mid-December, the Basel Committee published its final report on Basel III which was adopted by the G20 leaders at the summit in Seoul. Basel III seeks to significantly improve the quality and quantity of capital by eliminating the usage of hybrid capital instruments, and requiring common equity (including membership shares), retained earning and other disclosed reserves to reach 6% of risk-weighted assets by 2015. In addition, the Committee plans to implement liquidity ratios and a leverage standard by 2019. Regarding financial cooperatives, the framework maintains, as WOCCU advocated, the recognition of membership shares as part of Tier 1 capital, assuming they are available to absorb losses.

Prior to finalizing the standards, the Basel Committee completed an impact assessment of the new standards on balance sheets for very large global banks, as well as mid-sized and smaller financial institutions. The analysis showed that larger banks will have to raise significant amounts of capital over the coming years to come into compliance, whereas mid-sized and smaller firms came closer to already meeting the new standards. To lessen the possibility of the standards weakening the economic recovery, an eight-year transition period has been scheduled for the full implementation. During this transition period, WOCCU sees an opportunity for well-capitalized credit unions to gain market share. View the full documents.


World News: Financial Stability Board Encourages Less Use of Credit Rating

In a report issued on October 27, the Financial Stability Board (FSB) had drawn up several principles to reduce the reliance on ratings done by Credit Rating Agencies (CRA). In meetings and correspondence with the FSB, WOCCU has been supportive of these principles, particularly as they relate to credit unions needing ratings. The principles are aimed at changing existing practices, to end mechanistic reliance by market participants, and replace previous guidance with stronger internal credit risk assessment practices. The three principles outlined are the following:

Principle 1: Reducing reliance on CRA ratings in standards, laws and regulations
Standard-setters and authorities should identify the use of CRA ratings in standards, laws and regulations and, wherever possible, decrease their use and replace them with suitable alternative standards of measuring creditworthiness.

Principle 2: Reducing market reliance on CRA ratings
Banks, market participants and institutional investors should make their own credit assessments rather than rely on the employment of CRA ratings.

Principle 3: Includes a number of recommendations, among others:

  • Central bank should avoid any mechanistic reliance on ratings by CRAs;
  • While bigger banks are required to undertake their own credit risk assessment of everything they hold, smaller, less-sophisticated banks may not have the resources to conduct internal credit assessments for all their investments. However, they should also not mechanistically rely on CRA ratings and should publicly disclose their credit assessment approach. They should understand the credit risks underlying their balance sheets and should undertake a risk assessment commensurate to the product they are investing in.

View the FSB report on Principles for Reducing Reliance on CRA Ratings.


World News: Basel Issues Consultative Document on Operational Risk and Disclosure Requirements for Remuneration

In December 2010, the Basel Committee issued two separate consultative documents on management and supervision of operational risk and the disclosure requirements for remuneration. The first document identifies 11 principles grouped into three main areas of governance, risk management environment and the role of disclosure. Much like the paper on operational standards, the consultative document on remuneration makes assumptions regarding the complexity and market disciplines affects that are not present in most financial cooperatives. To provide input for WOCCU's comment letters on both consultative documents, please e-mail Dave Grace at by February 11.


World News: Webinar: IASB Model for Impairment of Financial Assets

On January 11, WOCCU hosted a webinar regarding the International Accounting Standards Board (IASB) proposed model for amortized cost measurement and impairment of financial instruments. IASB's Sue Lloyd, director of Capital Markets and Sara Glen, of the Impairment Model Technical Team, have presented on the new IASB standards and its meaning for financial cooperatives. View the webinar presentation.


World News: Regional Regulator Roundtables held in the Caribbean and Africa

In October 2010, 43 credit union supervisors from 17 Caribbean island nations participated in the Caribbean Credit Union Supervision Workshop, co-sponsored by WOCCU and the International Monetary Fund's Caribbean Regional Technical Assistance Center (CARTAC). View the presentations and also see more information about the meeting. Defining credit union-appropriate oversight and operating procedures was one of several topics highlighting the third African SACCO Regulators' Roundtable, held December 1-3 in Malawi and sponsored by WOCCU, the Canadian Co-operative Association and the Irish League of Credit Unions Foundation. View the resources for the African SACCO Regulators Roundtable. More info