December 2012 / Issue 13
The year 2012 ends much as it began: with significant legislative and regulatory changes in credit union systems throughout the world. Please find below updates from World Council's members regarding recent developments in their countries.
Michael S. Edwards
Chief Counsel and VP for Advocacy & Government Affairs
Brazil: Several New Regulatory Requirements
Brazil this year adopted several new legal Resolutions affecting credit union operations which Sicredi generally supported. This included a Resolution that simplified procedures for opening branch offices and a Resolution that set forth fiduciary duty and governance standards for credit unions which were similar to existing rules that Sicredi had established for its member credit unions.
In addition, Brazil adopted Resolutions establishing minimum standards for institutions that have access to the newly created Credit Cooperatives Guarantee Fund, and to require submission of a Cooperative System Combined Balance Sheet to the Central Bank of Brazil.
Source: Sicredi, www.sicredi.com.br
Cameroon: New Credit Union Regulations Come Into Force
In February 2011, the Organization for the Harmonization of Business Laws in Africa (OHADA) passed the Uniform Act on Cooperatives, which was adopted in Lomé, Togo, by 17 African countries including Cameroon. The Act has allowed a two-year transitional period before its implementation. Credit unions are required to apply the new regulations put into force under the OHADA by reviewing their existing bylaws before May 2013.
Currently, credit unions in Cameroon are governed by the Economic and Monetary Community of Central Africa (CEMAC) regulation for the exercise and control of microfinance activities within the CEMAC region, and the Banking Commission of Central Africa (COBAC) operational norms. The Cameroon Co-operative Credit Union League (CamCCUL) has also developed its own set of internal regulations used by its affiliated credit unions.
Source: Cameroon Co-operative Credit Union League, www.camccul.org
Canada: Report on the Status of Cooperatives Has Been Released
Following hearings that took place during the course of the summer, the Canadian Parliament released in September a Report on the Status of Cooperatives in Canada. Credit union representations are referenced throughout the report, which reflects the credit unions' submissions. The government has until mid-January to respond to the report.
Canadian credit unions are still waiting for the final publications of regulations that will allow for the federal credit union charter to come into force. Prior to the 2010 federal legislation, only Canadian provinces had legal authority to issue credit union charters.
In October, the Canadian Department of Finance released proposed amendments to the anti-money laundering regulations regarding customer due diligence measures for financial institutions. The amendments aim to ensure that reporting entities understand their due diligence responsibilities. Canadian Central has provided comments to the government on this issue.
Source: Credit Union Central of Canada, www.cucentral.com
European Union: Eurozone Leaders Pave the Way for an Integrated Banking System
European Union (EU) leaders agreed in December to create a pan-EU banking supervisory system administered by the European Central Bank (ECB). Credit unions will not be subject to direct ECB oversight because, under the EU leaders' final agreement, only banks with €30 billion or more in assets or which operate in more than one country will be subject to ECB supervision. This new "banking union" will be set up in 2013 and will be fully operational in March 2014.
The ECB will also have authority to intervene with respect to smaller banks if there is an "urgent need," such as a systemic crisis in a national savings bank system. It is unlikely, however, that the final agreement will give the ECB this "urgent need" intervention authority with respect to credit unions (although such a scenario remains possible because the text of the final agreement has not yet been publicly released).
ECB "urgent need" authority over credit unions is unlikely because the European Commission's initial "banking union" proposal only applied to "banks" as defined by the EU banking law (i.e., the "Capital Requirements Directive" or "CRD"), a definition that does not include credit unions. In addition, the European Network of Credit Unions (ENCU) in early December requested clarification from EU policymakers regarding possible ECB jurisdiction over credit unions and received feedback that credit unions are likely to remain subject to national-level supervision only. The ENCU continues to monitor this situation and will re-engage EU policymakers if the text of the final agreement raises concerns.
Source: European Network of Credit Unions, www.creditunionnetwork.eu
Great Britain: Credit Unions to Have Two New Regulators
A bill creating a new system for financial regulation in the United Kingdom is likely to be passed by the end of the year, and a new "twin peaks" regime will come into force in April 2013. This "twin peaks" regulatory approach gives one agency primary jurisdiction over consumer protection laws and another agency primary jurisdiction over prudential safety and soundness supervision. It will be similar in some respects to the "twin peaks" regimes adopted by Australia in 1998 and by the United States in 2010 when the Dodd-Frank Act created the Consumer Financial Protection Bureau.
Under the new law, the Prudential Regulation Authority, a subsidiary of the Bank of England, will ensure deposit-taking, investment and insurance firms meet prudential requirements such as capital and liquidity. The Financial Conduct Authority will oversee prudential requirements for smaller firms and consumer protection conduct issues for all firms, including banning risky products before they have caused a problem for consumers. Details of the new regime, under which credit unions will have two new regulators, will be finalized over the next few months. More info
The sector is also awaiting the result of a tender process that will determine how, and by whom, up to £38 million in government investment to modernize and expand the sector will be spent. The result of the tender is due in February 2013. More info
Source: Association of British Credit Unions, Ltd., www.abcul.org
Ireland: New Credit Union Bill IntroducedThe Credit Union Bill 2012 was published on September 28, following the publication of the Final Report of the Commission on Credit Unions in March. The bill seeks to give effect to many of the commission's recommendations. Legislation is expected to be enacted by the end of the year. The bill deals with four broad areas:
- Prudential regulation: including reserves, liquidity, lending and risk management;
- Governance: dealing with the roles and responsibilities of the chair, board, manager and board oversight committee;
- Restructuring: restructuring via transfers, mergers and amalgamations;
- Stabilization: provision of support to credit unions that are viable but undercapitalized.
The bill sets out the framework for prudential requirements that are to apply to credit unions in areas such as reserves, liquidity, lending and risk management. The policies and principles in respect of each area are set out in the bill, with scope for central bank regulations in relation to standards, procedures and other more detailed matters. The bill provides that regulatory requirements will be made according to the nature, scale and complexity of credit unions.
In addition, the bill provides the statutory basis for credit union restructuring and for central bank-approved stabilization support for viable but undercapitalized credit unions.
Source: Irish League of Credit Unions, www.creditunion.ie
Northern Ireland: New Legislation to Introduce "Corporate Membership" to CUs
In the summer of 2012, the Minister of Enterprise, Trade and Investment announced its intent to publish new credit union legislation to provide greater opportunity to fulfill and expand the role of credit unions in the community. In particular, the new legislation will introduce the concept of "corporate membership" to credit unions in Northern Ireland, meaning that legal entities will be permitted to join credit unions as members in addition to natural, physical people.
The transfer of regulation from the Department of Enterprise, Trade and Investment (Northern Ireland) to the Financial Services Authority (United Kingdom) for Northern Ireland credit unions took place on March 31, 2012. However, responsibility for credit union legislation in Northern Ireland remains with the Northern Ireland Assembly.
It is likely that legislative reforms for Northern Ireland credit unions will mirror the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011, which was introduced for credit unions in Great Britain last year.
Source: Irish League of Credit Unions, www.creditunion.ie
Kenya: CU Regulator Releases First SACCO Supervision Report
The SACCO Societies Regulatory Authority (SASRA) is piloting a new risk-based supervision framework. This framework is appropriate given that SASRA has licensed 122 credit unions. This number is expected to reach 125 by the end of 2012. The increasing number of supervised entities presents a resource challenge. Therefore, successful implementation of the new supervisory framework will enhance efficiency and allow SASRA to detect financially unsound credit unions early enough for corrective action.
In August, SASRA released the second edition of the SACCO Supervision report. The subsector continued to grow with total assets increasing at 14% to reach US$3 billion. This growth was funded by member deposits and capital, which stood at US$2.25 billion. Licensed credit unions have US$2.1 billion in assets and account for nearly three-quarters of the total assets in Kenya. Thus, SASRA has brought into prudential regulatory framework a significant number of systemically large credit unions.
Kenya promulgated a new constitution, the full effect of which will come after the general election scheduled for March 4, 2013. The constitution provides for a federal, two-tier governance system, with national and county governments. Credit union regulation will be a function of the county governments. SASRA is working to ensure the gains made in developing and strengthening credit union regulation are preserved in the new governance system.
Source: SACCO Societies Regulatory Authority, www.sasra.go.ke
Macedonia: New Tax on Members' Revenue from Interest on Saving Deposits Has Been Delayed
The Government of Macedonia has adopted amendments to the Law on Personal Income Tax, which delay a new income tax on members' revenue from interest on savings deposits. The law was initially scheduled to come into force at the beginning of 2013. Under the new law, the tax on member's interest income will come into effect when Macedonia is approved to join the European Union (EU) as a member state. An EU report issued earlier this year found that Macedonia met most of the criteria for EU membership but did not set a timetable for Macedonia's accession as a member state.
Source: FULM Savings House, www.fulm.com.mk
Moldova: New Law Permits CUs to Serve Businesses
On July 20, the Moldovan Parliament passed amendments to the 2007 Law on Savings and Credit Associations, which permits credit unions to now serve legal entities including businesses, to offer insurance products and services and to lower the general assembly member presence quorum to 30 members or more.
Source: Central Association of Savings and Credit Associations, www.aei.md
New Zealand: Bill Passed to Allow CUs a Freer Hand
One of the most anticipated reforms this year - the revised Friendly Societies and Credit Unions Act 1982, through which credit unions are registered - has been passed into law. The most notable change introduced by the reform is the removal of the cap on credit union deposits, which were previously limited to US$200,000 per member. Other amendments include the removal of restrictions on borrowing funds, making loans to members and the requirement to maintain a general reserve. The reform has taken more than 10 years to come to fruition, and the changes have been welcomed by the movement.New Zealand will begin enforcing compliance with the Anti-Money Laundering/Counter Financing of Terrorism Act 2009 by June 2013. Members have been actively preparing their businesses throughout 2012 to meet their obligations under the act and will be primarily focused on this in the lead-up to June.
Other reforms expected to continue to move through parliament for the next 12 months include:
- The Reserve Bank of New Zealand completing the implementation of their prudential regulation, which includes member licensing and vetting directors' and senior officers' suitability;
- An overhaul of the consumer credit law that will result in changes to credit reporting and introduce responsible lending requirements for consumer credit providers; and
- A review of key pieces of securities legislation that will ultimately impact the credit unions' disclosure documentation.
Source: New Zealand Association of Credit Unions, www.nzacu.org.nz
Poland: Parliament Considers Giving CUs Access to Deposit Insurance via State Banking Guaranty Fund
On July 19, the Polish Parliament received draft amendments to the Credit Unions Law of 2009. The main objective of the bill is to introduce deposit insurance for all credit unions as part of the State Banking Guarantee Fund - currently available only for banks - but the initial draft of the bill also has several controversial provisions that credit unions oppose.
Articles opposed by credit unions include a provision that would limit the national association's permissible investments to only state treasury and national bank bonds and securities, a provision that would require the Polish Financial Supervision Authority to approve all contracts between the national association and credit unions, and a provision that would allow involuntary mergers of insolvent credit unions with commercial banks. The new bill is expected to pass in the first quarter of 2013.
Source: National Association of Co-operative Savings & Credit Unions, www.skok.pl
Peru: CUs to Fall under the New Anti-Money Laundering Supervisory Authority
On April 19, the Peruvian Legislative Decree No. 1106 for effectively combating money laundering and other crimes related to illegal mining and organized crime was officially published. It establishes the Financial Intelligence Unit as the supervisory authority for credit unions with respect to provisions related to anti-money laundering and terrorist financing.
Source: National Federation of Savings and Credit Cooperatives in Peru, www.fenacrep.org
United States: Consumer Financial Protection Bureau to Change Remittances Rules, Issues Multiple New Mortgage Regulations
As a result of the Credit Union National Association's (CUNA) advocacy efforts, the Consumer Financial Protection Bureau (CFPB) has announced that it is delaying the effective date of its regulation concerning international "remittances" and will make changes to the law to address credit unions' concerns about potential liability the rules assign for "errors" occurring after a wire transfer has exited U.S. jurisdiction. Under CFPB's Regulation E, "remittances" are defined broadly to include all consumer-initiated cross-border electronic funds transfers.
CFPB released its proposed revisions to the error liability rules for public comment on December 21. The agency also delayed the law's effective date until 90 days after publication of the final version of these changes in the Federal Register.
CFPB has also issued multiple proposed regulations concerning mortgage lending activities. These include a proposal to combine disclosures that credit unions and banks are required to give mortgage loan applicants and borrowers. CFPB also proposes to amend the rules for home appraisals that would be secured by "higher risk mortgages," such as those with interest rates and fees significantly above market. In addition, CFPB has proposed to revise the definition of "finance charge" — i.e., the key component of annual percentage rate (APR) calculation under U.S. consumer protection laws — in a manner that has raised concerns among credit unions. CUNA has urged CFPB not to finalize this aspect of its mortgage proposals.
CU Regulators to Gather in April for ICURN Conference & Continuous Education
The "Global Regulators' Roundtable" annual conference for credit union regulators will take place on April 15–17, 2013, in San Diego, USA. The Regulators' Roundtable is coordinated by the International Credit Union Regulators' Network (ICURN). World Council serves as the ICURN Secretariat.
More than 70 credit union regulators are expected to attend the three-day event that will address critical topics including risk management, successful policymaking vs. regulating and credit union governance. The third day of the conference will be dedicated to an educational session based on the National Association of State Credit Union Supervisors' renowned accreditation program for credit union examiners in the United States. Credit union regulators interested in attending may click here to learn more about the ICURN conference or contact us for invitations.
Source: World Council of Credit Unions, www.woccu.org
World Council Discusses Basel III Capital Requirements with Basel Committee Representatives, Supports Basel "Proportionality" Principle
On December 5, World Council of Credit Unions and the Credit Union National Association, World Council's member organization in the United States, met with representatives from the secretariat of the Basel Committee on Banking Supervision at the Bank for International Settlements to discuss the implications of Basel III capital requirements for credit unions. More info
Credit union shares that are perpetual, nonwithdrawable and available to cover institutional losses can be considered "common equity" regulatory capital under guidelines offered by the Basel Committee on Banking Supervision's Basel III document, originally released in December 2010 and reissued with revisions in June 2011. World Council of Credit Unions made the assessment in a Basel III white paper issued in August. More info
Download the white paper at www.woccu.org/positionpapers.
In March, World Council also formally supported proposed revisions to the Basel Committee on Banking Supervision's Core Principles for Effective Banking Supervision. The revisions would make regulatory standards "proportional" to financial institutions' risk profiles and based on their impact on global financial systems. Supervisory proportionality would help reduce unnecessary regulatory burdens on smaller institutions, World Council stated in a March 20 letter to the committee's headquarters in Basel, Switzerland.
View a copy of the letter at www.woccu.org/positionpapers.
Source: World Council of Credit Unions, www.woccu.org
Adjust FATCA Definitions to Accommodate Credit Unions, World Council Urges
World Council of Credit Unions testified on May 15 in a hearing convened by the U.S. Internal Revenue Service (IRS) to urge the agency to consider changes to its proposed Foreign Account Tax Compliance Act (FATCA) regulations that would reduce undue regulatory burdens on credit unions in other countries. Expanding the definition of "non-registering local banks" to include credit unions would help relieve the strain of unnecessary IRS reporting for non-U.S.-based credit unions already unable to serve members such as those the IRS is seeking to tax due to membership restrictions. More info
World Council also outlined these concerns in a comment letter to the IRS. More info
View World Council's letter to the IRS at www.woccu.org/positionpapers.
Source: World Council of Credit Unions, www.woccu.org
World Council Supports "Risk-Based Approach" to Global Anti-Money Laundering Regulations, Suggests Measures to Limit Regulatory Burden
In April, World Council of Credit Unions supported revisions to regulations developed by the Financial Action Task Force (FATF), which are designed to combat money laundering and terrorist financing. World Council also supported the FATF's revised due diligence recommendations, which set forth a "risk-based approach" that can be scaled to acknowledge credit union members' relative lack of risk in these areas. World Council representatives addressed this issue at an April 2 meeting held by FATF at the Paris headquarters of the Organization for Economic Cooperation and Development, where the inter-governmental regulatory body is domiciled. More info
In September, World Council of Credit Unions made recommendations to the FATF on how to limit regulatory burdens on credit unions in the FATF's forthcoming guidance papers on anti-money laundering (AML) standards. The new standards will expand the international AML definition of politically exposed persons (PEPs) to include domestic and international organization PEPs, as well as update existing FATF guidance on new payment methods. More info