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Global Regulatory Update

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Global Regulatory Update - October 2008

 

October 2008 / Issue 4

Australia: Government Focuses on Enhancing Financial System Stability
Great Britain: New Proposed Legislation Will Allow Credit Unions to Expand Membership and Services
Ireland: Government Increases Deposit Guarantee Limit to 100,000 Euro per Depositor
New Zealand: New Bill Empowers Reserve Bank to Regulate Credit Unions
Romania: National Bank of Romania Limits Debt Level to 20% of an Individual's Income
South Africa: National Treasury Designing a Deposit Insurance System with WOCCU assistance
United States: Senate Passes Rescue Package with Deposit Insurance Boost
United States: Government Places Mortgage Companies Fannie Mae and Freddie Mac into Conservatorship
World: WOCCU Publishes First Model Regulations for Credit Unions and Regulation and Supervision Technical Guide
World: IASB Reconsiders CU Exposure Standards Based on WOCCU Recommendation
World: African Credit Union Regulators to Convene in South Africa
World: October 16th is International Credit Union Day

Australia: Government Focuses on Enhancing Financial System Stability

The new measure includes the following components:

Deposit Insurance. The federal government plans to establish a deposit insurance system by 2009 in an effort to increase financial system's stability. The post-event funded system will provide individual depositors with payments based on amounts on deposit up to a $20,000 cap within weeks of a financial institution's failure.

National credit regulation. State governments have agreed to a federal takeover of all consumer credit regulation starting in 2010. The new provision would cover mortgage and non-mortgage providers, finance brokers and other intermediaries.

Basel II. Mutual institutions are subject to strict new governance and risk management requirements following Australia's decision to apply Basel II to all banking institutions, regardless of their size, structure or operations.

Money laundering and terrorism financing. Credit unions are expanding their account identification, monitoring and reporting procedures following the passage of anti-money laundering and counter-terrorism financing laws.

Member registers. New national regulations are expected to provide greater protection to details held on mutual member registers. The changes will also allow credit union boards to review proposed communication with members in advance.

Source: Abacus - Australian Mutuals, www.abacus.org.au

 

Great Britain: New Proposed Legislation Will Allow Credit Unions to Expand Membership and Services

The British government in July published proposals for secondary legislation with the potential to have a significant impact on credit unions. The proposed changes include major reforms to field-of-membership legislation that will allow credit unions to serve more than one member group. Under the new proposals credit unions will also be able to provide services to organizations and pay interest rather than dividends on savings.

Proposals are being consulted upon until mid-October. The Association of British Credit Unions hopes that the changes will be in place by the mid-2009. The Financial Services Authority, which regulates British credit unions, will be consulting on changes to regulation to bring this into line with new legislation later in the year.

Reference link: www.hm-treasury.gov.uk./media/0/D/consult_lro230708.pdf

Source: ABCUL, www.abcul.org

 

Ireland: Government Increases Deposit Guarantee Limit to €100,000 per Depositor

The Irish government will increase the statutory limit for the deposit guarantee for credit unions, banks and building societies from €20,000 to €100,000 per depositor per institution. The cover will apply to 100% of each individual's deposit.

In announcing the decision, Minister for Finance Brian Lenihan said "I want it to be known that the government is confident about the strength and resilience of the Irish financial system. The Central Bank and financial regulator have stressed the soundness and stability of the Irish financial system. This measure provides additional reassurance to depositors in Ireland that their savings are safe. The new guarantee level is now among the highest in the EU."

Given the uncertainty caused by the turbulence in international financial markets over the last week, Lenihan believed it was necessary to announce the measure, which has been under consideration for some time.

Source: www.finance.gov.ie

 

New Zealand: New Bill Empowers Reserve Bank to Regulate Credit Unions

In late 2006, New Zealand's Ministry of Economic Development issued a series of nine discussion documents regarding regulatory reforms for financial products and providers. The New Zealand Association of Credit Unions (NZACU) has consulted with officials and provided comment letters on the papers, specifically one combining non-bank deposit-taking institutions, including finance companies, credit unions and building societies, into a single category.

NZACU's position underlined the unique nature of credit union operations and the service they provide to members in New Zealand. Nonetheless, credit unions will now be regulated by the Reserve Bank of New Zealand (RBNZ).

New Zealand has a unique regulatory model whereby frontline monitoring is performed by legally designated Trustee Corporations, and this will continue under the new legislation. Parliament passed the bill empowering RBNZ to regulate the non-bank deposit-taking sector on Sept. 3. Key legislative requirements include the financial rating of institutions with more than $10 million in assets; documentation of and compliance with risk management policies; and a minimum capitalization of $2 million. As the result of intensive lobbying, the Cabinet has agreed in principle that credit unions may be exempt from the minimum capital rule. However, credit unions will continue to comply with the capital ratio requirements.

This fall, NZACU expects an announcement regarding reforms to Act 1982, which severely restricts credit union operations. The new reforms will address issues affecting the governance of mutuals, friendly societies and credit unions.

Other changes include reforms concerning financial advisors, financial service provider registration and criteria for officials and executive staff. These reforms will likely require dispute resolution organization availability for all financial institution customers and members. Criteria for registration of directors and senior management will include criminal and credit verifications.

Source: NZACU, www.nzacu.org.nz

 

Romania: National Bank of Romania Limits Debt Level to 20% of an Individual's Income

On August 8, 2008, National Bank of Romania (NBR) issued Regulation 11/2008 amending NBR Regulation 3/2007 on the limitation of credit risk for individuals. The amended regulation seeks to encourage healthy management of finances by creating the following requirements for financial institutions to follow before granting credit:

  1. Proof of income as shown in an employer-generated financial document;
  2. Limitation of total credit granted by all financial institutions to 20% of borrower income as earned during the previous year.

The new regulation aims to prevent a common Romanian banking practice of judging creditworthiness by evaluating only three months' income prior to borrowing. One of the new regulation's risks is that it could limit credit opportunities for individuals with income fluctuations throughout the year. From a microfinance point of view, low-income individuals may not have proper proof of income to qualify for loans. Romanian credit unions and banks were required to notify NBR about their implementation of these requirements by Oct. 2.

Source: Development Finance, www.dfintl.com; DevFinance Listserv: devfinance@ag.ohio-state.edu

 

South Africa

The South African National Treasury, with WOCCU assistance, is in the process of designing a deposit insurance system for cooperative banks.

 

United States: Senate Passes Rescue Package with Deposit Insurance Boost

The U.S. Senate voted to approve a multi-billion dollar financial rescue package that included a temporary increase in federal share and deposit insurance coverage.

The $700-billion rescue plan is expected to be taken up by the U.S. House Friday and, if passed, quickly sent to the President's desk for his signature transforming the bill to public law.

Under the deposit insurance provisions, the current $100,000 limit on share and deposit accounts would be raised for one year to $250,000.

The Credit Union National Association (CUNA) supported that increase and sent letters to President George W. Bush, Treasury Secretary Henry Paulson and members of Congress Monday urging them to make sure to include credit unions in any plans for increased deposit insurance coverage.

CUNA President/CEO Dan Mica said of the Senate's vote, "It is important to America's credit unions that they have parity with banks in any increase in federal deposit insurance coverage. We are pleased to see this goal achieved in the Senate's financial rescue legislation."

Mica added that another CUNA goal has been to ensure credit unions have access, if needed, to the legislation's relief measures for troubled assets.
"By providing this access, the Senate legislation is careful not to place credit unions at a disadvantage. CUNA will continue to press for similar treatment in the House as it resumes its consideration of this legislation," Mica said.

The overall rescue bill-intended to shore up the nation's economy in light of such factors as the current mortgage crisis and wildly fluctuating activity on Wall Street-would allocate up to $700 billion to the U.S. Treasury Department to buy up mortgage-backed securities whose values have dropped or become hard to sell.

The package gives the government an ownership share in the companies that participate in the program, an element that was missing from earlier rescue drafts. This provision makes it so taxpayers could benefit from any increased value in the securities created by the government's support.

Source: CUNA News Now article: www.cuna.org/newsnow/08/wash100108-5.html?ref=hed

 

United States: Government Places Mortgage Companies Fannie Mae and Freddie Mac into Conservatorship

Earlier this month the U.S. federal government placed the government-sponsored entities Fannie Mae and Freddie Mac into government conservatorship, effectively seizing management of the mortgage companies, expressly guaranteeing their bond issuances and making it likely that the U.S. Treasury will invest billions of dollars in the organizations to maintain their solvency. Fannie Mae and Freddie Mac are corporations chartered by the U.S. federal government to provide liquidity to the U.S. mortgage lending market and promote affordable housing by buying mortgages from banks and credit unions, securitizing those loans into bonds, and insuring those bonds against losses resulting from defaults in the underlying mortgage loans. They hold or insure more than $5 trillion in U.S. mortgage debt and had lost more than $10 billion combined since early 2007. Prior to the government takeover, Fannie Mae and Freddie Mac had severely impaired capital positions resulting from losses on mortgages and had been unable to raise sufficient new capital from private investors.

This government intervention is a positive development for the U.S. credit union system because the continued existence of Fannie Mae and Freddie Mac ensures the continued liquidity of the U.S. secondary mortgage market. In addition, government intervention is a positive development for the numerous financial institutions worldwide, including many U.S. credit unions, which invested in Fannie Mae and Freddie Mac bonds.

Link to the Treasury Secretary's statement on the intervention: www.treas.gov/press/releases/hp1129.htm

CUNA News Now articles:
www.cuna.org/newsnow/08/wash090708-1.html?ref=hed
www.cuna.org/newsnow/08/market090808-3.html?ref=hed


Source: CUNA, www.cuna.coop

 

World News: WOCCU Publishes Model Regulations for Credit Unions and Credit Union Regulation and Supervision Technical Guide

Model Regulations for Credit Unions, a companion piece to WOCCU's Model Law for Credit Unions, is designed to aid credit union movement leaders, regulators and policy makers with the development of sound and appropriate credit union regulations. Model Regulations is expected to serve as a catalyst to countries seeking credit union-specific regulations and aid in their development. As such, the regulations are meant to serve as guidelines for adaptation rather than policy prescriptions.

Model Regulations is divided into six main sections: 1) prudential regulations and operational regulations; 2) administrative regulations; 3) enforcement regulations; 4) general accounting and audit regulations; 5) deposit insurance; and 6) consumer protection regulations. Each main section is further divided into a series of regulations. WOCCU recognizes the difficulty in establishing a single set of regulations applicable across various countries and cultures. As such, these regulations may be adapted to country contexts and environments without sacrificing safety and soundness.

WOCCU has also developed a Regulations Matrix which compares regulatory environments of 18 world credit union sectors that have formal supervision or are striving for international standards.

To download a copy of the Model Regulations please visit: www.woccu.org/bestpractices/legreg

For a copy of the Credit Union Regulation and Supervision Technical Guide click on the following linck: www.woccu.org/bestpractices/techguides

 

World News: IASB Reconsiders CU Exposure Standards Based on WOCCU Recommendation

On Sept. 10 the International Accounting Standards Board (IASB) agreed to reconsider the application of its International Financial Reporting Standards to credit unions based on a comment letter submitted earlier this year by World Council of Credit Unions (WOCCU). The letter was among just a handful of submissions IASB addressed out of 100 questions it received during its Sept. 10 webcast.

According to the letter, sent April 4 by Dave Grace, WOCCU's vice president of association services, certain provisions in the IASB-proposed accounting standards for small and medium-sized enterprises (SMEs) could be detrimental to credit unions. WOCCU's greatest concerns, according to Grace, were the draft's failure to clearly identify to whom the standards apply and to sufficiently simplify reporting requirements for smaller institutions.

"Excluding credit unions from the scope of the SME standards and requiring adherence to the full International Financial Reporting Standards is both impractical and counter to the IASB's intention of making accounting requirements more accessible to smaller non-listed institutions," Grace said in his letter to IASB board member Thomas E. Jones.

IASB has indicated that credit unions take public deposits, requiring that members be given access to full International Financial Reporting Standards, as opposed to the simplified SME standards. Nonetheless, IASB agreed during the webcast to reconsider whether or not credit unions would fit within the scope of those who use the SME reporting standards.

"IASB's reconsideration of its standards is rare as a rulemaking body," Grace said. "We consider the move a strong vote of confidence in the global credit union movement."

Grace's April letter carefully articulated application to entities that hold assets "for a broad group of outsiders, such as a bank, insurance entity, securities broker/dealer, pension fund, mutual fund or investment banking entity." Failure to include credit unions in the list may imply inclusion in full International Financial Reporting Standards, which could create insurmountable hurdles for many SMEs.

IASB is expected to respond to WOCCU's recommendation by the end of the year. WOCCU will be working with its member organizations and other interested parties to mobilize support for IASB's reconsideration of its standards.

To view the letter's full text, please visit the WOCCU Website's advocacy section at www.woccu.org/memberserv/advocacy/positionpapers

Source: WOCCU, www.woccu.org/press/releases?id=1517

 

World News: African Credit Union Regulators to Convene in South Africa

Credit union regulators from nine African countries will gather November 24 and 25 for the second annual Roundtable to be held at the Sheraton Hotel in Pretoria, South Africa. WOCCU and the Canadian Cooperative Association are sponsoring this event co-hosted by the National Treasury of South Africa.

The workshop's purpose is to gather senior officials from the ministry of finance, central banks, ministry of cooperatives and the savings and credit co-operative (SACCO) industry for a focused and practical discussion of how to legislate, regulate and supervise financial co-operatives. The roundtable will include two full days of informative sessions and networking

Global and regional regulators' meetings are organized by WOCCU each year to bring regulators together to discuss current and emerging issues, as well as risks facing financial cooperatives. The first Latin American regulators' roundtable was held this past August in Guatemala with supervisors from 10 countries.

Source: WOCCU, www.woccu.org


World News: October 16th is International Credit Union Day

 Who owns your credit union? You do! As not-for-profit, democratically controlled, member-owned cooperatives, credit unions exist to serve their members. This year's International Credit Union Day® (ICU Day) theme, It Belongs to MeTM, celebrates the economic democracy and equal ownership rights of each credit union member. At credit unions throughout the world, every customer is both a member AND an owner. Learn more by reading the news release announcing this year's theme.

The excitement of ICU Day arrives on the same Thursday every October, when credit unions around the world together celebrate the spirit of the credit union movement. It is a day to honor those who have dedicated their lives to the movement, to recognize the hard work of credit union staff and volunteers and to show appreciation to our members.

Use this day to raise awareness about the great work that credit unions are doing and give members the opportunity to get more involved! Credit unions and associations from Kentucky to Kenya and from Alberta to Azerbaijan celebrate the day with open houses, contests and picnics. For more ideas on how to celebrate, click here.

World Council of Credit Unions (WOCCU) has provided its members with ICU Day materials for more than 30 years. This year, we've again joined Credit Union National Association (CUNA), the trade association representing credit unions in the United States, to create a variety of resources to help you prepare and celebrate. ICU Day graphics are available to download below, and you can find sample promotional materials by clicking the tab to the left called Sample PR Materials.

Happy International Credit Union Day!

For more information or questions about ICU Day, contact Lindsay Seabrook, lseabrook@woccu.org or (608) 395-2014.

Source: WOCCU, www.woccu.org/events/icuday


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