In July 2010, the Canadian Parliament adopted legislation to allow the establishment of federal credit unions and, earlier this year, the federal government released draft regulations intended to implement this legislation for review and comment. Prior to the 2010 federal legislation, only Canadian provinces had legal authority to issue credit union charters. Final regulations are expected to be published in the fall, at which time the legislation shall come into force.
Last December, the Canadian Parliament introduced amendments to 11 federal statutes governing financial institutions, including the Cooperative Credit Associations Act. The amendments are primarily of a technical nature. The bill, among other things, extends the charters of federal financial institutions (including Canadian Central), currently scheduled to terminate on April 20, 2012, for a five-year period.
The Canadian federal government has been busy in the area of anti-money laundering and anti-terrorist (AML/ATF) financing regulation. In November, the federal government issued proposed amendments to existing AML/ATF regulations to respond to findings by the Organization for Economic Co-operation and Development's Financial Action Task Force (FATF) that some aspects of Canada's AML/ATF regime were not in compliance with international standards established by the FATF. In December, the federal government issued a consultation paper on AML/ATF regulation in Canada that proposes further significant changes to the existing regime. In February, a parliamentary committee commenced hearings in connection with a five-year review of the main legislation that governs AML/ATF regulation in Canada — the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The committee is expected to issue its report in May.
Source: Credit Union Central of Canada, www.cucentral.com
The General Superintendency of Financial Institutions (SUGEF) of Costa Rica proposed a transition to a risk-based supervision program for credit unions. The regulator's strategic plan indicates that the agency will initiate action on the proposal by the end of 2013. The risk-based model was introduced to banks in 2009, while credit union supervision has remained based on regulatory compliance and capital adequacy without the addition of risk-based components. Credit unions do not yet have clear guidance on the new system's compliance requirements, although additional risk management elements are expected to be introduced in the near future.
Source: Federation of Savings and Credit Cooperatives of Costa Rica, www.fedeac.com
At the start of the year, the Salvadoran Institute for Cooperative Development (INSAFOCOOP) introduced new financial reporting standards for credit unions by adapting the International Financial Reporting Standards for Small and Medium Enterprises to local conditions. The new standards require treatment of members' shares as credit union equity and adequate disclosure of this treatment. In addition, credit union regulations concerning credit and operational risk, as well as corporate governance, recently became effective. More info
Source: Federation of Savings and Credit Cooperative Associations of El Salvador, www.fedecaces.com
A recent win for Estonian credit unions brings the reversal of an amendment to the Saving & Loan Associations Act that was passed in July 2010. The amendment had curtailed the rights of credit unions to provide payment services to members. According to the Payment Institution and E-money Law, credit unions wishing to provide payment services must now apply for a special license and follow the same procedures as commercial banks. Although the new law is an improvement, Estonian credit union leaders are concerned that these new requirements are excessively burdensome and will limit their ability to provide payment services.
Source: Estonia Union of Credit Cooperatives, www.hoiu-laenu.ee
While the focus of European Union's reform agenda has been prudential requirements for banks and insurance companies, policymakers' focus is now shifting to retail and consumer protection topics. In April, the Economic Affairs Committee of the European Parliament will vote on a new proposal for a directive on credit agreements relating to residential property. Committee members have also indicated they are already considering a special directive for credit unions.
Relatively few European credit unions make purchase-money first-lien mortgages. However, in many parts of Europe credit unions take security interests in residential property as collateral for long-term loans in order to help protect their member-owned capital and members' savings. This is particularly relevant in countries where credit unions are not permitted to become members of the national deposit protection systems. The rules proposed at the European Union level would impose burdensome requirements upon all loans that are collateralized by residential property and therefore have the potential to limit credit unions' ability to offer long-term loan products to their members.
The European Network of Credit Unions is urging the members of the parliament to consider a special regime for credit unions. One of the European Parliament's Committees has already given a positive opinion which would allow member states to decide which parts of the directive should apply to credit unions — if any at all.
Source: European Network of Credit Unions, www.creditunionnetwork.eu
On Jan. 8, 2012, British credit unions saw long-awaited reforms to the Credit Unions Act 1979 become a reality. Key reforms include the expansion of credit union common bond rules to allow multiple groups to be served by a single credit union, enabling credit unions to serve organizational members, as well as the ability to pay a guaranteed rate of return on savings deposits and pay discretionary, retroactive dividends. The legislation coincides with tightened minimum prudential standards for credit unions.
In addition, deliberations continue around whether and how the government of the United Kingdom will proceed with an earmarked £73 million investment in credit union modernization and expansion. The investment could give an enormous boost to the ongoing work to develop a suite of centralized, back- office services for credit unions and has the exciting potential to make credit union services available through the 11,500 post office counters across the country - a network dwarfing the combined branch networks of all the major banks.
Source: Association of British Credit Unions, Ltd., www.abcul.org
On December 8, 2011, the assembly of the MICOOPE Guarantee Fund amended its prudential regulations for affiliated credit unions. The MICOOPE association operates as a self-regulatory organization for the Guatemalan credit union system, and created the fund in 2010 to provide a guarantee for member deposits. The new regulations provide guidelines and a methodology for risk-based supervision, and address accountability, transparency of information, comprehensive risk management, as well as provide more specifics regarding regulatory and supervisory functions.
Source: National Federation of Savings and Credit Cooperatives of Guatemala, www.micoope.com
On Jan. 24, 2012, the Irish government published the Heads of a Personal Insolvency Bill that proposes new non-judicial debt settlement systems such as debt relief certificate, debt settlement arrangement and personal insolvency arrangement. The bill may have a negative impact on credit unions, as leaders anticipate a surge in loan write-offs and increased requirements for loan loss provisions. It may also affect how credit unions will assess loan applications. The final bill is expected to be published in April.
In addition, a government report that will have significant implications for Irish credit union is expected this spring. On May 31, 2011, the government established the Commission on Credit Unions to review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for credit unions. The commission presented an interim report to the Minister for Finance on September 30, 2011. The purpose of the report is to inform the preparation of credit union legislation, which is expected in June 2012, and to make initial recommendations regarding the strengthening of the regulatory framework for credit unions. A final report will be provided to the Minister for Finance by the end of March 2012.
The transfer of Northern Ireland credit union regulation to the FSA is effective from March 31, 2012. On November 30, 2011, Her Majesty's (HM) Treasury published its response to submissions received regarding legislative amendments proposed in the consultation paper (jointly issued with the FSA) entitled "FSA Regulation of Credit Unions in Northern Ireland (CP 11/17)." The consultation paper contained various draft orders, two of which HM Treasury combined into a single order as both were made under the same powers. This order, made in Westminster on November 23, 2011, is now called the Financial Services and Markets Act 2000 (Permissions, Transitional Provisions and Consequential Amendments) (Northern Ireland Credit Unions) Order 2011 and is similar to the legislative measures proposed in the consultation paper. On December 9, 2011, the FSA published a policy statement in response to CP 11/17. The policy statement summarizes responses received to the consultation paper and sets out which of the initial proposals have changed, which have remained the same, and the reasoning behind this.
Source: Irish League of Credit Unions, www.creditunion.ie
The SACCO Societies Regulatory Authority (SASRA) released its inaugural SACCO (credit union) performance publication, touting an 11% growth rate for SACCO assets. The growth is predominantly attributed to a surge in member deposits and share capital. Established in 2009, SASRA is responsible for supervision of the 215 deposit-taking SACCOs, while the Ministry of Co-operative Development and Marketing supervises the other roughly 6,000 SACCOs. As of February 2012, SASRA has officially licensed 100 SACCOs (the others are in various stages of analysis and processing).
2010 marked the inaugural year of licensing, supervision and regulation of deposit-taking SACCOs under the SACCO Societies Act 2008. SASRA received a total of 215 license applications as of June 30, 2011. SASRA has been actively implementing onsite examinations to ensure that licensed SACCOs operate in compliance with the act and regulation, and regular financial reporting to the authority for offsite monitoring is ongoing.
Currently, SASRA is undertaking an internal capacity-building program, in which a resident advisor has been contracted — with the help of the World Bank and the Government of Kenya through the Financial and Legal Sector Technical Assistance Project (FLSTAP) — to develop a risk-based framework. At the same time the Financial Sector Deepening Program (FSD) is supporting a governance program for licensed SACCOs to enhance the role of SACCO directors, including being trained on planning and change management.
SACCOs have until 2014 to fully comply with the new prudential standards set forth by the regulations. Challenges include capital adequacy and loan portfolio quality standards, which a number of SACCOs are still struggling to satisfy.
Source: SACCO Societies Regulatory Authority, www.sasra.go.ke
A recent government resolution requires all Macedonian financial institutions, including credit unions, to issue to consumers pre-contract disclosures regarding all loan terms before entering into loan agreements. In addition, an amendment to the country's banking law requires financial institutions to define procedures and methods for conducting internal stress tests and to report the results of these stress tests by year-end.
Source: FULM Savings House, www.fulm.com.mk
On April 1, 2012, the new SACCO (credit union) directives on liquidity, institutional capital, loan portfolio management and non-earning assets will take effect. The directives are based on the World Council's PEARLS financial monitoring ratios and were issued by the Reserve Bank of Malawi, which became the new regulator and supervisor of SACCOS with assets over $450,000 following the enactment of the Financial Cooperatives Law last year. Smaller SACCOs continue to be supervised by the Malawi Union of Savings and Credit Cooperatives.
Source: Malawi Union of Savings and Credit Co-operatives, www.muscco.org
One of the most anticipated reforms this year in New Zealand, the Regulatory Reform Bill, is an omnibus bill that proposes amendments to 13 Acts in order to reduce the compliance burdens on business by amending ineffective or excessively costly regulations. The Friendly Society and Credit Unions Act 1982 is one of 13 Acts being amended and the amendments are expected to have a significant impact on how credit unions do business, including by removing restrictions on credit unions taking deposits over $250,000.
In addition, New Zealand will be enforcing the AML/CFT Act 2009 by June 2013 in order to help combat money laundering and terrorist financing. Credit unions are actively preparing their businesses during 2012 to meet their obligations under the Act.
Other expected reforms this year include:
- the Reserve Bank completing implementation of new prudential regulations, which include member licensing and the vetting of directors' and senior officers' suitability by the bank;
- an overhaul of consumer credit laws that will see 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 credit union disclosure requirements.
Source: New Zealand Association of Credit Unions, www.nzacu.org.nz
The government of Panama is exploring the possibility of having the Superintendency of Banks supervise credit unions that have over US$100 million in assets. The current regulator, the Panamanian Autonomous Institute for Cooperatives (IPACOOP) oversees all types of cooperatives including credit unions, which are regulated under Law 17 of 1997.
Source: Corporation Fund for Stabilisation and Insurance of Savings and Credit Cooperatives of Panama, www.cofep.com
On January 25, 2012, Papua New Guinean savings and loans societies (credit unions) met with their regulator, the Bank of Papua New Guinea, to urge the bank to consider proposed amendments to the Savings and Loans Societies Act 1995. The proposal issued by the bank recommends registration of societies under the Companies' Act, which would have implications for the societies with respect to their tax-exempt status and organization as non-stock mutual institutions. The regulator has accepted the comments formulated with World Council's support and should finalize changes before the end of year.
Source: Federation of Savings and Loan Societies of Papua New Guinea
On February 10, 2012, the National Institute of Cooperatives (INCOOP), the regulator for all Paraguayan cooperatives including credit unions, issued a resolution extending the deadline for credit union requirements to reduce delinquency rates below 8% until January 1, 2013. In addition, the Secretary of Money Laundering Prevention has introduced new anti-money laundering and terrorist financing regulations have for all entities supervised by INCOOP.
Source: Cooperative Central of National Area in Paraguay
The Superintendency of Banks, Insurance and Pension Funds recently issued for discussion a proposal to implement Basel III recommendations for local financial institutions. The National Federation of Credit Unions of Peru, the supervisor for credit unions, is making every effort to implement the regulation in a manner that takes note of the specific nature of credit unions and their structural differences from banks. The implementation of the Basel III-based regulation is expected to begin between 2013 and 2015.
Source: National Federation of Savings and Credit Cooperatives in Peru, www.fenacrep.org
On January 4, 2012, President Barack Obama appointed Richard Cordray to the position of director of the Consumer Financial Protection Bureau (CFPB). Mr. Cordray's appointment was previously blocked by Senate Republicans in December 2011, but President Obama bypassed Congressional approval by utilizing his "recess appointment" powers, sparking widespread controversy over the validity of Cordray's appointment (because Congressional leaders claimed that Congress was not technically "in recess" at the time). Having an official director in place enables the CFPB to regulate non-bank institutions providing consumer financial services or products, whereas without a director, the CFPB only had jurisdiction over banks, credit unions and a few other types of financial institutions that were already subject to federal regulation. Consequently, the CFPB launched its non-bank supervision program on January 5, 2012. Since July 21, 2011, the CFPB has also had rulemaking authority regarding federal consumer financial protection laws and examination and enforcement authority over financial institutions with over $10 billion in assets.
The CFPB is entering into memorandums of understanding with other federal financial regulators, as well as with state regulators, to ensure its authority does not overlap with other regulators and agencies.
The Dodd-Frank Act sets numerous deadlines for CFPB to issue new regulations required by the act and the CFPB plans to adhere to these rulemaking deadlines. Along these lines, the CFPB released its final rule on remittance transfers, which is effective on February 7, 2013. CFPB is also in the process of determining an appropriate safe-harbor exemption for small financial institutions that do not regularly conduct a significant number of remittance transfers. Credit Union National Association (CUNA) in the U.S. has been working with World Council to identify key issues for credit unions under the remittance transfers final rule.
NCUA Rulemaking Update
The National Credit Union Administration (NCUA), the U.S. credit union regulator, has recently released its final Interest Rate Risk (IRR) rule that requires all credit unions with more than $50 million in assets, as well as some credit unions with $10 to $50 million in assets, to develop a written IRR policy. Credit unions will have until September 30, 2012, to develop this written IRR policy detailing how the credit union plans to address risks associated with potential adverse movement in market interest rates. NCUA provided guidance for drafting the IRR policy in its final rule, and compliance is a condition of maintaining federal share insurance.
The NCUA at the end of January 2012 also released its troubled debt restructuring (TDR) proposed rule, which was open for public comment until March 2, 2012. Among other things, the proposal would require federally-insured credit unions to maintain written policies that address the management of loan workout arrangements and nonaccrual policies for loans. It would allow credit unions to modify loans without having to classify performing TDR loans as delinquent or track each TDR loan's performance manually for six months, as is currently required. CUNA has been working with various subcommittees of its Governmental Affairs Committee to draft a comment letter regarding this proposal.
Source: Credit Union National Association, www.cuna.org
Coordinated by the International Credit Union Regulators' Network and World Council, the Regulators' Roundtable will take place on June 18-20, 2012, in Toronto, Canada. The theme of the roundtable is Enhancing Credit Union Regulation and will address critical topics, such as principles and best practices of risk-based supervision, trends in capital requirements and credit union governance, with discussions on issues faced by both mature and emerging credit union systems. This invitation-only event is open to agencies with statutory authority for supervising credit unions and other financial cooperatives. Learn more about the Regulators' Roundtable.
Source: World Council of Credit Unions, www.woccu.org
In December 2011, the Basel Committee on Banking Supervision released for public comment a new consultative document that will, when finalized, set forth the international standards for disclosures of financial institution regulatory capital components. The purpose of this new disclosure is to standardize the presentation of a financial institution's capital position in order to "enable market participants to compare the capital adequacy of banks across jurisdictions...." View World Council's Summary and Request for Comment as well as Position Paper submitted on February 17, 2012.
Source: World Council of Credit Unions, www.woccu.org
On February 8, 2012, the Internal Revenue Service (IRS), the United States tax authority and bureau of the U.S. Treasury Department, issued proposed regulations that will affect many non-U.S. credit unions, as well as U.S. credit unions when it is finalized. The IRS-proposed rule would implement the Foreign Account Tax Compliance Act (FATCA), which the U.S. Congress enacted in March 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. Congress enacted FATCA in order to make it more difficult for U.S. taxpayers to avoid U.S. income taxation by placing funds in overseas accounts. FATCA is therefore presumed to increase U.S. tax revenue without raising tax rates.
The proposed FATCA rule would regulate U.S. credit unions as well as "foreign financial institutions" (FFIs) — including non-U.S. credit unions — and would subject certain transfers that involve funds attributable to U.S. income sources (such as "gross" income, or not-yet-taxed income, earned by a U.S. taxpayer) to a 30% "withholding" for tax compliance purposes. Download World Council's short summary of the FATCA-proposed rule.
Please submit comment to Michael Edwards by April 20, 2012. The IRS is accepting public comments regarding the proposed rule until April 30, 2012.
Source: World Council of Credit Unions, www.woccu.org