In the aftermath of the financial crisis, a number of legislative reform plans occupy the European Union's (EU) policy agenda. In line with G-20 recommendations, Europe's policymakers are due to approve amendments to the EU's Banking Directive (Basel II) to make credit institutions more resilient in the future. The EU is currently considering the introduction of capital charges for complex (re)securitizations, strict remuneration principles and capital requirements for the trading book, as well as plans to adopt measures on pro-cyclicality and leverage in 2010. EU policymakers will also consider establishing new European supervisory authorities for the banking, insurance and securities sectors. These entities would set EU-wide standards and be involved in the supervision of financial institutions operating on a cross-border basis. Discussions among member states and European Parliament members on this new supervisory structure are ongoing and expected to be lengthy.
The European Commission, the administrative arm of the EU responsible for proposing legislation, has issued a draft directive to create a European Banking Authority, empowered to set and enforce common supervisory standards for all credit and financial institutions. This authority would affect some credit union operations. The proposal has passed the Council of Ministers and is now being discussed in Parliament. The European Network of Credit Unions has weighed in with members of Parliament to ensure that standards and requirements of the European Banking Authority are proportional to the size and risk profile of institutions.
The EU also continues working on standards for mortgage provisions, responsible lending principles and financial inclusion. Another fundamental reform is planned for deposit insurance legislation to assure that credit unions will not experience service inequities when compared to commercial banks.
Source: European Network of Credit Unions, www.creditunionnetwork.eu
Following publication of a draft legislative reform order that made secondary changes to credit union legislation this past summer, the Financial Services Authority (FSA)—the United Kingdom's financial services regulator—published its consultation to realign regulation with the new administration on November 11. In addition, the consultation seeks views on proposals to strengthen prudential standards for capital, liquidity and provisioning for loan losses. FSA's recent consultation is the latest step in a three-year process to develop much needed reform. If all goes well, both legal and regulatory reforms will be in place by April 2010.
Source: ABCUL, www.abcul.coop
Irish credit unions and the Irish Credit Union League (ICUL) have been working with the Ireland's Department of Finance on several critical issues facing the country's credit union movement. At an October 2009 meeting held with Brian Lenihan, Ireland's minister of finance, the following issues were discussed:
- Regulatory Structure Reform
In June 2009, Lenihan announced the government's intention to reform the current regulatory structure for all financial institutions by establishing the Central Bank of Ireland Commission, a single, fully integrated regulatory institution. Credit unions have expressed serious concerns that the failure in banking regulation may negatively affect credit union regulatory reforms. ILCU is working with Lenihan to ensure that regulatory reform for credit unions is appropriate and part of a wider agenda.
ILCU has requested that a credit union review group be established to study the reform of the legislative and regulatory framework affecting credit unions. ILCU has proposed that such a group should be comprised of representatives of the credit union movement, the Department of Finance and the Registrar of Credit Unions, as well as include legal expertise and community stakeholders. Credit union representation should be proportional to the overall membership structure of the Irish movement.
- Central Liquidity Mechanism
Earlier in 2009, ILCU approached the Department of Finance with suggestions for ways the credit union movement could meet its own liquidity requirements via an appropriate central liquidity mechanism. However, a draft bill published by the department and the regulator envisions a state-run scheme with mandatory credit union participation and a corresponding levy. The ILCU has communicated its concerns to the department and has requested that the minister establish the proper liquidity mechanism that allows credit unions to meet their liquidity needs in a manner that recognizes the role, function and nature of the credit union movement and member needs.
Northern Ireland: Transfer of Regulatory Authority Under Consideration
The Northern Ireland Assembly's Committee for Enterprise, Trade and Investment (ETI) published a report recommending that credit union regulatory responsibility be transferred to the London-based Financial Services Authority, while credit union registration remain with the Department of Enterprise, Trade and Investment (DETI) in Northern Ireland.
A further review of the issue, conducted by Her Majesty's Treasury and published in July 2009, recommended that Northern Ireland's credit unions be brought within the scope of the Financial Services and Markets Act 2000, while leaving the legislative and registration functions within the Northern Ireland Assembly and DETI.
Source: ILCU, www.creditunion.ie
Following the passage of a savings and credit cooperative (SACCO, or credit union) law in December 2008, a taskforce composed of representatives from the Ministry of Co-operative Development and Marketing, the Kenya Union of Savings and Credit Co-operatives Ltd. (KUSCCO), the Central Bank of Kenya, the Treasury, Co-operative Bank of Kenya and the Financial Sector Deepening (FSD) agency was appointed to set up the SACCO Societies Regulatory Authority (SASRA) and write its new regulations. WOCCU has been asked to assist with the process.
The new SACCO regulatory administration will begin in 2010. At the outset, regulations will focus on SACCOs taking withdrawable deposits from the public. Authorities expect that many of the approximately 200 SACCOs currently operating front-office savings activities will seek licenses under SASRA's SACCO Societies Act. Although final regulations have yet to be formalized, the regulations draw heavily on lessons learned both from Kenya's banking sector and international experience. KUSCCO has set up a compliance unit to help SACCOs meet new regulatory standards.
In October 2009, SASRA established a board consisting of seven members from the private sector, Central Bank of Kenya, Treasury and the Ministry of Co-operative Development and Marketing who were appointed by the Minister of Co-operative Development and Marketing. The board is in the process of recruiting personnel to start operations.
Source: KUSCCO, www.kuscco.com
The last six months have seen a continuation of regulatory reforms for New Zealand's financial services sector and increased compliance obligations being placed on its credit unions. A government deposit guarantee scheme was introduced in 2008; monthly and ad hoc reporting requirements are now imposed on each credit union as part of the scheme.
In 2008, Parliament passed the Financial Advisers Act and the Financial Service Providers (Registration and Dispute) Act. As a result, regulations are currently being developed for those who provide financial advice, i.e., giving an opinion, recommendation or guidance on financial products or services. The regulations for financial advisers will cover competency, disclosures, ethical behaviors and client care. A central government agency will individually investigate financial institution directors and senior management to ensure they are not banned as directors and have no criminal convictions or police records. Further "fit and proper" requirements will be developed in 2010. Additionally, all organizations providing financial services must belong to a dispute resolution scheme. The rules and membership specifications for the creation of independent schemes are currently under development.
The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 was introduced after several years' consultation with industry and international organizations. The Insurance (Prudential Supervision) Bill is currently before Parliament, which names the Reserve Bank of New Zealand (RBNZ) as the insurance industry's prudential supervisor. RBNZ has been the regulator for all deposit takers, including credit unions, since September 2008.
Credit unions are also eagerly awaiting legislation aimed specifically at mutual financial institutions and changes to the Friendly Societies and Credit Union Act 1982 that will enable them to issue non-withdrawable shares to boost capital and remove the current NZ$250,000 deposit limit.
Source: NZACU, www.nzacu.org.nz
On November 30, Lech Kaczyński, president of Poland, deferred a proposed credit union act to the country's Constitutional Court after questioning the bill's approval process, impact on credit union autonomy and the limited time it would have allowed credit unions for compliance. Poland's credit unions also had lobbied against the current bill, citing the need for significant changes. The proposed act limits credit unions' business powers, requires credit unions to pay income taxes and contains unrealistic standards in an attempt to increase credit union capital within nine months of enactment.
Source: NACSCU, www.skok.pl
In July, Russia passed a federal law "on credit cooperation," which revoked the preceding federal law "on credit consumer cooperative of citizens" and defined new rules governing financial cooperatives development. The new law:
- Removes membership restrictions
- Allows organizations to be members of a credit union along with physical persons
- Sets up new requirements for holding general meetings
- Establishes financial standards for credit unions
- Allows the formation of second-tier credit unions
- Defines the role of the government-appointed regulatory body
- Introduces self-regulated credit union organizations
The self-regulated credit union organizations (SRO) are noncommercial membership groups. SROs supervise, discipline, develop standards and regulations and keep records for its members. SRO membership is mandatory, except for second-tier credit unions supervised directly by the regulator.
Source: RCUL, www.orema.ru
The U.S. Congress and the National Credit Union Administration (NCUA) have recently proposed regulatory changes that would impact U.S. credit unions.
On November 19, 2009, NCUA released its much anticipated proposed regulation to restructure the U.S. corporate credit union system. Corporate credit unions are institutions that serve the investment and liquidity needs of first-tier "natural person" credit unions. NCUA placed the two largest U.S. corporate credit unions, U.S. Central Credit Union and Western Corporate (WesCorp) Federal Credit Union, under government conservatorship in March 2009, and the agency has projected significant potential losses for these institutions from their investments in "private label" mortgage-backed securities. The proposed rules would institute Basel I risk-based capital requirements for corporate credit unions, as well as new portfolio-shaping rules designed to limit a corporate credit union's exposure to any one type of investment or counter party.
The U.S. Congress is considering several regulatory restructuring proposals. Although these bills are likely be amended prior to becoming law (assuming Congress passes some or all of the proposed laws) the reforms would, among other things, establish a new Consumer Financial Protection Agency, which would monitor systemically important financial institutions, allow government regulators to suspend accounting rules under some circumstances and consolidate two banking regulatory agencies. NCUA would continue as the independent federal and federally insured credit union regulator.
In addition, the U.S. Congress on October 29 passed the Credit CARD Technical Corrections Act (H.R. 3606) to correct an unintended consequence of an earlier piece of legislation, the Credit Card Accountability and Responsibility (CARD) Act. The CARD Act had made all open-end credit accounts subject to a requirement that account statements be sent to members at least 21 days in advance of the loan's due date. This requirement would have prevented credit unions from continuing to offer biweekly payment plans or sending consolidated billing statements to their members. The Credit CARD Technical Corrections Act clarifies that the 21-day provision is only intended to apply to credit cards.
Source: CUNA, www.cuna.coop
Central bank governors and heads of supervision of 27 countries have reached agreement on key measures to strengthen microprudential regulation of financial institutions, in particular the Basel II framework. The Basel Committee on Banking Supervision will issue concrete proposals and carry out an impact assessment at the beginning of next year. Calibration of the new requirements will be completed by the end of 2010. For more info, visit www.bis.org/press/p090907.htm.
On November 5, the International Accounting Standards Board published an exposure draft on the impairment of financial assets, while proposals on hedge accounting are still under development. The new standard is the first part of a three-part project to replace IAS 39 Financial Instruments: Recognition and Measurement with a new standard, to be known as IFRS 9 Financial Instruments. Comments are due by June 30, 2010. More info: Financial Instruments: Replacement of IAS 39 project page
As finance ministers from the G-20 nations gathered for the summit in Pittsburgh, USA, this fall, WOCCU leadership expected the group to give greater consideration to credit unions' point of view. Despite success in reaching other international regulatory bodies, WOCCU believes the G-20 can utilize more effectively the input from the global financial cooperative movement, according to a letter from Pete Crear, WOCCU president and CEO, to the G-20 leaders. To view the letter click here. For the press release, visit www.woccu.org/press/releases?id=1619.
Six European credit union organizations and WOCCU recently launched the European Network of Credit Unions with an event in the European Parliament. The network will serve as a platform for the exchange of information among member organizations and will speak in a unified voice on issues that affect European credit unions. For more information visit the network's Website: www.creditunionnetwork.eu. For the press release, visit www.woccu.org/press/releases?id=1631.
Source: WOCCU, www.woccu.org
Financial regulators and corporations worldwide are moving closer to accepting a uniform set of international accounting standards with which financial institutions in all countries must comply. However, not all countries, including the United States, have yet required their institutions to rise to the global regulatory challenge. The inconsistency was revealed during a WOCCU International Financial Reporting Standards (IFRS) webinar on October 8. To view the recording of the webinar, visit www.woccu.org/ifrs. For the press release, visit www.woccu.org/press/releases?id=1627.