Funding/Liquidity: Funding and liquidity issues have become a central focus for regulators as the credit crisis continues to have an impact on credit unions. As a result, regulators are particularly interested in credit union strategies for obtaining wholesale funding in an environment where credit is tight and expensive. Regulators also are looking at credit union efforts to develop retail deposits.
Account Mobility Rule: Proposed changes would require deposit-taking institutions to provide account holders with a list of direct debits and credits to take with them to their new financial institutions. The new institutions then would be required to help the account holder re-establish the direct debits and credits. The reforms may also contain provisions governing exit and deferred-establishment fees charged by lenders on home loan products, pending review. Final requirements must be implemented by November 2008.
Predatory Lending: Abacus, consumer groups and industry stakeholders met to develop reform proposals to regulate the misuse of “purpose declarations” to circumvent the Uniform Consumer Credit Code. A use test will be proposed to determine if the loan is truly for business/investment purposes or if the declaration is only a ploy to mask loans used for unqualified purposes. Under the proposal, lenders that perform appropriate due diligence during the application process will not face penalties.
Source: Regulatory Snapshot (March 2008) Abacus – Australian Mutuals, www.abacus.org.au
On June 27, 2007, new regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act were published. The purpose of the amendments was to bring Canadian legislation in line with 49 recommendations made by the Financial Action Task Force (FATF). This and the fact that Canada’s anti-money laundering regime was the subject of an FATF audit in 2007, contributed to the enacting of the changes to the Act.
Credit unions recognize that robust Anti-money laundering (AML) and anti-terrorist financing (ATF) legislative and regulatory measures are necessary to safeguard Canadian citizens and the economy. Credit unions have been working diligently to comply with the evolving legislative regime. Some of the significant changes include the introduction of a risk-based approach to AML compliance and new obligations to report “attempted” suspicious transactions. There is also a new requirement to identify and monitor the activity of members that are politically exposed foreign persons (PEFPs).
Further information can be found at www.fintrac-canafe.gc.ca/intro-eng.asp.
Source: Credit Union Central, www.cucentral.com
Modernising existing legislation and enhancing regulatory structures is the current priority for Caribbean countries. While Barbados and The Bahamas have already passed new legislation for the regulation of credit unions, almost all other countries are engaged in extensive consultation on harmonised draft proposals. The Food and Energy crises affecting the region have increased attention among credit unions to strengthening the capacities of producer and supplier co-operatives.
Caribbean Regulators will convene in Jamaica in early July during the CCCU's 51st Annual Convention.
Source: Caribbean Confederation of Credit Unions, www.caribccu.coop
Credit union regulators from 50 countries will gather in Hong Kong July 12–13 for the sixth annual Credit Union Regulators’ Roundtable to be held at the Hong Kong Convention and Exhibition Centre. The invitation-only roundtable immediately precedes the World Council of Credit Union’s annual conference, held at the Centre July 13–16.
Roundtable meetings are held each year to bring regulators together to discuss current and emerging issues, as well as risks facing financial cooperatives. This year’s agenda includes sessions on off-site surveillance as a tool for supervisors and deposit insurers, mobile banking and WOCCU’s Model Regulations for Credit Unions, among other topics to be discussed.
The International Credit Union Regulators’ Network (ICURN) and the World Council of Credit Unions sponsor the roundtable. To learn more about ICURN please visit the World Council’s website at www.woccu.org/involved/regnet. Information about the WOCCU’s 2008 conference in Hong Kong maybe found at: www.woccu.org/events/wcuc.
Source: WOCCU, www.woccu.org
A report adopted April 22 by the European Parliament promoting the value of volunteerism and designating 2011 as the European Year of Volunteering contained what is thought to be the first formal definition of credit unions to be included in a European Union document. The definition was included after lobbying efforts by the World Council of Credit Unions (WOCCU).
Authored by Marian Harkin, the European Parliament Rapporteur and an Irish member of the European Democrats Party, the report includes a reference to the role credit unions play with regards to volunteerism and reads as follows: "...(W)hereas volunteers play an important role in achieving the Lisbon Strategy goal of socio-economic cohesion by contributing to financial inclusion, for example, by establishing credit unions which are regulated and not for profit financial cooperatives, run and governed by volunteers."
The reference, supported by WOCCU, is the first formal reference in an official European Union document that defines credit union ownership and governance. The reference to credit unions is part of a much larger, further-reaching document on the importance of volunteerism with European Union countries.
Source: European Parliament, Procedural file with links to text and resolution of adoption: www.europarl.europa.eu/oeil/file.jsp?id=5498492
Certain provisions in the International Accounting Standards Board's (IASB) proposed accounting standards for small and medium-sized enterprises (SMEs) could be detrimental to credit unions, according to World Council of Credit Unions (WOCCU).
Specific areas of concern include the draft's failure to clarify whether, as member-owned financial cooperatives, credit unions fall within the document's provisions. The draft carefully articulates application to entities that hold public 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.
A second area of concern is that these “simplified” standards for SMEs are still much too complex for the average credit union and its 2,650 members, $1.9 million in assets and 7.5 employees.
To view the letter's full text, please visit the WOCCU website at: www.woccu.org/memberserv/advocacy/positionpapers.
Source: WOCCU, www.woccu.org/press/releases?id=1480
Following a two-month consultation period with its members and credit unions, WOCCU ended the comment period on its draft Consumer Protection Principles. The Principles will now be revised and brought to WOCCU’s General Assembly for approval at its annual general meeting in July.
Great Britain: HM Treasury Issues Summary of Responses to Credit Union and Co-operative Legislative Review
A summary of responses to the document titled “Review of GB cooperative and credit union legislation: a consultation” was published in December 2007 and contained good news for British credit unions. See consultation, www.hm-treasury.gov.uk./consultations_and_legislation/creditunions/consult_creditunions_index.cfm.
Treasury Minister Kitty Ussher summed up support enjoyed by the movement when she said, "We're proud of the contribution made by cooperatives and credit unions. Updating the legislative framework in which they operate will be key to allowing them to develop and expand, enabling better service for members and providing greater choice and diversity in the financial services sector."
The Association of British Credit Unions Ltd (ABCUL) is now working with HM Treasury to draw up detailed proposals on a number of key changes, which will allow credit unions to provide more services to more people, accept corporates into membership and pay interest on savings. HM Treasury has asked WOCCU to participate in the legislative review work group.
Summary of responses: www.hm-treasury.gov.uk./media/4/1/consult_coopreviewresponses211207.pdf
Source: Association of British Credit Unions Ltd., www.abcul.coop
The Financial Regulator in Ireland issued a consultation paper in March entitled “Voluntary Consumer Protection Code for Credit Unions.” The paper is part of a consultation process with credit unions on an appropriate consumer protection framework for their members, in particular, with regard to savings and the extension of credit. The intention is that such a code would be voluntary in nature. But, if there is a general review of credit union legislation, the Financial Regulator will propose that the Code become mandatory.
In 2006, the Financial Regulator issued a Consumer Protection Code for other providers of retail financial services, from which credit unions were exempted. However, this process now seeks to implement an appropriate code for credit unions taking into consideration the special structure and voluntary ethos of credit unions.
The Irish League of Credit Unions (ILCU) will consult widely with its members prior to making a written submission to the Financial Regulator on this code. It is the ILCU’s view that such a code must recognize the unique structure and ethos of credit unions and also that members of credit unions are not merely consumers of financial services from credit unions, but also the owners of those credit unions.
This is potentially one of the most significant regulatory developments for credit unions since the enactment of the Credit Union Act 1997.
To view the Financial Regulator consultation paper, click here.
Source: Irish League of Credit Unions, www.ilcu.ie
Subsequent to its policy paper on Regulatory Framework for Mobile Banking, the government of Pakistan issued “Branchless Banking Regulations” (BBR) on March 31, 2008. These regulations apply to commercial banks, Islamic banks and microfinance banks, which are the only institutions empowered to offer mobile banking services. Authorization may be extended to non-financial institutions in the future, according to the regulations. It is unknown at this time if credit unions are permitted to offer branchless banking services.
Pakistan issued the regulations to govern a new channel of services that represents a “significantly cheaper alternative to conventional branch-based banking” and that “can be used to substantially increase the financial services outreach to the un-banked communities.” (BBR, 1). These regulations serve “as a set of minimum standards of data and network security, customer protection and risk management to be followed by the Banks desirous to offer mobile banking services.” (BBR 1).
The Consultative Group to Assist the Poor (CGAP) believes that this technology and group of services has great potential to increase financial services to the poor and is working with several countries to develop mobile banking systems. According to CGAP, “Policy and regulation will determine not only whether branchless banking is legally permitted, but also which business models are economically feasible and how far they will go in reaching poor people.”
Sources: State Bank of Pakistan, www.sbp.org.pk/bprd/2008/Annex_C2.pdf
Three years ago, World Council, Corporación Fondo de Estabilización y Garantía de Cooperativas de Ahorro y Crédito de Panamá, R.L. (COFEP) and the Iowa Credit Union League (ICUL) identified the lack of credit union-specific regulation as the main weakness of Panama's credit union system.
In February, a modification of the law for the Superintendent of Banks brought all deposit-takers under the supervision of the Superintendent. The intention was for this to also include credit unions; however, the government’s ministry of cooperatives is resisting this and for the first time drafted specific norms for the supervision of credit unions.
Source: WOCCU, www.woccu.org/press/releases?id=1469
Towards the end of 2007, a team of experts operating at the Office of the President of the Republic of Poland completed drafting a new cooperative law intended to replace the current Act of Parliament that has been in force for 25 years.
At present, the cooperative movement in Poland operates under an outdated piece of legislation, inconsistent with the socio-economic realities, particularly as far as functioning of housing cooperative societies is concerned. The new act would concern all cooperative societies except for those provided for in other legislation, for example, housing cooperatives. The bill is to be introduced in Sejm (the lower chamber of the Diet), as the President’s legislative imitative.
The bill provides for many changes concerning the operation of Polish credit unions, which grant housing credits. The changes are aimed at securing stability of Polish credit unions’ operation by reinforcing the supervision of the credit unions by the National Association of Poland’s credit unions; the association, in turn, is to be made subject to supervision by the Financial Supervision Committee (consolidated supervisor of financial market). The draft provisions also extend the catalogue of services provided by credit unions, to include, among others, sureties and guarantees for bills of exchange. If the bill passes, Poland’s co-operative movement will develop in line with co-operative movements in other countries of the EU.
The South African government recently passed the Cooperatives Bank Act, marking the first time financial cooperative-specific legislation was passed in English-speaking Africa. World Council of Credit Unions (WOCCU) assisted the Savings and Credit Co-operative League (SACCOL) of South Africa with drafting and reviewing the new legislation.
Savings and credit cooperatives, known as SACCOs (credit unions), had previously been regulated under an “exemption” to the Banking Act, which required deposit-taking cooperative financial institutions to join a self-regulatory organization. Most SACCOs are affiliated with SACCOL, a WOCCU member.
After unsuccessful attempts to address regulatory problems within the system, WOCCU was invited to perform a legislative assessment in 2000. By October 2001, South Africa launched a campaign to encourage banks to serve the poor. Due to the campaign's popular mass appeal, the Financial Sector Campaign Coalition (FSCC) was established. More than 50 community-based organizations rallied around FSCC to address mainstream financial exclusion of the poor.
Less than a year after FSCC's creation, government, business, labor and community constituencies organized and agreed to draft and enact legislation specifically for financial cooperatives. SACCOL and its affiliated SACCOs, South Africa's labor movement and WOCCU provided critical input for the Cooperatives Banks Act.
SACCOs are now allowed to provide their members with a full range of financial services, all covered by a deposit insurance scheme.
Source: WOCCU, www.woccu.org/press/releases?id=1471
Earlier this year, the Ugandan Ministry of Finance, Planning and Economic Development issued a draft law and regulations specifically for SACCOs, which would be distinct from its microfinance act and cooperatives act. The draft legislation, known as the Savings and Credit Cooperative Societies Act, is largely based on WOCCU’s Model Law for Credit Unions and the organization’s past work in the country. The proposed legislation suggests creating a new SACCO Regulatory Agency as part of the legislative and regulatory scheme.
On March 31, 2008, the U.S. Department of Treasury unveiled a blueprint for sweeping changes that would greatly reform the U.S. regulatory structure. The reforms, if passed into law, would merge the U.S. credit union regulator with other financial institution regulators and form one prudential financial regulator.
The Treasury department offered multiple reasons for the reforms, including the current system’s age and need to catch up with changes that have taken place since the 1930s, new risks arising from globalization and financial innovations (securitization) and the competitive restraint that an outdated system has on the country’s economic growth. Treasury also stated that recent events “have also reinforced the direct relationship between balancing strong consumer protection and market stability on the one hand, and capital markets competitiveness on the other.” (U.S. Treasury Dept. Office of Public Affairs Fact Sheet.)
The blueprint makes short, intermediate and long-term recommendations for reforms of the financial regulatory structure. Of chief importance to U.S. credit unions is the long-term recommendation that the National Credit Union Administration be merged with the Office of Thrift Supervision (“OTS”) and the Comptroller of the Currency (“OCC”) to form one new prudential financial regulator.
Reaction from credit union movement was swift. Credit Union National Association’s president, Dan Mica, wrote to every member of the U.S. Congress to express grave concerns about the plan. “The strategy regarding credit unions reveals Treasury’s apparent total disregard for the uniquely democratic and consumer-owned structure of credit unions and the pocket-book benefits from better rates and services their consumer/members are provided,” Mica wrote. He also pointed out that credit unions had not contributed to the current mortgage crisis; rather, they have consistently acted in the best interests of consumers.
Credit union concerns were echoed by NCUA Chairman JoAnn Johnson: “We have significant concerns that the consumer benefits of the credit union system would be threatened by any restructuring proposal that may blur the credit union charter and that eliminates the separate regulatory and insurance function for federally chartered credit unions.”
Treasury’s long-term recommendations, including the merger of financial regulators, are “aspirational” and would require “thoughtful discussion,” according to Secretary of the Treasury Henry Paulson. CUNA’s Mica noted that the current Congress would not address the plans and would be unlikely to do so in the foreseeable future.
Sources: U.S. Treas. Dept. Office of Public Affairs Fact Sheet, www.treas.gov/press/releases/reports/fact_sheet_03.31.08.pdf