Committee for Enterprise, Trade and Investment
CREDIT UNION INQUIRY
Department of Enterprise
Trade and Investment
Response
to
Recommendations
6th April 2009
Report on the Committee for Enterprise, Trade and
Investment Inquiry into the Role and
Potential of Credit Unions in Northern Ireland.
Introduction
The Department notes the Assembly’s ETI Committee Report on its inquiry into the role and potential of credit unions in Northern Ireland, and welcomes this opportunity to respond to and comment on the recommendations for the future development of the credit union movement.
In framing the response the Department is mindful that the timescale for implementation of those recommendations requiring legislative change will depend on the demands of the legislative programmes at both the Northern Ireland Assembly and Westminster.
Registration and regulation of credit unions in Northern Ireland are a devolved matter and the Report recommends that this position be maintained, with registration of credit unions remaining with DETI as the lead department, and responsibility for regulation of credit unions transferring to the Financial Services Authority.
The Department notes that a package of support is being sought to help to bring about the change, and will work with key stakeholders in helping to support the transition process.
Recommendation 1
The Committee recommends that credit unions are permitted to expand their range of services to include, at the very least, those services which credit unions in GB can currently offer.
The Department endorses the recommendation. This would bring NI credit union services into line with their GB counterparts.
It acknowledges the desire by some credit unions to expand the range of services that they can offer and in particular those that help address financial exclusion. It is accepted that for many low income and vulnerable groups, a credit union is their only contact with a financial institution and therefore their preferred access route to exercise their choice of savings schemes such as the Child Trust Fund and Individual Savings Accounts.
Many of the enhanced services being sought, such as transfer of wages, debit cards, bill payment, direct debit, standing orders and junior savings accounts, do not require legislative change or FSA approval and are already being offered by some of the larger credit unions with the necessary systems. Others, however, including for example insurance broking and mortgages, require authorisation from the FSA.
Recommendation 2
It is recommended that registration of Northern Ireland credit unions remain within DETI Companies Registry but that regulation of credit unions in Northern Ireland should move from DETI Companies Registry to the FSA to enable credit unions to deliver a wider range of services. This should be part of a package of interdependent measures to enable credit unions in Northern Ireland to offer a wider range of services to members. As credit unions will require additional support to introduce change and to operate under the new regime, the package of measures should include recommendations 3 to 6.
The Department endorses the recommendation that DETI continues to be responsible for the registration of NI credit unions and that responsibly for all regulatory matters transfers from DETI to the FSA (subject to the responses to, and comments on, recommendations 3 to 6).
Apart from the legislative implications, the arrangements for a split in the registration and regulatory functions will require detailed consideration of the operational implications, requiring further discussions with the FSA and possibly a memorandum of understanding put in place, covering for example DETI access to information which would become available to the FSA in performing its regulatory function.
Recommendation 3
It is recommended that the FSA open an office in Northern Ireland staffed by people with an understanding of the credit union movement and the regulatory arrangements in place for credit unions.
The Department supports the recommendation. Our knowledge of and contacts with the Northern Ireland credit union movement should help inform FSA thinking on the nature of the local credit union movement and the scale and duration of any local presence.
The Department will seek to ensure that any arrangements put in place address the needs and concerns of those smaller credit unions with limited or no full time staff resources. The Department will also draw from the experience of the GB credit union movement in the transition from regulation of GB credit unions by the Chief Registrar to the FSA in 2002.
Recommendation 4
It is recommended that both DETI and the FSA work with the credit union movement to develop and implement training programmes to provide credit union staff with the knowledge and skills to operate the new regulatory arrangements and to operate additional services which credit unions are permitted to provide.
The Department endorses the recommendation in so far as it relates to its role as a potential delivery partner, alongside the FSA. We believe that for most credit unions, complying with FSA requirements will not require any extensive training or costs. Nevertheless, the Department will work with the FSA to help the movement to develop and provide appropriate training programmes to ensure that Northern Ireland credit unions receive all the necessary guidance and information to prepare for new FSA regulation. While the preparatory work may be undertaken in conjunction with the representative organisations the Department will seek to ensure that the interest of non-affiliated credit unions are fully taken into account.
Recommendation 5
It is recommended that DETI and the FSA work with the credit union movement to fully identify staffing, training and material & equipment costs and to agree with HM Treasury a package of financial support to assist credit unions in implementing changes.
The Department notes the recommendation Agreement to a package of financial support will be a matter for HMT to decide on. DETI is willing to work with the FSA to identify the costs involved, and support any joint approach for funding to HMT. The introduction of additional services would be a commercial decision for individual credit unions. In this context it is worth noting that one of the changes proposed in a forthcoming GB Legislative Reform Order dealing with credit unions relates to providing for charging at market rates for their ancillary services.
Recommendation 6
In order to bring Northern Ireland into line with funding already available to credit unions in GB, it is recommended that the Growth Fund, and any future such funding, be extended to include credit unions here.
The Department notes the recommendation. Policy responsibility for the Growth Fund lies with the Department for Work and Pensions (DWP). Northern Ireland credit unions can be expected to become eligible to compete to deliver those funds with the transfer of regulatory responsibility to FSA and their access to the Financial Services Competition Scheme. DETI will support any approach to DWP on the issue
Recommendation 7
It is recommended that membership of credit unions be extended to include joint accounts and group membership.
The Department supports the recommendation. This will be a matter for the FSA which, if accepted, will bring Northern Ireland credit unions into line with their GB counterparts. Under the Department’s present regulatory arrangements, co-signatories to a single account are already accepted provided each party to the account retains their voting rights as a member and do not have an interest in shares or a liability as a borrower greater that allowed under the legislation. Acceptance of this recommendation by the FSA would formalise and standardise arrangements for dealing with group membership.
Recommendation 8
It is recommended that the FSA work with the credit union movement to identify the knowledge and skills required to successfully undertake such a task (reinvestment of assets by credit unions in community development and community enterprises) and to develop the appropriate training and structures to implement, monitor and evaluate the reinvestment of a proportion of assets by credit unions in the communities they serve.
The Department notes the recommendation. U nder existing Northern Ireland law, all credit unions have discretion to allocate up to 10% of each year’s surplus (after payment of a dividend and transfer to reserve) for social, cultural or charitable purposes. This option is not available to GB credit unions. DETI will support any approach by the credit union movement to the FSA on this issue, as we see this as being potentially a useful source of finance to support the development of Northern Ireland ’s social economy.
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