The Financial Regulator, banks and credit unions

There’s something very odd going on between the Financial Regulator and the League of Credit Unions.

It was recently reported in the Irish Independent that the regulator is demanding all 435 credit unions in the country conduct an audit of their investments. This is despite the fact that the valuation of investments is already included in the annual report of each credit union.

I’m not sure of this but I think the critical words here are ‘valuation’ and ‘audit’. Valuation suggest that the regulator has a total value figure for investments but no detailed list of named investments held by each credit union. An audit, I presume, would provide such valuable details.

Obvious questions arise.

Why does the regulator need this information?

Would the information be made available to credit union competitors?

Has the regulator demanded such information from banks and other financial institutions?

To my knowledge, this is not the case.

Credit unions have always been seen as the ‘poor man’s bank’ and certainly that’s how the regulator treats this important social organisation, the League was not consulted on this latest demand.

A spokesperson dismissively commented that while the regulator consults with the League on policy matters is does not do so on operational matters and this was an operational matter

(Translation: How dare you question the regulator, obviously you people don’t know your proper place in the scheme of things).

Tension has been building for some time now between the regulator and the League. In April 2005 the League called on the regulator to clarify its approach to regulating the movement, demanding that it should “clearly annunciate what exactly it means by an appropriate regulatory system.”

Again, in July 2006 Financial Regulator CEO, Pat Neary questioned what he called ‘aggressive lending’ by some credit unions.

League CEO Liam O’Dwyer said that the way the movement was being regulated was a serious concern to members of the league. He comprehensively rebutted Neary’s comments with the following points.

Credit union lending had grown by 7pc last year compared with mortgage lending of 26pc and bank driven personal lending of 28pc. Mr. O’Dwyer wondered where the emphasis of the regulator needs to be put.

Savings in credit unions were protected by an insurance scheme.

50% of the population were members of credit unions.

The organisation was not for profit and is staffed by volunteers.

Mr. O’Dwyer pointed out that banks were increasingly targeting credit unions and that that is the motive behind the pressure being put on the organisation by the regulator.

I agree with O’Dwyer. Credit unions are becoming a major challenge to the banks and there is plenty of evidence to suggest that the regulator will do whatever is necessary to protect the interests of the banking sector.