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The EU and Credit Unions

Credit unions are regulated and supervised at member-state level, but are nonetheless affected by European policy-making with respect to a number of issues:

Capital Requirements Directive (Basel standards)

Due to the difficulties most European credit unions would encounter to raise the regulatory initial capital requirements, Article 2 of the EU Directive on Capital Requirements (CRD) exempts credit unions in the Republic of Ireland, the UK, Poland and Estonia from the application of the CRD. Credit unions in these countries are instead subject to specific Credit Union Acts which guarantee a safe and sound regulatory framework.

In Romania, credit unions are not exempt from the CRD and as such are hampered in their ability to provide the full range of products and services to their members. The European Network of Credit Unions assists colleagues in Romania to achieve a legal status for credit unions equal to the one they benefit from in other EU Member States.

Comment Letter to the European Banking Authority's Consultative Paper on technical standards for the implementation of the Basel III liquidity standards in the European Union.

Comment Letter in response to the Basel Committee on Banking Supervision's consultation on liquidity coverage ratios disclosure standards.

Comment Letter in response to the Basel Committee on Banking Supervision's consultation on the net stable funding ratio.

Anti-money Laundering

Given the role of credit unions in promoting financial inclusion through serving people who are a part of a defined community with generally low risk profiles, credit unions face relatively high administrative burdens due to the existing Anti-Money Laundering requirements. The European Network of Credit Unions (ENCU) is concerned over the European Commission’s intention to adopt the risk-based approach by way of implementing measures in its proposal for a fourth money laundering Directive (4th Directive) launched in February 2013. The ENCU comment letter on the draft Directive was sent to the European Parliament in July 2013.

Deposit Guarantee Schemes

Credit unions in most countries operate their own (regulated) protection schemes and/or have access to state-backed deposit guarantee schemes. Access to such schemes is closely linked to the CRD and poses an issue in those countries where credit unions do not benefit from a CRD exemption and are consequently consider as financial institutions (as opposed to 'credit institutions with a CRD exemption').

Financial Inclusion

Credit unions are committed to enhancing access to financial services to people on low or no regular income. Examples within the European Network of Credit Unions include the "Credit Union Current Account" offered by British credit unions, or the "Regular Account" offered by Polish credit unions to the financially excluded, often unemployed and poor people. These accounts take into consideration the particular needs of members with low or no regular income, allowing them to access ATMs, use debit cards and payment services.

The European Network of Credit Unions supports and encourages EU initiatives to ensure access by all consumers to a basic transactional account. This initiative should be accompanied by increased efforts to open up payment infrastructure to credit unions and other deposit-taking, non-banking institutions.

In May 2013 the European Commission proposed a Directive to promote financial inclusion which would allow consumers across the EU to access and compare bank account services, and if not satisfied, to switch to another provider. The European Network of Credit Unions generally supports this initiative, however, there are concerns over the practicality of some of the provisions. These reservations have been expressed in a position paper on the proposal for a Directive on the comparability of fees related to payment accounts, payment account switching, and access to payment accounts with basic features, which was sent to Committee Rapporteurs in the European Parliament in August 2013.

Consumer Credit

Credit unions’ provision of consumer credit is regulated by the EU Directive on Consumer Credit (May 2008). Taking into account credit unions’ small-scale operations, the CCD provides for a Member State option to introduce a lighter regime for credit unions. As a result, Member States may decide to subject credit unions to a limited number of requirements contained in the Consumer Credit Directive (Article 2.5).

Lending related to residential property

While European credit unions offer mortgage loans only on a very limited basis, many take security interests in residential property vis-a-vis consumer and business loans in order to protect their member-owned capital and members' saving (which typically serve as the credit union's primary source of funding for its member loans. Such a charge over property is particularly relevant where credit unions do not have access to deposit protection schemes to protect their members' saving. Long-term lending by all credit unions occurs within strict loan policies that encompasses rules for the assessment of a borrowers’ credit worthiness, loan portfolio diversification, maximum loan sizes per product type, etc.

Please find here a comment letter (from 2012) by the European Network of Credit Unions to the European Parliament's Rapporteur on the draft Directive on credit agreements relating to residential property urging for not overburdening credit unions under the new regime.

Microfinance

Credit unions are globally recognised microfinance institutions (MFIs) which help people access financial services, including micro-saving facilities, micro-loans and micro insurance. In this way, credit unions help empowering member who are often unbanked and rely on low and no regular income.

The average credit union loan in the EU is as follows: Poland- €1,000; Ireland- €8,150; UK- ₤1,000; and Romania- €700. Loans are used by members for various purposes, including consumption but also starting a small business, growing an existing small business or financing a university education or other studies.

Access to payment infrastructure

Most credit unions provide payment services to their members. However, in most countries they do not have direct access to clearing and settlement infrastructure and use payment facilities indirectly through commercial banks. The lack of direct access results in avoidable costs for the credit union movement. The European Network of Credit Unions advocates direct access for credit unions to national-level clearing and settlement systems at affordable prices.

Commercial practices (tying, bundling, conditional sales)

In order to strengthen consumer protection and guarantee switching of products/ providers, certain commercial practices have come under enhanced scrutiny, including the practices of tying and bundling of products. Credit unions are committed to providing the best service to their members and employ certain tying practices with a view to enhancing member service, reducing risk by linking lending to saving, and ensuring responsible lending.

Financial Education

Enhancing members’ financial literacy is a crucial part of the work done by credit unions. The institutions operate on a face-to-face basis with members and thereby assist them in understanding financial terminology, products offered and the financial implications of each. Credit unions also have developed concrete programmes aimed at helping members and non-members to better understand financial services, including seminars, videos, leaflets/ brochures, and partnerships with other relevant national stakeholders. The European Network of Credit Unions is represented in European Commission consultative groups including FIN-USE and the Expert Group on Financial Education.

Volunteering

Credit unions are partially run and fully governed by volunteers constituting the board of directors. In credit unions’ experience, volunteering plays a crucial role in modern society, with positive impacts not only on people’s personal lives, but also on the whole community. Credit unions therefore support and encourage European initiatives emphasising the important role of volunteers and promoting such activities further.

Corporate Governance

Based on work by the Organisation for Economic Co-operation and Development (OECD) on good governance, the members of the World Council of Credit Unions (WOCCU) have developed and agreed upon the "International Credit Union Governance Principles" to address the unique characteristics of credit unions' governance. Individual credit union movements have developed complementary governance principles aimed at strengthening best practice and membership focus.

The European Network of Credit Unions is supportive of EU initiatives to strengthen corporate governance, bearing in mind the different structures of financial institutions (e.g. cooperatives) and avoiding a one-size-fits-all approach.

IFRS for SMEs

In 2009, the International Accounting Standards Board (IASB) in London adopted the IFRS for SMEs which provides for a simplified accounting standard for small and medium-sized entities (SMEs). The IASB excluded credit unions from the scope of the SME standard arguing that credit unions are publicly accountable and as such need to be covered by the full IFRS.

The European Network of Credit Unions strongly advocates that the IFRS for SMEs can and should be used by credit unions. They serve a restricted membership (within the common bond) and differ substantially from mainstream financial providers in terms of structure, organisation, business operations, etc. The vast majority of credit unions fall within the definition of micro and small entities. Compliance with the full IFRS (as opposed to the IFRS for SMEs) is very burdensome in particular for the small, rural credit unions.

Financial Sector Tax

Following bail-out programmes and sovreign debt crisis, the EU is investigating various options for introducing a financial sector tax in the form of a Financial Transaction Tax (FTT) or a Financial Activities Tax (FAT). Credit unions are concerned about the increase of regulatory burden that we can already see today in our jurisdictions and strongly oppose an inclusion of credit unions - which have neither caused the crisis nor received bail-outs - in the Commission's initiative on introducing a financial sector tax.