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'Lighter Touch' Regulation' For Credit Unions Under $1m

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Draft legislation is proposing a ‘light touch’ regulatory regime for credit unions with assets under $1 million, the Central Bank noting that the sector’s total assets have increased by 39 per cent since 2007.

The proposal is contained in the Central Bank’s consultation paper on the draft Bahamas Co-Operative Credit Unions Bill, and accompanying regulations, which have been released for final consultations after spending two years in development.

The legislation, which will switch regulatory responsibility for Bahamian credit unions from the Department of Co-operative Development, within the Ministry of Agriculture, Marine Resources and Local Government, to the Central Bank, comes after the industry bucked economic trends to enjoy rapid growth during the recession.

Noting that seven credit unions remained in existence at end-October 2013, and were being governed with other co-operatives under the Co-Operative Societies Act 2005, the consultation paper said: “The credit union sector has registered significant growth over the past five years, with assets of $301.074 million at end-December 2012 representing an average growth of 39 per cent since 2007, and membership at some 39,238 persons.”

The Central Bank said the transition to its oversight had been driven by “the recognition of the growing size and complexity of the sector, and important implications for financial stability, should there be an adverse event”.

Global bodies, such as the World Council of Credit Unions, wanted the sector to be regulated by the likes of Central Banks, and the consultation paper noted the move would dovetail with the desire for regulatory consolidation in the financial services industry.

Arguably the most notable provision in the new Bill is the move to allow “relaxed reporting requirements” for credit unions with less than $1 million in assets.

While credit unions with assets in excess of this sum will have to maintain a combination of statutory reserves, retained earnings, qualifying shares and equity shares that amounts to 10 per cent or more of their total assets, smaller operators will have a smaller regulatory burden.

Those credit unions with assets of less than $100,000 will have to keep a reserve ratio equivalent to 1 per cent of total assets; those with assets between $100,000 and $300,000 a 3 per cent ratio; operators with assets between $300,000 to $500,000 a 5 per cent ratio; those with between $500,000-$700,000 in assets, a 7 per cent ratio; and credit unions with assets between $750,000 to $1 million will have to keep a reserve ratio that is, at a minimum, 9 per cent of total assets.

And small credit unions with assets of less than $1 million will also be able to report to the Central Bank on a quarterly basis, while their larger counterparts must do so monthly.

“Clause 20 of the Bahamas Co-Operative Credit Unions Bill provides for relaxed reporting requirements for credit unions with assets of less than $1 million,” the document said.

“The purpose of this ‘lighter touch’ regime for smaller credit unions is to give them an opportunity to grow and develop before becoming subject to the more rigorous requirements which would apply to credit unions having assets of $1 million or more.”

The Bill also brings in new provisions stipulating the number of credit union members required to form a quorum at a general or special meeting, linking this to membership size.

Other requirements under the Bill include the need for credit unions to appoint a compliance officer; competency requirements for supervisory and credit committee members; and prohibitions on employing former directors or committee members.

Credit unions will also have to maintain an internal audit function, while a Registered Co-operative Credit Unions Appeal Tribunal, comprised of three persons, will be formed to hear appeals arising from a decision of the Central Bank or an arbitrator.

And the Bahamas Co-Operative Credit Unions Bill also requires the “Apex Body (the National League) to establish an investment committee, comprising of three persons, including a member of the Apex Body’s Board, to determine the Apex Body’s investment policies and co-ordinate and oversee its investment portfolio.

“Investment committee members will be required to have a sound understanding of investment risks and liquidity management. Members of the investment committee may be appointed for a maximum of two terms, of two or three years each.”

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