The strange story of the Regulator and the ILCU Annual Conference.

It is rumored the Regulator chose not to accept the ILCU invitation as he was precluded from addressing its AGM. The ILCU were incensed it seems by his published speech to the National Supervisors Conference which for the first time highlighted in robust frank language the scale of issues faced by the movement.

“The League considers your public comments to be inappropriate and could contribute to undermining public confidence in the credit union movement, especially in light of the recent issues in the financial markets. It is hard to imagine that any other department head would make similar public comments in relation to the financial service providers that he/she regulates, Such treatment of credit unions is unacceptable”[League letter to RCU following his address to the National Supervisors Conference]

Why has the relationship soured? The answer perhaps lies within the at times belligerent and ambiguous advocacy of the ILCU which is rooted in its continuing ambitions to retain a self-regulatory role and evolve a Canadian type in-system central credit union control and dominance of the movement.

“It is important that Regulators concentrate on their goals of regulation and supervision. In the Republic we have seen the intervention of the Registrar into areas which I consider to be outside his remit, such as accounting standards. This is unacceptable but we of course recognise the Registrar as the only credit union regulator and a key stakeholder. The development of regulation must be done as a process of consultation involving all key stakeholders. The implementation of new regulatory standards without proper consultation and engagement is not acceptable and will be resisted. In this regard, it is regrettable that the Registrar has chosen not to attend this meeting.” ( Presidents Address to ILCU Conference 2008)

Such are the words of the ILCU president at this year’s AGM, indicative of the continuing ambiguity of its response to state regulation and supervision. The ILCU behaves as if credit unions have some form of veto on regulatory reform where its actions have consistently frustrated reforms. For example it now accepts the investment guidelines. It initially frustrated their development delaying their introduction for well over a year.

“The investment framework which was negotiated with the Registrar of Credit Unions is one that allows credit unions invest their excess liquidity in a manner which protects the members’ money yet allows for significant income generation. While the ILCU remains concerned as to the language used to describe how the guidelines will be regulated, it is comforted by the Registrar’s commitment to continue to regulate via the Credit Union Act 1997.” (Presidents Speach ILCU Annual Conference 2008)

Firstly the investment framework was not negotiated with the regulator – this is patent nonsense. The Regulator frustrated in its attempt to persuade the adoption of voluntary guidelines with the ILCU, published draft investment guidelines and through a process of consultation with key stakeholders revised them to their final published form. To suggest the ILCU has some form of “negotiation mandate” or for that matter is afforded this position is wrong.

The ILCU has no legislative, regulatory or supervisory mandate nor is afforded any recognition by the state save that of a body expert in credit union affairs that may be consulted – this hardly amounts to “negotiating” for regulatory change. Regulation is the sole remit of the state regulator and one which the ILCU has consistently sought at every turn to undermine.

In its submission to the Joint Committee is quite telling:
“When initially published, the Central Bank and Financial Services Authority of Ireland Bill 2002 contained a provision which stipulated that the Registrar of Credit Unions would not be subject to the control or direction of the regulatory authority, namely, the board of the Financial Regulator, in carrying out or exercising his responsibilities or powers in respect of the registration of credit unions or the supervision of their affairs or activities. This section was removed prior to the enactment of the Bill. Instead, it is now provided that the registrar, through the chief executive, is subject to the control of the regulatory authority and is required to comply with directions given by the authority with respect to the carrying out of his responsibilities and the exercise of his powers…. The ILCU expressed concern about this in late 2002 and early 2003 when the Bill was going through the Houses. However, it was assured that the only concern of the interim authority was with regard to the accountability of the registrar to the CEO of the authority and that if the ILCU had a problem with what the registrar might be doing, the authority would not act. This is clearly not the case in practice. While the ILCU has developed a reasonably efficient working relationship with the registrar, it has serious concerns about the reporting relationship between the registrar, the chief executive of the regulatory authority and the board of the regulatory authority, which now clearly goes beyond the promise of “accountability” only.”(ILCU Joint Committee on Finance and the Public Sector June 2006)

Did it believe that Government was offering a veto to the ILCU of it “didn’t like what the regulator was doing”? Hardly, but to suggest it had is but more of the nonsensical advocacy it has so often managed to shoot itself in the foot with.

It is past time for the ILCU to mature as a representative body: to cease and desist its negative adversarial advocacy reminiscent of 70’s trade unionism or worse still resonant of another from of unionism – that which cried “no surrender”.

Completing the job of “driving the moneylenders from our communities” may be laudable mission – but surely the primary mission must be to ensure the sustainability of credit unions.

It is important that the reputational capital of the credit union movement is improved – it most certainly has been severely dented by recent media stories – many of which are highlighted on this blog. Continuing to whinge, complain about and attack the Financial Regulator undermines reputational capital further.

Most people realise that credit unions have failed to make the business case for greater flexibility and also understand the risks to credit union instability – some highlight these risks in a genuine effort to get people to wake up and take action.

Looking good and sounding good is rather easy – doing good is where the challenge lies. Professional advocacy is all about persuading and influencing others to take action favourable to your position. The ILCU it appears has a long way to go to repair the consistent damage it has facilitated to credit union reputational capital.

Surely it is in the best interests of the credit union movement that robust effective and effective supervision and regulation underpins financial stability – yet we read of change being resisted unless it is agreed change – this is not a relationship that depends on agreement and voting – credit unionism is not trade unionism.

The state rightfully legislates, regulates and supervises credit institutions – to suggest that credit unions should resist change unless agreed is patent nonsense. To suggest that change be resisted unless there is prior consultation is also nonsense. One has to create the conditions in which consultation is valued and appreciated rather than sustain the conditions in which consultation becomes procrastination and obdurate refusal to recognise and work with a reality they threatens the future of credit unions.

Neither the Regulator nor Government were responsible for the ISIS crisis, increasing credit union instability or investment losses. In contrast the ILCU mandate includes stabilisation supervision, business model development and central investment management. Rather than deflecting attention away from its failings it should address where the real problems lie and start doing something about them.