Central Bank publishes report assessing impact of credit union investment framework changes

• Report follows Investment Regulation changes introduced in 2018
• Investment framework provides an appropriate range of choices for credit unions
• Low take-up to date by credit union in the additional investment classes introduced

The Central Bank of Ireland has today published a report assessing the impact of changes introduced in 2018 to Investment Regulations for credit unions.

The Credit Union Act 1997 sets out provisions relating to credit unions’ investment of surplus funds including the requirement that a credit union ‘shall manage its investments to ensure that those investments do not (taking account of the nature, scale, complexity and risk profile of the credit union) involve undue risk to members’ savings’.  Under the Act the Central Bank may prescribe investments in which a credit union may invest its surplus funds.

Three new investment classes were introduced in March 2018, together with specified credit quality, maturity and concentration limits. The investment classes introduced were:

• Investments in Tier 3 Approved Housing Bodies (AHBs);
• Bonds issued by Supranational Entities; and
• Corporate Bonds.

The Central Bank has now completed analysis to assess the impact of these changes on credit union investment portfolios. Key findings include:

• Total investments have grown by €1bn over the period, from €12bn to €13bn.
• Credit unions investment portfolios continue to be invested mainly in accounts in authorised credit institutions.
• To date there has been little investment by credit unions in the additional investment classes introduced in 2018 - although developments on a number of initiatives may lead to investments in the newer investment classes (if credit unions so decide).
• There is a wide range of permitted counterparties with whom credit unions can place investments.
• There has been a move by credit unions to invest more funds in investments with a maturity of over 5 years.

The report concludes that the investment framework continues to provide an appropriate range of investment choices for credit unions, taking account of the need to ensure the protection of members’ funds.

Registrar of Credit Unions Patrick Casey said “The changes introduced to the investment regulations in 2018 demonstrate the flexibility provided by the Central Bank’s regulation-making powers and the Central Bank’s commitment to reviewing the regulations to ensure they remain appropriate and proportionate for the sector.

“Today’s report indicates the investment framework for credit unions continues to provide an appropriate range of investment choices, diversification opportunities and counterparties for credit unions. Despite limited activity to date, recent developments indicate credit unions are considering increased usage of the investment classes introduced in 2018.

“Overall credit union boards must ensure that they do not expose their members’ funds to undue risk and that appropriate risk analysis and due diligence is undertaken to inform all investment decisions. The overriding consideration in making investments, must be the protection by credit unions of the funds of members.”

Notes

CP109 Consultation on Potential Changes to the Investment Framework for Credit Unions was published on 11 May 2017. The public consultation closed on 29 June 2017. The Feedback Statement and responses received are available on the Central Bank’s website.

The amending regulations commenced on 1 March 2018.

The regulatory code applied to AHBs divides AHBs into three tiers – Tier 3 refers to larger AHBs.