Remarks by Elaine Byrne, Registrar of Credit Unions, to the CUMA 2023 Spring Conference

30 March 2023 Speech

Elaine Byrne

Good morning

Thank you to the CUMA executive for the invitation to speak to you here in Salthill, Galway at your Spring Conference, the theme of which is ‘Change 2023’. I am delighted to have the opportunity to engage with you in person. The Registry of Credit Unions has regular and constructive engagement with CUMA, facilitated by your Chairperson, Acting CEO and other CUMA members, which we really value and appreciate. In my role as Registrar of Credit Unions, which I was appointed to in November last, I look forward to continuing this engagement with CUMA.

The credit union sector has experienced significant change since I joined the Registry in 2006, including in the areas of governance, restructuring, the prudential framework, product and service offerings to members and constructive engagement with the Registry.  Change will continue apace, and as Registrar, being open and engaged with credit unions, representative bodies and other sector stakeholders is an important aspect of how we will continue to deliver on our statutory mandate to regulate with a view to the protection by each credit union of the funds of its members and the maintenance of the financial stability and well-being of credit unions generally.

In my remarks this morning I will cover:

  1. Overview of Financial Regulation and Supervision Priorities for 2023 and the Registry’s Strategic Priorities for the credit union sector for 2023.
  2. Key messages from our recently published Financial Conditions Report 2022.
  3. Change – challenges and opportunities for credit unions / managing and mitigating risks.

The Central Bank’s five year Strategy 2022-2026 states that we are focused on continuing to deliver our mandate while making the changes that are needed in the current environment.

The four strategic themes in the Strategy are: Safeguarding, Future-Focused, Open & Engaged and Transforming. These themes are connected and have an emphasis on being outward, engaged and forward looking and embedding the Central Bank’s transformational agenda. These themes will help the Central Bank to deliver our strategic objective to serve the public interest by maintaining monetary and financial stability while ensuring that the financial system operates in the best interests of consumers and the wider economy.

Financial Regulation – approach and priorities for 2023

The overall objective of our financial regulation and supervision approach is to build and maintain a resilient and trustworthy financial system, which sustainably serves the needs of the economy and its customers, in which firms and individuals adhere to a culture of fairness and high standards.

Deputy Governors Sharon Donnery and Derville Rowland recently issued a joint letter to regulated firms, setting out the Bank's financial regulation and supervision priorities for 2023.  The aim of the letter is to complement the detailed feedback we give through our sector-specific supervisory engagement with firms and the variety of publications we produce, helping executives and boards understand our key cross-cutting areas of focus as they navigate the year ahead. 

The letter highlights a number of priorities for 2023 – those of particular relevance to credit unions include:

  • Implementing changes to credit union regulations / guidance arising from the Department of Finance-led Policy Framework Review. The Registry is engaging with the Department of Finance, and representative bodies on proposed legislative changes as set out in the Credit Union (Amendment) Bill 2022 published last October.
  • Consulting and engaging on regulatory developments under the Consumer Protection Framework and Individual Accountability Frameworkleading to enhancements in existing and new regulations.
  • Strengthening the resilience of the financial system to climate change risks, along with implementing the EU’s Sustainable Finance Disclosures Regulation.

The letter also notes that, just as firms must respond to the changing environment and be agile and resilient in the face of a volatile and uncertain world, so too must the Central Bank. We are intent on transforming the Bank to become a more agile, resilient, diverse and intelligence-led organisation, seeking continuous improvement in the way we work to meet the challenges of an evolving financial system.

In all of this, it is a priority for us to listen to all our stakeholders and build genuine two-way dialogue on these issues.

Registry’s Strategic Priorities for the credit union sector in 2023

The Registry’s strategic priorities for the credit union sector for the year ahead are aligned to the four connected strategic themes in the Central Bank’s Strategy. They are underpinned by our statutory mandate on ensuring the protection by each credit union of the funds of its members and the maintenance of the financial stability and well-being of credit unions generally.

In 2023 we will:

  1. Continue our focus on seeking financially and operationally resilient credit unions, applying an assertive risk-based approach to supervision with supervisory effort focused on the greatest risks;
  2. Engage constructively with credit unions considering restructuring plans / proposed transfers of engagement, and where necessary, engage with distressed credit unions to mitigate against any unmanaged failure of a credit union, thereby protecting members’ funds;
  3. Maintain and continue to develop a tailored, proportionate and prudentially responsive regulatory framework, taking account of the provisions in forthcoming legislation for credit unions (currently at Bill stage);
  4. Fulfil our gatekeeper role by providing regulatory input and   constructive challenge to credit unions seeking regulatory approvals through additional services applications;  and
  5. Be open and engaged with credit unions and sector stakeholders through our engagements and a range of targeted and evidence – based communications and publications.

Turning now to our recent annual publication on the Financial Conditions of Credit Unions.

Financial Conditions Report 

The Financial Conditions report contains an overview of the financial position of the credit union sector as at 30 September 2022 and sets out that, while the financial trends observed over the 2022 financial year include some positive indicators, the low loan to asset ratios, increases in costs, and falling return on assets, if not addressed by credit unions will continue to impact on sustainability. The maintenance of strong reserves is key to underpinning member confidence particularly in the challenging macro-financial environment and where sustainability challenges continue.

Credit unions can offer a wide range of products and services to their members. Sectoral collaborative efforts to provide services are welcome, and forthcoming legislative changes should provide further opportunities for credit unions to expand their service offerings to members. 

It is important that credit unions clearly identify their members’ financial services needs recognising the financial and operational requirements to deliver an expanded range of services in a prudent and sustainable manner.

There are some key points to note on lending, savings, reserves and return on assets.

In terms of lending activity, while total sectoral gross outstanding loans in 2022 returned to pre Covid-19 levels of €5.6bn, the overall loan to asset ratio (at 28.4 per cent) remains close to historically low levels. At a sectoral level there continues to be significant unutilised capacity of the prudential longer term lending limits for house and business lending. At 30 September 2022 there was unutilised capacity of at least €1.06bn, increasing to €2.1bn if all eligible credit unions availed of increased concentration limits available. In terms of loan performance, while the sector average rate of arrears has fallen to a seven-year low of 3.0 per cent at 30 September 2022, credit unions should be cognisant that economic headwinds and deteriorating macro conditions will likely challenge asset quality in the year ahead. 

While savings continued to grow in 2022 the pace of savings growth decreased compared to growth in 2020 and 2021.

Regulatory reserves remained strong at 16.1 per cent of assets with all credit unions reporting regulatory reserves at or above the required regulatory minimum of 10 per cent of assets.

The sector average return on assets decreased from 0.6 per cent in 2021 to 0.3 per cent in 2022, reflecting some exceptional income and expenditure items during 2022 which resulted in an increase in the cost / income ratio from 2021 to 2022.1

Against this backdrop and in the context of broader trends and developments in the domestic and international financial landscape, it is critical for all credit unions to carefully consider their strategic priorities, including business model development plans and related financial and operational impacts.

Change – recognising challenges and opportunities and managing and mitigating the risks 

Moving on now to your Conference theme ‘Change 23’ which is timely and provides an opportunity for you to hear updates on a wide range of topics which impact the change agenda.

I note that topics covered during the Conference included an update on the Retail Banking Review, Mergers – Looking Back & Looking Forward and Growth of Fintech & Changing shape of the Financial Services Industry.

In November last Deputy Governor Sharon Donnery spoke on the topic of ‘Charting the course – leading financial services through complexity and change’ which is very relevant to the ‘Change 2023’ theme.

Deputy Governor Donnery outlined the challenges leaders of financial services face in charting a course through the uncertainty and complexity of the global economic outlook.  Key points to note from these remarks include:

  • The financial system is less stable and more vulnerable to shocks and this requires us all – leaders in the financial system – whether in the public or private sphere, to recognise and respond to these challenges. 
  • The implications the changing environment has for the financial system with rising inflation, higher interest rates, weaker growth prospects and financial market repricing leading to a deterioration in financial stability conditions across the euro area.
  • In a very uncertain and increasingly complex and uncertain environment, firms need to ensure that they have sufficient resources, sustainable business models and effective risk management to mitigate against the risks that they face. The key thing is for firms and their leaders to be dynamic in their understanding of the risks faced in a rapidly changing environment.

Significant changes impacting on the business of credit unions include those arising from transition of delivery of financial services and climate change risk.

Transition of Delivery of Financial Services

The delivery of financial services (i.e. deposits / savings, lending, investments and payments) is in transition with key features including innovation, digitalisation, outsourcing and transformation. The transformational shift in delivery is evidenced through delivery of financial services by a combination of traditional participants including full service banks, credit unions and others, as well as by partial service providers and new value chain disruptors. 

Climate Change Risk

The scale of adjustment required to ‘green’ our economies and minimise climate risks is substantial. This adjustment could present some opportunities for credit unions to provide an element of the lending that will be required to support the transition to a green economy. Some recent insights from climate science capture the scale of the challenges ahead – which were referenced in a speech by Deputy Governor Sharon Donnery in October 2022.

The manifestation of risks arising will have broad impacts, affecting macroeconomic and financial outcomes, altering the underlying structure of economies and exposing financial firms and the overall financial system to prudential risks such as credit, operational, market and liquidity risks.

How will the type of changes outlined impact on credit unions?

Examples of the impact of the type of changes referenced above on the business of credit unions include:

  • Potential higher margins from increased interest rates but also potential for increase in arrears arising from impact  on members incomes of increases in interest rates and the cost of living;
  • Impact on demand for credit arising from potentially greater risk aversion by households / businesses to increased borrowings;
  • Increased demand by members for digital delivery of products and services;
  • Impact of  increases in interest rates on investment portfolios;
  • Heightened cyber and operational risk environment; and
  • Impact of climate risk on prudential risks such as credit, operational, and market risks.

How should credit unions respond to and manage change? – Focus on resilience and risk management

The uncertainty and complexity of the global economic outlook and the recent events in global financial markets, together with transition risks in delivery of financial services and climate change risk, are matters that should be of key focus for boards and leadership teams in your credit unions during 2023 and beyond. Maintaining focus on financial and operational resilience, as well as risk management, should serve credit union boards and leadership teams in responding to the challenges arising. 

As Mary-Elizabeth McMunn, Director of Credit Institutions, outlined at the Annual Conference of the Federation of International Banks in Ireland in November last, as leaders of firms optimism is important in terms of driving business forward and achieving sustainable results. However, it is essential to continue to test assumptions and she highlighted the importance of consideration of adverse scenarios that may weigh on a firm’s resilience. She also observed the need to be cognisant of the risk outlook, in particular the risk of deteriorating credit quality.

Financial and operational resilience will continue to be key features of our supervisory engagement with credit unions during 2023.

Financial Resilience

As referenced earlier, our Financial Conditions Report shows that the sector loan to asset ratio at c.28 per cent remains close to historically low levels. Credit union financial performance remains constrained by low loan to asset ratios, low investment returns and high cost income metrics and the economic uncertainties may amplify the risk outlook further.

Capital adequacy of credit unions remains key to financial resilience – underpinning member confidence, particularly in times of global economic and financial market uncertainty and where longer term sustainability risk exists for credit unions. The average sector reserves ratio remained at c.16 per cent during 2022 – which reflects prudent decisions taken by boards by maintaining reserves in excess of the minimum requirement of 10 per cent of assets to take account of individual credit union circumstances and prevailing market conditions.2

In terms of liquidity, given that the funding model of credit unions is inherently short -term in nature, i.e. funded predominantly by members’ savings / deposits, the vast majority of which are on demand, a prudent approach to asset / liability management is key to ensuring sufficient high quality liquid  assets are  available  to meet business requirements and withstand liquidity stress scenarios.

Credit unions should continue to focus on ensuring maintenance of financial resilience- taking account of specific factors arising in their credit union as well as the overall macro environment. 

Operational Resilience – effective managing of outsourcing is critical

Credit unions demonstrated operational resilience throughout the difficult external environment posed by Covid-19, managing the operational challenges and disruptions during this time. Notwithstanding that we are now in a post-Covid environment, operational resilience challenges remain – including in relation to IT systems, cyber security and outsourced services.

Credit unions have continued to become ever more reliant on IT systems for delivery of services to members and provision of back-office functions. This frequently also involves outsourcing arrangements with a range of third parties. Together with the operation of branch networks by many credit unions, this increased reliance on IT and outsourcing increases the operational risk profile of credit unions.

In order to be in a position to effectively manage and mitigate risks so that operational resilience is maintained, the overall control framework in your credit union should fully address IT and cybersecurity aspects. This includes the need for boards and leadership teams to understand and keep abreast of new and emerging IT and cyber-related risks arising and how these can be mitigated.

The European Digital Finance Strategy package which includes regulations on Digital Operational Resilience in the financial services sector (DORA) entered into force in January 2023 and will be effective from January 2025. While credit unions are not in-scope of DORA requirements, it will nonetheless be important for credit unions to consider how the type of requirements in DORA could help inform the continued development of effective risk management of IT / cyber risks in credit unions.

On outsourcing, regulated firms including credit unions, are expected to have effective governance, risk management and business continuity processes in place to mitigate potential risks of financial instability and consumer detriment.3

More specifically for credit unions, outsourcing requirements are set out in Section 76J of the Credit Union Act, 1997. A credit union must exercise due skill, care and diligence when engaging in outsourced activities with a service provider. At all times when outsourcing activities, a credit union must ensure that the outsourced activity is not disruptive to its overall business operations.

In cases where credit unions have obtained approval to provide additional services to members, they should also be cognisant of how they will meet the conditions attached, including those on outsourcing/continuity of services. 

Risk Management – embedding a strong risk management culture

Risk management is a key line of defence for all businesses, including credit unions. It is a fundamental capability and a key business enabler, one that underpins informed decision making.

 As highlighted in previous Registrar speeches, our 2021 supervisory engagement involved a thematic review of credit union risk management, to assess overall maturity and embeddedness. The findings in that review remain relevant and I recommend that you refer to this report to determine how it can support your credit union in embedding a strong risk management culture and ensuring that risk management serves as a key enabler, particularly in this time of change.

Mitigating Climate Change Risk – ‘tone from the top’ should promote culture of responsibility and meaningful action

The Central Bank’s supervisory expectations on managing climate risk across five key areas – governance, risk management, scenario analysis, strategy and business model risk and disclosures – were set out in the letter from Governor Makhlouf, issued to all regulated financial service providers in November 2021. Further to this, in 2022 the Central Bank established a Climate Risk and Sustainable Finance Forum.   We welcome the participation of CUMA in this Forum. The Forum has established two working groups – on Capacity Building and on Risk Management – each tasked in 2023 with producing best practices and recommendations.

 As you know we issued a survey to all credit unions in December 2022 to gather data regarding the level of awareness of climate risks, exposure to these risks and actions being taken by credit unions to manage / mitigate the risks. The responses will be used to inform our future supervisory strategy and engagement on climate related matters with the sector and we will provide feedback on this later in the year.  Strong governance with respect to climate change risk, and ensuring that the ‘tone from the top’ promotes a culture of responsibility and meaningful action are key aspects in the approach to managing climate risk.

More broadly on engagement, we also welcome the valuable engagement of credit union representative bodies in other fora established by the Central Bank i.e. the Financial Industry Forum and the domestic and innovation subgroups.

Conclusion – Leadership role in evolving risk management to address risks and serve as a key business enabler

Credit unions continue to fulfil a central role in the Irish financial services landscape. However that landscape is changing at pace, and how you deliver products and services to meet your members needs will be a critical factor in your future sustainability. Credit unions were referenced in the Retail Banking Review with a recommendation that the sector and its leadership should develop a strategic plan that enables the sector to safely and sustainably provide a universal product and service offering to all credit union members.

In your leadership roles, alongside the ‘business as usual’ of running your credit union, serving the needs of your members and complying with legislative and regulatory requirements, you need to be pro-active in recognising, planning and implementing your response to change at a time of uncertainty in the global outlook - so that you can ensure sustainable businesses which will serve and protect your members interests into the future.

In doing so your boards and management need to develop a sound understanding of the risks and opportunities arising from change.  You need to continue to focus on building and maintaining financial and operational resilience as well as evolving risk management and internal control frameworks – in a manner appropriate to the nature, scale and complexity of your credit union. This is critical to safeguarding your members’ interests and enabling you to effectively manage and mitigate risks.

In our role as regulator of credit unions we recognise the challenging and changing operating environment.  We will continue to regulate and supervise credit unions in an assertive risk – based and proportionate manner – with the objective of safeguarding member’s interests in accordance with our statutory mandate. 

Thank you for your attention. I hope you have interesting and informative discussions for the remainder of your Conference.4


Total credit union sector annual expenditure increased from €446 million in 2021, to €549 million at in 2022.

2 Sector average liquidity ratio as at 30 September 2022 was  c35 per cent  as reported in the Financial Conditions Report.

3 In December 2021, the Central Bank published our cross industry guidance on outsourcing to assist regulated firms in developing their associated risk management frameworks.

4With thanks to Eamon Clarke and Elaine Hession, in preparing these remarks.