Minister Donohoe announces Credit Union Sector Levy Regulations 2020
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From: Department of Finance
- Published on: 9 October 2020
- Last updated on: 9 October 2020
Resolution and Stabilisation levies adjusted following detailed consideration
The Minister for Finance, Paschal Donohoe TD today (Friday) announced that the Credit Institution Resolution Levy for 2021 will be reduced to 0.0259% of assets (approximately €5 million) and the Credit Union Stabilisation Levy for 2021 will be reduced to 0.0015544% of assets (approximately €300,000).
Collectively the levies of €5.3 million for 2021 will amount to approximately 0.0274% of assets, a reduction of circa 56% from €12 million in 2019 in the context of growing sector assets.
Minister Donohoe noted that:
‘Credit unions play an important role in local communities as a volunteer co-operative movement. Having taken into consideration my legislative responsibilities, the views of the sector, the Credit Union Advisory Committee, and the Central Bank, and in the context of the current environment that credit unions are operating in, I believe that the revised levy rates are appropriate’.
Minister Fleming adding to this noted that:
‘As Minister for State with responsibility for financial services, credit unions, and insurance, my priority is to help the credit union sector strengthen and grow’.
“As an ‘essential service’, credit unions have worked hard to support members in communities across Ireland and have remained open throughout the pandemic. Credit unions are also well positioned to support the economic recovery through increasing lending, including mortgage and SME lending, to their communities’.”
Following completion of the statutory consultation process, Minister Donohoe, signed into law the Credit Institutions Resolution Fund Levy regulations and will sign the Stabilisation Fund Levy regulations in the coming weeks.
Notwithstanding the reduction in the levy rates, the Resolution and Stabilisation Funds will remain well funded safety nets for credit unions and their members.
Given the uncertainty relating to the pandemic, no decision was taken in relation to the target size of the Stabilisation Fund. The levy rate will be reviewed as required by law during 2021.
Department officials have also received feedback from the sector representatives on a framework for the operation of the Stabilisation Scheme, which is currently being considered.
Resolution Fund
The Central Bank and Credit Institutions (Resolution) Act 2011 established a resolution regime for credit institutions and credit unions in Ireland. The Credit Institutions Resolution Fund (Resolution Fund) was established under this legislation to support resolution actions in the State, and is managed and administered by the Central Bank. Credit unions are now the only financial institutions contributing to the Resolution Fund as other financial institutions are now covered by the Single Resolution Mechanism which has resulted in Irish banks paying into the Single Resolution Fund.
The Department of Finance, in collaboration with the Central Bank of Ireland, carried out a review of the levy in 2019, which included a public consultation. Following this review it was decided that the target size of the Resolution Fund should be set at €65 million and that this target should be met by 2025. It was also agreed that the Resolution Fund should be reviewed in 2025 and that the annual levy should be approximately €5 million per annum from 2020 to 2025 to increase the size of the Resolution Fund from €35 million to €65 million, broadly in line with the increased average asset size of credit unions. The adjusted levy rate would be dependent on the movement of the asset size of the sector over the five years and whether any costs of resolution have been incurred by the Resolution Fund.
The Minister for Finance has now agreed that the Resolution Levy for 2021 be kept at circa €5 million per annum to allow the fund to continue to grow to €65 million to 2025.
The levy rate for 2021 will be set at 0.0259% in the regulations; a slight reduction in the levy rate from 0.0274% of assets in 2020.
The Department of Finance prepares the annual Levy Regulations following consultation with the Central Bank and the Credit Union Advisory Committee. These regulations come into force on 30 September each year and prescribe the rate of contribution or method of calculating the rate of contribution to the Resolution Fund. The Credit Institutions Fund Levy Regulations are now available on the Department of Finance website.
Stabilisation Fund
Under section 59(3) of the Credit Union and Co-Operation with Overseas Regulators Act (“the CUCOR Act”) the Minister for Finance is required to make regulations prescribing the rate of contribution or a method of calculating the rate of contribution to the Stabilisation Fund which is a part of the Credit Union Fund.
To enable the levy to vary from year-to-year, regulations are made annually prescribing the rate of the levy and the basis on which it will be charged. The CUCOR Act requires that the Minister consult the Central Bank and the Credit Union Advisory Committee before prescribing the annual levy rate each year.
In making the regulations for the Stabilisation Levy the Minister must have regard to the need:-
1. for the Stabilisation Fund to grow, over time, to a size commensurate to the costs that might be incurred in providing stabilisation support under Part 4 of the Act; and
2. for the rate of contribution by a credit union, or category of credit unions, to be consistent with maintaining the financial viability and sustaining the commercial position of such credit unions.
Following the latest review, it has been decided to set the levy rate to 0.0015544% for 2021 which will result in a charge of approximately €300,000 for the credit union sector in 2021, a reduction from a levy rate of 0.0164% which collected approximately €3 million in 2020. Given the uncertainty relating to the pandemic, no decision was taken in relation to the target size of the Stabilisation Fund. The levy rate will be reviewed as required by law during 2021. The Minister will implement the Stabilisation Levy Regulations 2020 shortly.
SI 406 of 2020 Credit Institutions Resolution Fund (amendment) Regulations 2020