4 April 2002
Speech by Economic Secretary to the Treasury, Ruth Kelly MP to the Association of British Credit Unions Ltd.
I am delighted to be here on the opening day of ABCUL's annual conference.
This is a time of transition for British credit unions. This conference is a valuable opportunity to give voice to the issues that are really important to the movement.
The Government believes that Credit Unions have an important role to play: tackling financial exclusion and enhancing opportunity across the social spectrum. We recognise that they can make a real difference to the people and the communities they serve: not only through the provision of core financial services, but also through their ethos of self-help and thrift, which plays such a valuable role in educating people about managing their finances. The end result must be greater independence and security for your members.
That is why we continue to engage with the credit union movement, enabling your organisations to develop and grow, realising their full potential in Britain, and, in turn, helping us realise our aspirations for the British people.
History and statistics
The publication in 1999 of the reports of the Credit Unions Taskforce and Policy Action Team 14 - ?Credit Unions of the Future?, and ?Access to Financial Services? - turned the spotlight on credit unions. The reports raised awareness of the invaluable work that the you have been engaged in, often without any recognition, for many years: encouraging people with modest means to work with the financial system by providing savings facilities, affordable credit, and financial education.
Today, there are around 700 credit unions in Britain, with a collective membership of about 355,000, and assets of nearly £260 million. Of course absolute numbers are misleading and the pattern of provision is patchy, but the trend is upwards and the movement continues to grow steadily.
Several new credit unions have been launched recently, and a number of smaller credit unions have merged with them. Fairshare, in Telford and the Wrekin; Leeds City, with a common bond covering 700,000 people living or working in Leeds; Street Cred in Rochdale, which has gained 1500 active members since it opened last April; Portsmouth Savers; and Southwark Credit Union, all fit into the ?inclusive? pattern and each have taken in at least one community focused credit union.
Other credit unions with large live or work common bonds are being developed in Edinburgh, Cardiff, Swansea, Sunderland, Newham, Lambeth, Croydon and Hull. I am sure there will be others. The FSA has recently approved its largest common bond extension - for Capital Credit Union in Edinburgh - which will cover nearly one million people in the Lothian and Borders Region. Congratulations to Capital Credit Union, who I know have been working with the FSA towards this outcome for some time. I hope this establishes a pattern of close collaborative working between the new regulator and the union movement.
As unions merge and operate on a larger scale one consequence is likely to be a reduction in the total number. Less credit unions; but the effect on the ground will be to provide communities with stronger, healthier and more dynamic facilities, better equipped to service their financial needs - fit for the future. Large, inclusive, credit unions, are an expression of strength and vitality in the movement, an escape from the outdated notion of the ?poor man's bank?, and often a valuable source of employment, training and development for local people.
Of course Britain still has a large number of smaller, community focused credit unions, which continue to serve local needs. We all know that one-size does not fit all where credit unions are concerned. Many of our smaller credit unions continue to thrive, majoring on their core business - savings and affordable loans. Their work is valuable, helping to instil a sense of self-reliance in their members.
Financial exclusion
Credit unions play an important part in helping to end financial exclusion - bridging the gap between our poorest communities and the mainstream of financial opportunity.
Britain has one of the most competitive and sophisticated financial service sectors in the world, but for many people, for many people in my own constituency, access to financial services still means cheque-cashing shops, and loan sharks. That is why this Government's approach to neighbourhood renewal and social inclusion acknowledges the central importance of improving access to financial services, and our agenda reflects the complexity of the issues which make up financial exclusion, calling for joined-up solutions.
Government cannot fight this battle alone. The support of the whole financial services community has been, and will continue to be, vitally important. Credit unions are part of the solution - providing access to savings and affordable loans.
Progress is being made:
All the banks now provide basic bank accounts;
Insurance with rent schemes have been given a real boost by the work of the Association of British Insurers and the Housing Corporation;
The FSA and others have worked to improve the quality of, and the access to, financial education; and,
The Treasury and FSA are fully engaged in a programme of work to create a regulatory regime fit for the future.
Of course there is always more to do, and we will never be complacent, but I think it is worth recognising how much we have already achieved, with commitment on all sides.
One of the wider issues is how we help people from low-income groups to save more. The Saving Gateway, offering simple-to-understand Government matching of savings, encouraging people into the saving habit, and accompanied by financial education and information, is part of the answer. We set out our latest proposals for the Saving Gateway in ?Delivering Saving and Assets?, published in November 2001. At the same time we announced our intention to pilot the Saving Gateway in a number of locations.
A number of credit unions have expressed an interest in engaging with elements of the Saving Gateway, including financial education. I welcome the continued involvement of Credit Unions in the development of proposals - you have an important part to play.
?Financial exclusion? refers to a range of problems. Inability to save, to borrow at reasonable rates, or to insure your home and property are at its heart. But we also need to think about a range of subtler problems. One of these is access to payment services and I am delighted that, here too, the credit union movement is in the lead.
The Co-operative Bank - a long time supporter of the movement - has agreed to be ABCUL's partner in the introduction of PayPoint to credit unions. This new facility will enable members to make deposits through 10,000 accessible outlets across the country, many of which are open 24 hours a day. I look forward to hearing more about the project in the future.
This is valuable work and testament to the ongoing strength and vitality of the credit unions movement. That strength is not something that can be taken for granted. There is a responsibility on all of us to maintain our vigilance and ensure a healthy future for the movement. For the industry that has meant restructuring, larger credit unions, and the development of more efficient systems - including the PEARLS project and the plans for a Central Finance Facility.
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PEARLS Project
Earlier this year ABCUL secured sponsorship from Barclays Bank enabling them to introduce a specialist financial monitoring tool - the PEARLS Monitoring System. PEARLS has been developed by the World Council of Credit Unions, and will be introduced in Britain through a pilot scheme. This system has the potential to support the future financial stability of credit unions, and to increase consumer confidence in the movement.
Central Finance Facility
Back in 1999 the Credit Unions Taskforce and Policy Action Team 14 pointed to the advantages of the establishment of a Central Services Organisation. I know ABCUL put a lot of energy the project. The Taskforce felt the banks and building societies could usefully support this project and I am as disappointed as anyone that ABCUL was unable to secure the necessary financial backing or wider commitment from others for the original plans.
I was interested to learn that you now have fresh plans to take forward some of the key elements of that earlier project independently, including the central finance facility. I wish you well with this venture, and would be happy to broker discussion about funding, if you can reach agreement with key players on a final set of proposals.
Regulation by FSA
The credit union movement is putting its own house in order, rationalising the structure and developing the centralised systems and processes necessary to ensure a long-term future. There is a commensurate duty on the government and on the regulator to streamline the rules and regulations governing the operation of credit unions.
Last year's conference was dominated by discussion of the forthcoming regulation of credit unions by FSA. With the FSA destined to assume its new powers on 2 July, I expect this conference will be no exception.
Much has been made of the benefits that membership of the Financial Ombudsman and Compensation Schemes will bring, and the support that the Government received when we decided to transfer the regulation of credit unions to the FSA. However, I know that concerns remain, and some have suggested that the FSA might not be able to deliver a regulatory structure calibrated to the nature and scale of the risks that credit unions face.
The FSA has worked extremely hard to understand the needs of credit unions, and to take account of their particular circumstances. A series of road shows and carefully prepared consultation papers have done much to dispel unease. I am sure their efforts have not gone unnoticed.
Credit unions are engaging enthusiastically with this process, submitting a record number of responses to the consultation paper, 265 in all, including an overwhelming majority that supported their proposals. Much work has been done since then. The FSA are here in force this weekend to help you find out more about the new regime, and to listen to any concerns you may have.
Important work has been done and I look forward with confidence to the introduction of this new regime: a strong and credible platform, for the credit union movement, and for the future.
Transitional assistance by FSA
The FSA has recognised that some credit unions will find the transition to the new regulatory environment particularly challenging. That is why, last autumn, Howard Davies outlined to me a strategy for facilitating transition through a Credit Unions Support Programme. I will leave it to the FSA representatives here this weekend to explain the programme in more detail. Suffice to say that experienced staff have been made available within the FSA to work with credit unions - trying to find positive solutions to the transitional issues they face. The main focus is on those credit unions that have not been able to maintain the face value of their members' savings, and as a result will find it difficult to meet the solvency requirement set out in the new rules. I have given the FSA my full support for this programme, and I hope the movement will find it useful.
Deregulation by Treasury
The unions are reforming their structure and rejuvenating their systems. The FSA are working to ensure the new regime is proportionate, sensitive, and credible. What are we doing in the Treasury?
The Treasury has an important part to play - creating the right conditions for credit unions to expand. Last April we introduced two changes to give your unions greater freedom: increasing the maximum loan repayment periods that credit unions may offer borrowing members; and the amount that junior members may save with a credit union.
Then, in the summer, we confirmed our long running intention to bring forward a package of further deregulatory measures, aimed at relaxing some of the restrictions on credit unions? operational powers.
As you know, this work culminated last October with the publication by Treasury of a consultation document containing seven deregulatory proposals, including several that had been put forward by representatives from within the movement itself.
Our proposals included what we believe are important developments: removing the restriction on the range of external sources from which credit unions may borrow; and allowing certain credit unions to pay dividends at different rates, and to pay these dividends more than once each year.
In publishing the consultation paper, we were also aware that the movement would prefer to see the deregulatory changes introduced at the same time as the FSA commences its new regulatory regime, on 2 July.
I am pleased to say that we received a significant number of responses and that in the main these responses were supportive. Differences of opinion, where they existed, came within the context of ongoing support for the basic thrust of our proposals and an emerging consensus around the need for reform.
We remain committed to the introduction of supported deregulatory changes using an Order under the Regulatory Reform Act, and, if possible, to aligning the introduction of those changes with the opening days of the new regulatory regime.
For a time the heavy workload of the Regulatory Reform Committees threatened to stall the process. So I am pleased to report that we have found a way to integrate four of the most important deregulatory changes from our consultation paper into the second Order under the Financial Services & Markets Act. This means that from 2 July we will have in place:
Changes to the restrictions on the range of external sources from which credit unions may borrow;
Permission for certain credit unions to pay dividends at different rates;
The levels of minimum coverage requirements for fidelity bonds; and,
The ability to offer accounts that may be held in the name of more than one member.
The remaining three proposals will be brought forward according to our original plan. The intention is to draft an Order under the Regulatory Reform Act as soon as possible.
Conclusion
This will be an eventful year for credit unions:
The FSA will move to provide effective regulation and member protection;
The Treasury will underpin the FSA's regime and the ongoing viability of the credit union movement with a programme of strategic de-regulation;
Credit unions themselves continue to develop and grow, repositioning themselves to resolve old problems and face new challenges.
Credit unions have an important and ongoing part to play in the rejuvenation of the UK and the extension of opportunity to all of our citizens. Ending financial exclusion must be the beginning of this programme, but the end must be an extension of credit union's community role - providing financial services, education and even training and employment opportunities, across the social spectrum.
As they grow, and I am sure they will, it is important that your unions should keep their defining characteristics. Mutual ownership, democratic organisation, co-operative principles and volunteer directors are what make credit unions unique and their contribution so valuable.
The new regulatory regime, the programme of strategic deregulation, the offer of ongoing support: there can be little doubt that this government stands four square behind the ongoing success, vitality, and centrality of credit unions and the credit union movement. So I would like to end by giving my thanks, on behalf of the entire Government, to the dedicated people - many of them volunteers - who run your unions. It is you who have seen the credit unions through the bad times and it is you who will see them through the good. It is the effort that you make, every day, that will ensure a flourishing credit union movement for all of our tomorrows.
Thank you.