Lianne Dalziel

12 September, 2008
Credit unions rules to be modernised

Governance rules for credit unions and building societies will be standardised to meet international benchmarks and align with those for companies, but will retain flexibility that recognises the special character of mutual financial institutions.

Commerce Minister Lianne Dalziel announced changes to the governance requirements for mutuals in her opening address to the 2008 New Zealand Association of Credit Unions Conference in Christchurch today.

Mutual financial institutions are those established to provide services to their members, such as credit unions, building societies, friendly societies and industrial and provident societies.

The new rules will align the governance of mutuals along the lines of the requirements of the Companies Act. Mutuals will be subject to the same rules of disclosure and transparency and will have to be managed by a board whose directors will be subject to the same duties and qualifications required of company directors. The new rules define the information the mutual must provide its members and require membership participation in major changes affecting the mutual.

The proposed legislation will complete the second stage of the Review of the Friendly Societies and Credit Unions Act 1982, which was put on hold to allow the Review of Financial Products and Providers to consider mutuals in its proposals for comprehensive reforms of the financial sector.

"It is important to ensure that the rules applying to credit unions and building societies do not overlap or conflict with the requirements that they must meet to be licensed as deposit takers by the Reserve Bank, under legislation passed last week as an outcome of the RFPP," Lianne Dalziel said.

Cabinet has taken decisions allowing credit unions to have a legal personality which lets them have limited liability, own property, have perpetual succession and sue and be sued.

"Government has taken note of concerns that credit unions should not be distinct from their membership in the way that a company is separate from its shareholders. The new regulatory framework gives credit unions the flexibility to meet the changing social and economic conditions of New Zealanders and achieve economies of scale while retaining a commitment to the integrity of the credit union movement. The legislation will make it clear that credit unions are their members," Lianne Dalziel said.

The decisions allow more flexible capital raising, remove operational constraints imposed under the Friendly Societies and Credit Unions Act (which are no longer required once credit unions come under prudential regulation of the Reserve Bank), remove the limit on the size of deposit each member may have with a credit union, and provide a mechanism that allows credit unions who wish to do so to convert into companies while safeguarding the credit unions reserves.

The Mutual Insurance Act 1955 will be repealed as there are no mutual insurers incorporated under that Act, and it is not likely that there would be any in the future, Lianne Dalziel said.

ENDS

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