Recommendations
78. It is recommended that the Committee:
1 Note that MU and NZACU have developed a joint proposal on four aspects of the Friendly Societies and Credit Unions Act (the "Act") that they wish to see reformed: membership qualifications, legal status and validity of action, capital-raising, and trust deed "duplications".
2 Note that while some of those proposals are significant and give rise to governance and competitive neutrality issues, the government has considered them in good faith, with a view to accommodating the industry as far as possible without introducing unacceptable risks.
3 Note that the following amendments would address the majority of MU and NZACU's concerns, without introducing excessive risks.
4 Agree to the following changes to the Act:
4.1 the statutory requirements for qualifications to membership in a credit union will be modified to remove existing restrictions on membership so long as the rules of the credit union contain an objectively identifiable common bond;
4.2 credit unions will be permitted to extend their membership to charities and incorporated societies that meet the common bond requirements;
4.3 the statutory requirement that credit union associations obtain Ministerial approval for the provision of new services to their members will be replaced with a provision enabling associations to provide any services that are permitted by the Act and specified in their rules;
4.4 the statutory requirement that each member must hold a minimum of $10 "shares" will be a default provision and credit unions will be permitted to determine and specify a higher minimum deposit requirement in their rules; and
4.5 credit unions will be permitted to determine and specify in their rules their own processes for setting service fees.
5 Note that credit unions' governance regime may need to be strengthened to facilitate stronger risk management capacity in an environment where credit unions will be able to provide financial services to larger numbers of customers than is currently the case, and where credit unions will be operating under fewer regulatory restraints.
6 Direct officials to review credit unions' governance provisions (such as the duties of trustees and committees, disclosure obligations, and the ability of creditors to petition for a wind-up) to ensure that they are as robust as those applicable to building societies and finance companies and invite the Minister of Commerce to report back to Cabinet on any amendments that may be advisable, by March 2005.
7 Note that credit unions have sought the ability to vary, through their Securities Act trust deeds, statutory restrictions on borrowing, investment, and (to a no lesser extent) capital reserves, and that further work is required to determine whether credit unions should be able to negotiate standards that are lower than those currently proscribed by the Act.
8 Agree in principle that some or all statutory restrictions on borrowing, investment and reserves could be varied by credit unions and their trustee supervisors, provided any permitted variation would not expose credit union members to unjustifiable risks.
9 Direct the Ministry of Economic Development to consider whether and how restrictions could be varied without exposing credit unions to unjustifiable risks and invite the Minister of Commerce to report back to Cabinet, by March 2005, with appropriate recommendations.
10 Note that while permitting credit unions to raise capital by issuing instruments that are non-withdrawable, transferable and preferential would introduce undue risk, the government supports their underlying objective of finding alternative sources of capital to facilitate their growth.
11 Direct the Ministry of Economic Development to work with the industry to identify alternative measures that may assist credit unions in meeting their capital requirements, and invite the Minister of Commerce to report back to Cabinet on possible options by March 2005.
12 Note that at present it is necessary for credit unions to obtain a special Act of Parliament to facilitate conversion to alternative governance regimes.
13 Agree in principle to provide a statutory mechanism for facilitating credit unions' conversion to alternative governance regimes.
14 Invite the Ministers of Commerce and Revenue to report back to Cabinet, by March 2005, on the details of the conversion mechanism.
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