Bill on the supervision of credit unions to parliament

• Netherlands

• Banking and finance

23-06-2014

On 28 May 2014, the bill on the amendment of the Financial Supervision Act (“FSA”) and several other laws with regard to the regulation of credit unions (the “Bill”) was sent to parliament.

The Bill introduces a separate licensing scheme with respect to credit unions. The Bill defines a credit union as “a cooperation whose members have been permitted based on their profession or trade and whose business is to (i) attract repayable funds from its members and (ii) for its own account, extend loans to its members in support of their trade or profession.”

The last couple of years, mainly as a result of the credit crunch, the number of credit unions within the Netherlands has rapidly increased. Credit unions offer an alternative way of financing by and to SME companies. Until now, the activities of credit unions made them fall under the definition of ‘bank’ within the meaning of the FSA, making them subject to the banking license requirement. The requirements applying to banks are however deemed to be too strict for credit unions in several ways given the limited size and complexity of their nature and activities.

Small credit unions (the maximum amount is likely to be set at EUR 10 million, although is yet to be confirmed by the Minster of Justice) will be exempted from the license requirement. With respect to other credit unions (with a maximum amount of EUR 100 million in managed assets or having over 25.000 members), the license requirement applies, as well as continuous supervision. Credit unions exceeding the maximum amount of EUR 100 in managed assets or a number of members of 25.000, the banking license requirement applies.

The Dutch Central Bank (“DCB”) will grant a credit union license (that is to say, credit unions with managed assets of EUR 10 to 100 million having less than 25.000 members) if the cooperation is able to show that it complies with the requirements of (i) eligibility and reliability of its policymakers, (ii) ethical management, (iii) the minimum amount of individuals determining its day to day policy and the location from which they operate, (iv) control structure, (v) sound business operations, (vi) capital and reserves, (vii) solvability and liquidity.

The supervision on credit unions shall be conducted by DCB. The Dutch Financial Markets Authority will be responsible for the market conduct supervision to the extent that credit unions attract, obtain or have available repayable funds as a result of the offering of securities.