Published January 16 2019, 8:00am EST
The British Parliament’s rejection of Prime Minister Theresa May’s Brexit plan is making things even more difficult for credit unions across the pond.
For the last two years, CUs and ordinary Britons have faced uncertainty as Great Britain’s efforts to leave the European Union dominated the political agenda, leaving little room for credit union interests. And that’s likely to continue given Parliament’s refusal Tuesday to sign off on May’s deal with the EU. As things currently stand, Great Britain – including England, Scotland and Wales – will leave the EU on March 29. But with just 10 weeks remaining there is still no deal in place for how Britain will conduct its affairs with the continent, including – but not limited to – trade, finance, cross-border movement and more.
“One of the most obvious impacts of Brexit to date is the inability to progress with legislative or regulatory change” for credit unions, said Matt Bland, head of policy and communications at the American of British Credit Unions Limited. “All the lawyers at the Bank of England [the U.K.’s central bank] are working on Brexit, not regulations for credit unions, and likewise, the parliamentary agenda has been dominated by Brexit and very little else has been legislated.”
Bland’s comments and others in this story were made in the weeks leading up to Tuesday’s parliamentary vote.
While Brexit’s future – to say nothing of Theresa May’s – is still up in the air, credit unions operating across the United Kingdom are treading carefully. Among them is England’s Bradford District CU, which has seen an influx of new members who are citizens of other EU nations living in Britain.
“As a credit union we are still seeing a fairly large number of EU citizens wanting to join us,” Paul Kadzionis, assistant manager at Bradford District Credit Union, told Credit Union Journal via e-mail, adding that many are looking to join in order to access universal credit, a British benefit similar to social security. “Our problem going forward is what do we do when they apply for loans.”
“We have of course given loans to existing members but feel that there could be a bad debt issue if some decide to leave the U.K., so we are being very cautious especially for larger amounts,” Kadzionis continued.
Emerald Isle issues
Credit unions operating in Ireland, especially those close to the border with Northern Ireland, such as Derry Credit Union, will face a unique set of circumstances. Just three miles from the border with the Republic of Ireland, Derry CU’s 35,000 members and 40 staffers reside on both sides of the border and are already accustomed to using two forms of currency, since Northern Ireland uses the British pound and the Republic of Ireland uses the euro.
“Recent volatility in exchange rates caused by the uncertainty of Brexit has had a tangible impact on their finances,” a spokesperson of Derry Credit Union said in an e-mail to Credit Union Journal.
Roughly 36 percent of the population in Northern Ireland belong to a credit union, while that number is nearly double (70 percent) in the republic, according to Martin Fisher, regulatory and legal officer for Northern Ireland at the Irish League of Credit Unions.
Of the 392 credit unions located on the Emerald Isle, 250 are in the republic, while 92 are based in Northern Ireland. According to Fisher, Brexit will hit those hardest based near the border, and could cause major problems for members and employees to frequently travel across the two borders.
Part of what led to the failure of May’s deal in Parliament was the issue of the backstop, an effort to maintain an open border between the republic and Northern Ireland. The backstop was intended to reduce uncertainty at the border.
“The backstop is aiming to prevent all of that,” Fisher explained. “In the event that the U.K. withdraws from the European Union, we will try to maintain things as they are on the island of Ireland so that life can continue so that there can be freedom of movement and the right for people to work in their jurisdiction,” said Fisher. “The backstop is there as an insurance policy so that things cannot get any worse.”
Without the backstop, Northern Ireland and the republic would likely be treated as two separate entities and a hard border would be enforced. With Northern Ireland being one of the poorest regions in the United Kingdom and Northern Europe, said Fisher, Brexit and a dysfunctional government don’t offer a particularly positive forecast for the region’s economy. And it’s not just credit unions – Brexit has and will likely impact economic opportunity across the U.K., said Johan Gott, a principal at A.T. Kearney, a management consulting firm..
And it’s not just credit unions – Brexit has and will likely impact economic opportunity across the U.K., said Johan Gott, a principal at A.T. Kearney, a management consulting firm. “There’s a macro-economic impact where companies are going to diverge investments away from the U.K. and toward other countries in the EU with Brexit,” said Gott. “Loss of competitiveness impacts employment, the economy, and dries down the general level of income for the country and for the people who live there.”
CUs held back?
Barring another referendum or further deals between May and the EU, things aren’t likely to get any clearer in the 10 weeks before Britain leaves the EU.
Brexit is “a big barrier to change,” said ABCUL’s Bland, noting that CUs across the United Kingdom have potentially been held back from offering additional products to their members due to the issue monopolizing so much of the political and legislative agenda. Among the items Bland cited that oculd have been addressed during this time are capital requirements for credit unions that could have accelerated growth, along with approvals for new products and services.
But Brexit or no, ABCUL is plowing ahead, focusing now on pushing reforms to the Credit Unions Act of 1979.
“It’s been a bit of a Frankenstein’s monster as an act,” Bland said. “Ideally, we’d like to see the whole act reformed and a new piece of legislation to put it on a modern footing, but that’s kind of out of the question. There’s no way that the government is going to table much at this current juncture.”