The Bermuda Monetary Authority (BMA) has been given supervisory and licensing responsibility over the Island's sole credit union.

The Credit Unions Act 2010 was passed unanimously in the House of Assembly on Friday and applies to the Bermuda Industrial Union (BIU) credit union.

Finance Minister Paula Cox said the purpose of the legislation was to modernise Bermuda's legislation governing credit unions by "strengthening the regulatory framework for their supervision".

The BIU Credit Union is the only financial institution of its kind in Bermuda and has been in operation since 1972.

Ms Cox said: "Under the current Credit Unions Act 1982, the Minister of Finance has the main supervisory responsibility for credit unions. The BMA undertakes certain supervisory functions delegated to it by the Minister.

"The BMA currently has responsibility for overseeing the activities of a variety of financial service providers including commercial banks, insurance companies, trust companies, fund administrators and investment companies.

"As credit unions provide financial services to its members, it seemed appropriate that they should fall within the regulatory purview of the BMA. Accordingly, the new legislation will transfer complete regulatory and supervisory responsibilities for credit unions to the BMA."

The legislation will allow the BMA to:

¦ Define the business of a credit union

¦ Establish a licensing regime in order to process and approve applications for licenses

¦ Restrict or revoke licenses

¦ Issue regulations and guidelines

¦ Set the standards for the minimum criteria, prudential criteria and bylaws.

Ms. Cox said the legislation will be "risk-based" and include international standards and best practice.

"Mr. Speaker, the existence of legislation and statement of principles alone are not enough to ensure the sound and safe management of a credit union and protection from loss of member's savings and deposits.

"It is also essential that powers exists to compel compliance with legislation, accordingly the bill provides the BMA with various enforcement powers to ensure compliance."

The Minister also explained the difference between credit unions and banks. "They are member-owned and derive their capital over time from earnings rather than from investments by external shareholder subscriptions. They are able to offer their services to members only, rather than to the public at large.

"They are fundamentally organised to promote the economic well-being of members rather than to return a profit of investors. They acquire legal existence by virtue of the process of registration as a credit union. They have more limited powers than banks. They typically rely extensively on volunteer directors and officers selected from their membership.

"Given all these areas of difference between credit unions and banks, the Credit Union Bill has been drafted as a stand-alone law to establish a framework for regulation and supervision of credit unions."

Shadow Finance Minister Bob Richards said: "I was very pleased with some of the things that I saw. Also the objectives were also fine that the institution encourages saving among members. Of course in the state that we have today, savings is one of the forgotten things. Everybody's more interested in spending than saving."

Mr. Richards also spoke about the board members being volunteers and hoped they were "financial people". "If they're not financial people, it gives rise to a greater probability of problems. One of the things that I think is important to focus on is that this institution is there to encourage savings.

"We have to make sure that the savings are prudently managed so that these members and their savings are protected. You have to be a little more careful with other people's more than you would if it was your own."

Shadow Works and Engineering Minister Patricia Gordon-Pamplin supported the legislation and said: "I can tell you that I had a family member who had an account at the credit union and I wasn't sure if that was the right move at the time. I said maybe you should put your money in a real bank and I was told this is the real bank of the people.

"I am very concerned that the money of the average people on the street is protected. I am pleased to be able to support the concept of it."

Opposition whip Cole Simons also supported the bill, praising it for its broad scope. "It covers licensing, the appointment of directors and several processes. Most interestingly, it went into solvency and liquidation requirements. They have done a magnificent job on this legislation."

While Mr. Simons questioned the desicion to not allow delegates by proxy, Ms. Cox said the decision was made to match international standards.

The Credit Union Act 2010 was passed by a unanimous vote.