FINANCIAL SECTOR ASSESSMENT PROGRAM UPDATE
TRINIDAD AND TOBAGO
CREDIT UNIONS
TECHNICAL NOTE
MAY 2020
This Technical Note was prepared by Jose Rutman (World Bank) in the context of the Financial Sector
Assessment Program in Trinidad and Tobago, led by Marius Vismantas, World Bank and Marc Dobler,
IMF and overseen by the Finance, Competitiveness, and Innovation Global Practice, World Bank Group
and the Monetary and Capital Markets Department, IMF. It contains technical analysis and detailed
information underpinning the FSAP’s findings and recommendations pertaining to Credit Union (CU)
Sector. Further information on the FSAP program can be found at www.worldbank.org/fsap and
http://www.imf.org/external/np/fsap/fssa.aspx
THE WORLD BANK
FINANCE, COMPETITIVENESS, AND INNOVATION GLOBAL PRACTICE
LATIN AMERICA AND THE CARIBBEAN REGIONAL VICE PRESIDENCY
TRINIDAD AND TOBAGO
CONTENTS
GLOSSARY............................................................................................................................................... 3
EXECUTIVE SUMMARY ............................................................................................................................ 4
Table of Key Recommendations .............................................................................................................. 7
I. MAIN FINDINGS .................................................................................................................................... 8
A. Description of the Credit Union sector ............................................................................................ 8
B. Legal and supervisory framework for CUs .................................................................................... 12
C. CUs´ Financial Safety Net (FSN) .................................................................................................. 15
D. Governmental initiatives related to the regulatory, supervisory, and institutional framework of CUs
......................................................................................................................................................... 16
II. RECOMMENDATIONS ......................................................................................................................... 18
Annex 1. Credit Union Sector Data ................................................................................................... 22
Annex 2. IICURN Principles for effective supervision of financial cooperatives ................................ 24
Annex 3. Proposed amendments on CSA prepared by CCD ............................................................... 26
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GLOSSARY
ACH Automated Clearinghouse
AGM Annual General Meeting
AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism
CBTT Central Bank of Trinidad and Tobago
CAR Capital Asset Ratio
CCD Commissioner of Co-operative Development
CCULTT Co-operative Credit Union League of Trinidad & Tobago Society Limited
CFF Central Finance Facility Co-operative Society Limited
CSA Co-operative Societies Act
CU Credit Union
CUA Credit Union Act
DIC Deposit Insurance Corporation
ECL Expected Credit Losses
ELA Emergency Liquidity Assistance
FIU Financial Intelligence Unit
FSN Financial Safety Net
ICATT Institute of Chartered Accountants of Trinidad and Tobago
ICURN International Credit Union Regulators Network
ILO International Labor Organization
MOF Minister of Finance
MOLSED Ministry of Labor and Small Enterprises Development
NPC National Policy on Cooperatives
NPLs Non-Performing Loans
OSFO Office of the Financial Service Ombudsman
P&A Purchase and Assumption
TTCUDIF Trinidad and Tobago Credit Union Deposit Insurance Fund Co-operative Society Ltd
TT Trinidad and Tobago
TTD Trinidad and Tobago dollar
USD United States dollar
WOCCU World Council of Credit Unions
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EXECUTIVE SUMMARY
Findings / Diagnostic
The Credit Union (CU) sector is concentrated and has a significant number (129) of institutions. Total
assets represent 4.5 percent of total financial sector assets and comprises around 600,000 members1 (45
percent of the adult population). The two biggest credit unions account for 26 percent of total assets and
around 40 percent of total members.
There are some hypotheses for the large number of CUs in Trinidad and Tobago (TT). It does not
appear to be related to the lack of financial service providers in the area where they operate. Other
explanations could be the low entry barriers, a lack of adequate prudential regulation and supervision, as
well as delays by Commissioner of Co-operative Development (CCD) in deregistering inactive CUs. The
lack of submission -by CUs- of their financial statements to the CCD could be related to difficulties in
complying with IFRS9, weak accounting and IT systems, lack of supervision and/or inactivity of the CUs.
Although the CU sector has three second-tier cooperative institutions2 that provide different types of
services, the sector shows low levels of integration (many CUs, especially the smaller ones, are not
members of these institutions).
CU sector’s loan portfolio is concentrated mainly in consumer loans. They are structured as a multiplier
of members´ shares, payroll deduction, car loans and mortgage loans. CUs have legal/regulatory limitations
to provide certain services (e.g. direct participation in the Automated Clearinghouse, issuance of credit
cards or international brand debit cards, among others) and cannot transform into a cooperative bank.
Although the biggest CUs have invested in technology and are able to provide some type of mobile banking
and digital finance service, the bulk of the CUs lacks this capacity and enough economy of scale to provide
those services, posing significant business and viability challenges for them.
The prudential and market conduct situation of the CU sector present weaknesses. There is evidence
of weak market conduct of CUs, reflected in the significant number of disputes presented by members of
CUs to the CCD which could be consequence of a weak or non-existent internal dispute resolution
mechanism as well as flaws in terms of transparency. The capital adequacy ratios (CARs) of CUs are (on
average) above 10 percent, non-performing loans (NPLs) present a mixed picture (with some CUs showing
figures above 20 percent), and the funding of CUs is concentrated in members’ share savings (rather than
deposits). Some CUs have expanded their loan portfolios quite aggressively through a relaxation of their
credit risk management, with a consequent impact on the level of loan delinquencies. Additionally, there is
no standardized definition of the delinquency rate.
The legal framework for CUs is outdated (from 1971) and has significant limitations for an
appropriate prudential regulation and supervision of the sector. It considers CUs in the same way than
other cooperatives, instead of having a specific treatment taking into account their characteristic of being a
deposit taking financial intermediary. CCD lacks enough authority, powers, and capacity to exercise
effective regulation and supervision of CUs. Additionally, the limited information on CUs makes it difficult
to assess the situation of the sector and of individual CUs.The CCD intervention on the settlement of
disputes between CUs and its members affect the well-functioning of the sector Other activities of CCD
include verification of formal aspects of the cooperatives (including the non-financial ones), participation
1
This figure is very preliminary and is calculated adding the individual data (provided by CCD) for each CU (it could
be the case than one person is member of more than one CU, although the legal framework does not allow it).
2
Cooperative Credit Union League of Trinidad and Tobago (CCULTT), Central for Financial Facility (CFF) and
Trinidad and Tobago Credit Union Deposit Insurance Fund (TTCUDIF).
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in meetings of the CUs, and advisory support (mainly to new cooperatives, although it also provides advise
while assisting to meetings).
The Financial Safety Net (FSN) for CUs is very limited and weak. The process of liquidation of a CU
after a winding-up order by CCD takes a long time, with negative impacts on the protection of members´
funds. The existing voluntary CU deposit insurance fund does not provide adequate protection for CU
members, it is not compulsory (not all CUs are member of it) and lacks the capacity to act well in advance.
Additionally, CUs have no access to Emergency Liquidity Assistance (ELA) from CBTT and there is no
effective alternative and comprehensive mechanism for the provision of liquidity to CUs under distress
situations.
There is general agreement among stakeholders (both from the public and private sector) that the
current CU regulation and supervision framework has serious deficiencies and its redesign and
strengthening are necessary. The regulatory and supervisory framework for CUs is not aligned to good
practices. CUs are financial institutions that take deposits (or savings in the form of member shares) and,
considering the risks involved in financial intermediation, should be covered by an appropriate regulatory,
supervisory, and FSN framework.
For the past decade, there has been different proposals to strengthen the regulation and supervision
of the CU sector. None of them reached a consensus on which agency should oversee the CU sector. In
2009 the CBTT prepared and disclosed a policy proposal under which the CBTT would perform the role of
the prudential regulator and supervisor while CCD would remain responsible for the
registration/deregistration and development of CUs. These proposals found resistance of most CUs. More
recently, the Minister of Finance’s 2020 Budget Statement made a reference to the creation of a new
supervisory agency for the cooperative sector (including CUs) reporting to the MOF as well as the creation
of a new deposit insurance fund for the CUs to be managed by the Deposit Insurance Corporation (DIC).
Additionally, a draft National Policy on Cooperatives (NPC) reinforces the concept of “one sector – one
regulator”, proposing to keep CCD as the only agency in charge of regulating and supervising the
cooperative sector. Finally, amidst the above-mentioned policy initiatives, an ad-hoc committee of three
ministries has recently reached an initial agreement with the cooperative sector for creating an independent
agency in charge of the prudential regulation, supervision, development and promotion of the entire
cooperative sector.
Recommendations
A new legal framework for the regulation and supervision of CUs should be developed urgently. The
model of “one sector, one regulator” (which currently applies to the entire cooperative sector) does not
reflect the different characteristics of financial versus non-financial cooperatives. There is a growing trend
in emerging markets to strengthen the CU oversight either through a dedicated unit within the banking
sector oversight/supervisory agency or through a specialized agency.
If the authorities were to pursue a new supervisory agency (instead of the CBTT) for the regulation
and supervision of CUs, it’s design should comply with specific characteristics to assure its
effectiveness. The first best approach for the regulation and supervision of the CU sector would be to
establish a dedicated CU supervision function at CBTT. However, if it is decided to have a new independent
agency, it should have operational independence; transparent processes; sound governance; adequate
resources (including the possibility to charge supervisory fees to CUs); legal protection for its staff;
authority and powers giving it a complete and unfettered access to CUs, their premises and records as it
considers necessary; and the legal capacity to share and receive information with/from other
regulators/supervisors while protecting the confidentiality of such information. In terms of governance, the
board of the new agency could include representatives of CBTT and MOF, as well as independent fit-and-
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proper members with skills and experience in banking, CUs, commerce, finance, and/or accounting. The
board should in no case include members nominated or appointed by the CU industry in order to avoid
conflict of interest and to follow good global practice for financial oversight agencies
Since all CUs would be subject to prudential regulation and supervision, a tiered (and proportional)
approach for the regulation and supervision of CUs is needed. It should include the type of operations
and financial services each category of CUs could provide as well as specific prudential regulation and
supervision that each category of CU should be subject to. This approach would be more effective and
better reflect the characteristics of the CU sector in TT.
An adequate sequencing is recommended for the instrumentation of the proposal. Once the regulatory
and supervisory authority is transferred to the new agency, it will have to hire and train staff, approve a new
set of prudential regulations under the new legislation, and elaborate appropriate supervisory arrangements.
A full system-wide diagnostic of the CU sector should be performed as soon as possible. This diagnostic
would help assess the situation of the CUs, including their gaps with the future regulatory requirements,
and would be useful for the calibration of the regulatory framework, the definition of the transitional period,
and the support to be provided to the sector. It would also allow for a better calibration of the new
proportional regulatory framework and the determination of the transitional period of its full entry into
force, as well as the start of the new mandatory CU deposit insurance scheme.
The introduction of a mandatory deposit insurance requires an upfront strengthening of the CU
sector. The CU deposit insurance fund could be managed by the current DIC but should be separated from
the current fund for banks and other non-bank financial institutions. Complementarily, an effective
mechanism for the provision of emergency liquidity assistance (ELA) to CUs should also be introduced.
Finally, the resolution and wind-up regime for CUs should be reformed under the new legislation. There is
a need to clearly specify the hierarchy of claims for CUs (where deposits and members’ share savings
should be preferred), as well as to include the possibility of voluntary winding up. The legal framework
should establish the subrogation of the rights of deposits and members’ shares in favor of the DIC in a
wind-up. The process of deregistering an inactive CU should be simplified and shortened. The role of the
CU supervisor and the DIC in the resolution and liquidation process of a CU should be clearly laid out.
Powers to implement a P&A transaction could be introduced in the legal framework, with the CU deposit
insurance fund able to contribute to a P&A on a least cost basis3.
3
The least cost is defined as the maximum contribution of DIC to balance assets and liabilities to be transferred from
the failed CU to the “receiver” CU. Is calculated as the amount that DIC would have had to pay for the insured deposits
net of the expected recovery via the liquidation process (some jurisdictions do not take into account in the calculation
the expected recovery).
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Table of Key Recommendations
Responsible
Recommendations Time
Authorities*
1 Develop a specific legal framework for the regulation and MOF, CBTT ST
supervision of CUs, including a new CU Supervisory
Authority
2 Ensure independence of the of the new CU supervisory MOF, CBTT ST
agency and assign a clear mandate, responsibilities and
objectives as well as powers and resources
3 Reinforce the legal framework for CU´s safety net, MOF, CBTT ST
introducing a deposit insurance fund, improved
resolution/wind, and provision of emergency liquidity
assistance.
4 Carry out a full diagnostic of the CU sector by CCD, CBTT ST
independent experts.
5 Design and implement a consolidation (merge, absorption, CCD, CCULTT, ST
wind out) and technical support strategy for the CU sector TTCUDIF, New CU
Supervisory Authority
6 Set up the New CU Supervisory authority. Hire and train New CU Supervisory NT
staff, establish the structure, supervisory procedures, Authority, CBTT, MOF
budget.
7 Approve a new set of prudential (and market conduct) New CU Supervisory NT
regulations, define a transition period, monitor CUs during Authority, CBTT, MOF
it and take actions on the non-compliance CUs
8 Set up a deposit insurance fund, where CUs become DIC, New CU NT
member at the end of the transition period and only if they Supervisory Authority,
comply with regulatory requirements MOF
* Short Term (ST) = within one year; Near term (NT) = 1–3 years
* Authority/institution with primary responsible for implementation of a recommendation is noted in bold.
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I. MAIN FINDINGS
A. Description of the Credit Union sector
1. The Credit Union (CU) sector is concentrated and has a significant number of institutions .
There are 129 CUs registered with the Commissioner for Cooperative Development (CCD), with total assets
of TTD 16.8 billion (around 4.5 percent of total financial respectively. There are 13 CUs with more than
TTD 300 million in assets, representing 69 percent of total assets of the sector, while there are 55 CUs with
assets below TTD 10 million and total assets of just one percent of the sector. The sector is composed by
open bond (anyone can become a member) and closed bond CUs. Closed bond CUs have only members
with certain commonalities such as religion, vocation, employment in a company or sector (e.g. electricity,
telephone, airport, public servant), profession (e.g. doctors, teachers), or cultural heritage. Out of the 20
biggest CUs (with total assets of TTD 13.4 bn), 11 CUs (with total assets of TTD 8 bn) are open bond (see
Figure 1).
Figure 1: Classification of the 20 biggest CUs in open and closed bond
Type of CUs Number Assets in TTD bn
Open-bond 11 8.9
Closed-bond 9 4.5
Total 20 13.4
Source: own elaboration based on CCD and CU´s annual reports/webpages.
2. The relatively high number of CUs in the country does not appear to be related to the lack of
financial service providers in the area where they operate. Trinidad and Tobago (TT) has a substantial
number of CUs and members in comparison with other Caribbean countries (see Annex 1). The biggest CU
has one third (around 200,000 members) of the total members of the CU sector. Additionally, although
there are no reliable statistics, many of the CUs´ members are also likely to have a bank accounts or be
members of another CU4. While no spatial/locational analysis of CUs has been done by the authorities to
explore if they operate in similar areas among them and other financial providers (e.g. banks), the
discussions with the industry and regulators do not suggest that the main driver for the high number of CUs
is a lack of presence of financial providers in various areas around TT.\
3. Low entry barriers, a lack of adequate prudential regulation and supervision, as well as
delays by CCD in deregistering inactive CUs might partially explain the high number of CUs. The
minimum “formal” requirements to register a CU facilitate the opening of new, very small CUs (which in
many cases, have low probability of being viable from the very beginning due to the lack of clear business
plans, enough capital and economy of scale, among others). The high number of CUs not being able to
prepare their annual audited financial statements be of being generally inactive is indicative of the
difficulties many CUs face in continuing their operations. The future introduction of prudential regulations
(even if proportional) and supervision commensurate with the status of deposit-taking financial
intermediaries would pose a challenge to small and medium-sized CUs which would have to reconsider the
pros & cons of staying in business. There have been very few mergers or consolidations of CUs.
4
Although the Co-operative Societies Act (CSA) establishes that no person may be a member of more than one CU,
it is very difficult for both the CU and the CCD to verify it; additionally, there are many CUs “open” (that are not
composed by employees of a certain company, or related with a certain activity) that allow to be a member with no
restriction (other than acquiring the minimum members shares.
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4. Many CUs do not submit their regulatory financial statements. Only 61 CUs have presented
their audited financial statements for 20195 or 2018 (see Figure 2); for another 26 their last financial
statements date back to 2017. These delays (and in many cases lack of reporting) are more significant in
the very small CUs (assets below TTD 10 million) where only 15 out of the 55 CUs (27 percent) have
updated financial statements. The small and medium size CUs (assets between TTD 10 million and TTD
300 million) also present a high percentage of CUs (around two third) with outdated information. The lapses
in reporting may be related to CUs facing difficulties and challenges in complying with IFRS9 accounting
standards, weak accounting and IT systems, lack of an effective supervision and insistence by the supervisor
on reporting compliance, and/or inactivity of the CUs. Although there are no figures and there is no
definition of inactivity, it is estimated that around 40 to 50 CUs might be inactive (they do not perform
transactions).
Figure 2: Status of CU annual financial statements
CU asset Total Share in % CUs with updated financial statements
size number of total CU (2018-2019)
of CUs assets
Number of CUs Share of the size cohort
Over TTD 300 million 13 69 12 92
TTD 100-300 million 20 23 14 70
TTD 10-100 million 33 7 20 61
Below TTD 10 million 5 1 15 27
No data 8 0 -- --
TOTAL 129 100 61 47
Source: own elaboration based on CCD information.
5. The CU sector shows low levels of integration. The sector has three apex entities, acting as
second-tier cooperative institutions6, that provide different types of services to their CU members (advocacy
for the sector, training, liquidity management, deposit insurance, etc.), The Co-operative Credit Union
League of Trinidad & Tobago Society Limited (CCULTT) is one such second-tier institution (with 32 CUs
as members) which, in addition to advocacy and training, also performs internal audit function for some
CUs, provides technical assistance for mergers/consolidation of CUs, and training on compliance with Anti-
Money Laundering/Combating the Financing of Terrorism (AML/CFT) regulations. CCULTT is planning
to provide accounting services (IT support, accounting software) and human resources training to small
CUs. The Central Finance Facility Co-operative Society Limited (CFF) provides financial services and
training to its members (currently 29 mostly large and medium size CUs) The primary objective of CFF is
to manage the excess liquidity of CUs by securing competitive investments; it also provides mortgage loans
to individual members of the CUs as well as short-term institutional loans to the CUs. The Trinidad and
Tobago Credit Union Deposit Insurance Fund (TTCUDIF) is the third such second-tier institution.
6. The apex entities present room for improvement in order to play a significant role in the
strengthening and consolidation of the of CU sector. There are some overlaps in the activities the 3 apex
entities carry out (for example, in terms of training), with very little dialogue, coordination and interaction
among them. Likewise, some key services (e.g. centralized IT system and accounting information) that
would reduce costs and make CUs viable are not being provided (although there are some projects to do
so). Not all CUs have a good image of the apex, which is reflected in the fact that many are not members
5
2019 corresponds to CUs where their financial statements are as of March 2019.
6
A second-tier cooperative institution could be defined as a cooperative whose members are other of cooperatives (a
“cooperative of cooperatives”). This type of institution typically provi des training, advocacy, and other advisory
services to their members.
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of them. Large and medium size CUs have a higher proclivity for membership in these three institutions,
although only a few CUs are members of all three institutions (Figure 3).
Figure 3: CU membership in TTCUIDF, CFF, and TTCUL
Number Share in % of the size of each cohort
Total TTCUDIF CFF CCULTT All TTCUDIF CFF CCULTT All
number (the 3 (the 3
of CUs of of
them) them)
Over TTD 300 million 13 7 8 8 1 54 62 62 8
TTD 100-300 million 20 11 13 12 6 55 65 60 30
TTD 10-100 million 33 12 7 10 2 36 21 30 6
Below TTD 10 million 5 3 1 2 5 2 4 0
No data 8
TOTAL 129 33 29 32 9 26 22 25 7
Source: own elaboration based on CCD information.
Characteristics of CU financial services
7. CU sector’s loan portfolio is concentrated in consumer loans and some of the CUs have
exposures to non-financial investments. All CUs offer credit lines as a multiplier of the individual
members shares, the latter are pledged as collateral for the loan (the multiplier factor for the loan is,
generally, between 2 and 3 times the shares). Some CUs, especially the closed-bond CUs (e.g. link to a
company, public servants, among others) recover their loans through payroll deductions of the members.
Other credit products are vehicle loans as well as mortgage loans; the latter are provided mainly by the
largest CUs. While some CUs have non-financial investments (such as real estate investments) as part of
their assets, others have the non-financial business separate from the mainstay CU activities.
8. CUs by their nature and due to the legal framework7 are limited in provision of some financial
services provided by banks; the possibility of transforming into cooperative banks is not
contemplated in the legal framework. CUs cannot participate directly in the Automated Clearinghouse
(ACH) and as such, have to rely on commercial banks for clearing and settlement. A settlement account
with the CBTT is one of the key requirements for the ACH membership, which CUs are not able to fulfill.
One CU is a direct member in LINX, a local debit card switch, enabling the CU to issue LINX debit card.
Its cardholders can use it to make payments at LINX-connected physical points-of-sale (POS) locations as
well as withdraw cash from ATMs. Since the clearing files are settled in the CBTT and, given that the CU
does not have a settlement account, it does have to rely on a commercial bank to do the settlement on its
behalf for the transactions conducted by holders of LINX cards issued by the CU. The CUs are also not
able to issue credit cards or international brand debit cards. Moreover, foreign exchange operations require
having a bureau-of-exchange license from CBTT (only one CU has it), yet even with a license, remittance
operations must be carried out only in cash. Although some stronger CUs would be able to comply with the
regulations and supervision applicable to banks, the current legal framework does not contemplate the
possibility of a CU applying to the CBTT for a bank license while maintaining its cooperative nature.
9. Although the biggest CUs have invested in technology and are able to provide some type of
mobile banking and digital finance service, the bulk of the CUs lacks this capacity and enough
economy of scale to provide those services, posing significant business and viability challenges for
7
For example, the Bills of Exchange Act Chap. 82:31 refers to a bill payable to order on demand being drawn on a
“banker”; since CCU’s do not meet the definition of “banker” they cannot issue or participate in cheque clearing.
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these CUs. Although CUs have a long tradition in TT, the younger generations of members expect access
to financial services to be provided in novel, more efficient and speedy ways using modern technologies.
In that regards, although some of the biggest CUs are providing mobile banking and home banking services,
the smaller ones face a significant challenge on this front due to their low scale and costs associated with
technology adoption. Some CUs are experiencing aging membership which may be preventing them from
attracting new, younger members.
10. There is evidence of weak market conduct of CUs. The significant number of disputes presented
by members of CUs to the CCD reflect weak or non-existent internal dispute resolution mechanisms within
the CUs as well as flaws in terms of transparency. Importantly, full transparency to members is lacking on
the restrictions/conditions of withdrawal of their savings in the form of member shares – the main funding
product of CUs-. This poses a risk of access to funds for members as well as reputational risk to CUs
(considering members’ expectation that their savings would be available immediately/on a very short
notice). On the other hand, if CUs decide to promptly pay back their member´s share savings, they might
face a liquidity distress situation. Finally, there is no market conduct regulation or supervision in place for
CUs, other than intervention of CCD in dispute settlements established in CSA8.
Solvency, liquidity, and quality of the loan portfolio of CUs
11. The capital adequacy ratios (CARs) of CUs are (on average) above 10 percent, non-
performing loans (NPLs) present a mixed picture, and the funding of CUs is concentrated in
members’ share savings (rather than deposits). The average CAR (defined as Institutional Capital over
Non-Risk Weight Total Assets) for the system is 11 percent, with no significant CU size-based variations.
There is no standardized definition of delinquency rate (NPLs) and only some CUs include them in their
financial reporting; according to available information (obtained through financial reports and other data
from individual CUs), the delinquency rates range from 2 percent to 20 percent or more. In the case of the
five biggest CUs, only two of them have NPL ratios below 5 percent and the other three show ratios above
10 percent. NPLs are higher in open-bond CUs compared to closed-bond CUs. The low quality of the CU
sector’s loan portfolio is associated with weak loan underwriting procedures (aggressive lending,
ineffective loan recovery process). As for liquidity, the main funding source is members’ share savings,
which represent 87 percent of the CUs’ funding (see Figure 4). The returns on members’ share savings are
a function of the distribution of dividends; the annual returns of the members´ share saving were around 4
to 7 percent in the past few years, well above the annual return (annual interest rate) on deposits. There
used to be (it is no longer in force) a tax incentive favoring members’ share savings versus deposits, which
may partially explain the current funding structure (concentrated in member´s share savings).
8
The Consumer Protection and Safety Act does not explicitly contemplate financial services, and the Consumer
Affairs Division at the Ministry of Trade and Industry would not be covering financial services. The Office of the
Financial Service Ombudsman (OFSO) only covers complaints from clients of banks and insurance companies.
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Figure 4: CUs´ capital adequacy ratios and composition of funding
CU asset size Total Share in % of Ratio of Members´ share
number total CU Institutional saving / Total
of CUs assets Capital / non Risk funding (%)
Weight Assets (%)
Over TTD 300 million 13 69 10 86
TTD 100-300 million 20 23 11 87
TTD 10-100 million 33 7 13 89
Below TTD 10 million 5 1 18 97
No data 8 0
TOTAL 129 100 11 87
Source: own elaboration based on CCD information.
12. The possibility to withdraw the member shares and the expectations of the members to get
them on a short notice pose a liquidity and reputational risk to CUs. According to the CSA, “a member
may withdraw any portion of his share capital not otherwise pledged to the society on demand except that
the Board may require notice for a period not exceeding six months”. The possibility of withdrawal on
request of the member shares justifies accounting of these instruments as liabilities (rather than equity
capital) on the CUs´ balance sheets. There are divergences among CUs in terms of how these liabilities
should be considered from a liquidity risk point of view: some allocate them in the last time bucket (of their
liquidity gap analysis) presuming they are stable while others consider them as site/demand liabilities. CUs
do not have a transparent policy for the reimbursement of their member shares. Under stressful situation
CUs may face a dilemma: if they payback the member share in advance of the six month period would
experience a liquidity distress; but if they do not pay them shortly after the member´s request they could
face reputational risk since most members would have had the expectations of receiving them soon after
the request.
13. Some CUs have expanded their loan portfolios quite aggressively through a relaxation of their
credit risk management, with a consequent impact on the level of loan delinquencies. Although there
is no reliable data available, meetings with CUs revealed that some of them had implemented aggressive
lending policies during the past few years to gain market share without adequate credit risk management
(weak credit risk assessment, monitoring, and loan recovery). This approach has caused an increase in the
delinquency rate of some CUs, reaching, in some cases, double-digit figures. The deterioration appears to
be more intense in the open-bond CUs. Finally, with the objective to expand the number of members, some
closed-bond CUs have been relaxing their membership requirements.
14. The framework for determining and monitoring the level of delinquency rates of the CUs´
loan portfolios is generally weak. There is no standardized definition of the delinquency rate (e.g., 30 or
90 days in arrears). Furthermore, not all CUs report delinquency rates in their annual financial statements.
External auditors have faced some limitations in accessing the CUs´ prudential data/reports for the
calculation of Expected Credit Losses (ECL) following the introduction of IFRS9. Finally, CCD does not
require reporting of, nor monitors at any regular intervals the delinquency rate of CUs.
B. Legal and supervisory framework for CUs
15. The legal framework for CUs is outdated and presents significant limitations for an
appropriate prudential regulation and supervision of the sector. CUs, as well as other types of
cooperatives, are governed by the CSA, dating from 19719. The CSA considers CUs in the same way as
9
There were several - albeit not relevant- amendments (the last one was in 1993).
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other cooperatives, instead of having a specific treatment taking into account their characteristic of being a
deposit taking financial intermediary10. CUs should be subject to prudential regulation and supervision, in
line with the characteristics and risks of this type of institution. The Commissioner of Co-operative
Development (CCD), within the Ministry of Labor and Small Enterprises Development (MOLSED) is in
charge of the registration and supervision of CUs, as well as non-financial cooperatives. CCD does not have
a specific mandate for the protection of members´ savings in CUs. The requirements for registering a CU
are very basic and formal (e.g. a minimum of only twelve members to form a CU, no feasibility analysis is
performed). While some aspects of prudential regulation are included in the CSA (e.g. all CUs must have
their annual financial statements audited by one of the external auditors listed by CCD; a fraction of the
annual results are required to be kept as reserves), there are no prudential requirements for risk management,
internal control, technical capacity and expertise of board members and managers, minimum capital,
liquidity standards, maximum exposure, or participation in non-financial investment.
16. CCD lacks sufficient authority, powers, and capacity to exercise effective regulation and
supervision of CUs. The CSA contains several weaknesses which limit the regulatory and supervisory
capacity of CCD: (a) it does not provide the possibility to issue prudential regulations and reporting
requirements; (b) the enforcement effectiveness is limited by outdated fines by consideration of offences
as criminal (for which the bar of proof is much higher and more complicated) rather than administrative;
(c) limits the possibility for CCD to interact directly with external auditors; (d) does not contemplate fit-
and-proper requirements for board members and supervisory committee, as well as for the general and other
key managers; (e) imposes on CCD a responsibility for the settlement of disputes, which encourages the
presentation of them (e.g. a member has the incentive to send a complaint to CCD since the recovery process
-by the CU- of its loan that entered into arrears is stopped until CCD resolves on the dispute); CCD has
shown severe limitations to settle these disputes11. The CCD staff has limited expertise to perform adequate
prudential supervision; the process of collecting, storing, and sharing information is inefficient (mostly in
paper form), making it difficult to perform even the basic individual, aggregate, and comparative analysis
of CUs.
17. The failings of the current legal, regulatory, and supervisory regime were exposed following
the high-profile bailout of depositors of a failed CU in 2008. The failure was caused by CU’s investments
in subsidiaries (including non-financial companies) and real estate, funded by loans from the CU. The
official enquiry12 highlighted the failure of the CCD to enforce regulatory requirements and monitor
investments in subsidiaries, and its inadequate supervisory powers. The failure of successive governments
to introduce legislative reforms to establish an effective regulatory regime for credit unions was also cited.
18. The limited information on CUs makes it difficult to assess the situation of the sector and of
individual CUs. Only 61 CUs (out of 129 total), representing 2/3rds of total assets of the sector, are up to
date13 in presenting their audited financial statement for 2019 or 2018. CUs have been converging to IFRS
9, although this is not an explicit requirement by CCD14 and not all CUs have been able to comply so far.
The financial data is provided in paper form or scanned documents; in preparing sector reports CCD has to
enter manually the most relevant balance sheet data, demanding significant human resources as well as
posing a high risk of errors. CCD does not require any type of information with a greater frequency (e.g.
10
The financial intermediation implies the management of resources (deposits and savings) from the public (members)
and is associated with specific risks (liquidity, solvency, credit, operational, interest rate) that have to be well managed
for the sustainability and viability of the CUs and the safe of the members´ savings.
11
As of December 2019, CCD had 4,752 disputes awaiting hearing and determination.
12
http://www.ttparliament.org/documents/2243.pdf
13
They have presented audited financial statement for either 2018 or 2019.
14
The Institute of Chartered Accountants of Trinidad and Tobago (ICATT) has established that, since CUs are of
public interest, all of them have to prepare their financial statements under IFRS 9.
13
TRINIDAD AND TOBAGO
quarterly or monthly) nor does it analyze any prudential aspects or ratios on loan portfolio quality (e.g.
delinquency rates), levels of provisioning related with non-performing loans, profitability and efficiency,
among others. The lack of information in a timely and effective manner makes it impossible for CCD to
monitor the sector and the individual CUs, to detect risks and weaknesses at an aggregate and individual
level in advance, and consequently to be able to take prompt corrective/remedial measures. The lack of
information makes the CBTT’s financial system stability analysis much more difficult and also prevents
CUs from having usable and useful sector information for benchmarking of their performance.
19. The CCD intervention on the settlement of disputes between CUs and its members affect the
well-functioning of the sector. CSA mandates intervention and resolution by CCD of disputes between
the CU and its members. There are around 5,000 disputes pending to be settled by CCD, 90 percent of them
related to delinquent loans, affecting the loan recovery process. The legal framework has distortions that
exacerbate the number of disputes (e.g. it does not contemplate costs for the referral and/or adjudication of
disputes, increasing the incentive for the delinquent borrowers to start disputes) and delay the settlement.
20. Other activities of CCD include verification of formal aspects of the cooperatives (including
the non-financial ones), advisory support to new cooperatives, and participation in meetings of the
CUs. The CSA mandates intervention of the CCD in operational matters of CUs, e.g. approval of each
individual mortgage loans15, adjustments to CU by-laws or launch of new financial products. CCD
substantively hand-holds a new CU during its first two years, taking a “developmental role”, afterwards
CCD relies primarily on annual financial statements audited by external auditors combined with ad-hoc on-
site inspections. CCD does not interact directly and fluently with the external auditors (it receives the
management letter of them); in some cases, CUs do not share management letters of the external auditors
with CCD. However, technical officers of the CCD participate in some of the Annual General Meetings
(AGM) of CUs, as well as in Board and Supervisory Committee meetings.
21. The resources assigned by CCD to prudential supervision are scarce; its staff lacks specific
training and specialization. Although CCD´s total staff is around 80 (of which 66 are technical officers),
none of them has specific training and expertise for performing prudential supervision of financial aspects
of CUs. The enforcement and sanction capacity of CCD is limited since there is no ladder mechanism in
place for sanctioning. Penalties for non-compliance are considered criminal (instead of administrative fines)
which results in protracted periods of enforcement and the amount of the fines are outdated.
22. CUs are subject to AML/CFT regulations, enforced by the Financial Intelligence Unit (FIU)
of MOF. Compliance with the AML/CFT regulations has been challenging for some CUs, especially the
smaller ones. The requirement of having a compliance officer as well as the documentation of due diligence
of their members represent meaningful costs to them. Many CUs have been receiving training on AML/CFT
by second-tier cooperatives, such as CCULTT, who performs a type of external audits of the CUs to check
their level of compliance with the AML/CFT requirements and suggest needed adjustments before the CUs
are formally supervised by FIU.
15
The CSA (article 43) established that a society (cooperative) may not, save with the consent in writing of the
Commissioner, lend its money on mortgage of real property. This has been interpreted by the CDD that each mortgage
loan needs their approval.
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C. CUs´ Financial Safety Net (FSN)
23. The FSN16 for CUs is very limited and weak. The CU sector in TT does not have an appropriate
and effective regulatory and supervisory framework, which is a precondition for setting a strong FSN for
the sector. There is no compulsory deposit insurance in place, the CBTT is not allowed to provide
emergency liquidity assistance to CUs, and the CU resolution and liquidation process presents several
weaknesses.
24. The process of liquidation of a CU after a winding-up order by CCD takes a long time, with
negative impacts on the protection of members´ funds. CCD has the power to require the wind-up of a
CU and to assume it as its liquidator. The delays during the procedure for winding up and the challenges
CCD faces in preserving the value of the assets (e.g. no possibility to issue cease-and-desist orders or freeze
bank accounts of the CU) have resulted in the demise of the members’ savings before the process is
completed, a loss of asset value leading to a loss for members and reduced confidence in the cooperative
sector in general17. Additionally, there is no clarity in terms of the hierarchy of claims; members’ share
savings, the main saving instrument of CUs´ members, might be considered as subordinated. There is no
subrogation of rights of members to the (voluntary) deposit insurance fund in case it proceeds to the payout
of insured deposits. The resolution process does not explicitly include the purchase and assumption (P&A)
process. There are no prescriptions in the CSA for voluntary winding up.
25. The existing voluntary CU deposit insurance fund does not provide adequate protection for
CU members. The TTCUDIF is a second-tier cooperative. However, only 33 CUs representing around 50
percent of total assets of the sector are members as membership is on a voluntary basis (the two largest CUs
decided not to participate in it).18 To become a member, CU has to present financial statement at least for
the past three years and show satisfactory prudential indicators. TTCUDIF has a staff of four plus the
manager. It performs basic off-site supervision (using the annual audited financial statements and PEARLS
indicators19 as benchmark) and occasional on-site inspections of their members, facing challenges when
having to enforce corrective measures. It has a total capital of TTD 71 million (representing 1.1 percent of
total members´ share savings and deposits of the CU members20) and the coverage is (net of loans) up to
TTD 50,000 for deposits and TTD 125,000 for members’ share savings. In case of failure of a CU which is
a member of TTCUDIF, the payout of the value of the insured deposits and members’ share savings (net of
the loans) is done only once the liquidation process has finished, which might take years. TTCUDIF covers
the difference between the legally mandated maximum coverage and what has been paid from the
liquidation, since the rights of the members of the CU cannot be subrogated. The latter imposes long delays
for the member before receiving the insured deposit or member share savings if the CU fails, eroding
confidence in the deposits insurance system and deviating from good practice (the main objective of any
deposit insurance scheme is to assure depositors that they will be paid out/have access to their savings in a
very short period of time, measured in days, after a failure of an insured institution. TTCUDIF has paid out
the guarantee in only one occasion (fully covering the saving of the members of the failed CU, except one
member with large savings in the CU) and has granted liquidity credits to some CUs (TTCUDIF can provide
16
FSN can be defined as a set of instruments and institutions whose main objective is to preserve the financial stability
and mitigate the effects of failure of individual financial institutions over the financial markets and the real economy.
The three main components of the FSN are: emergency liquidity assistance, resolution, and deposit insurance.
17
In the last 10 years around 5 CUs have been wound up.
18
They were not interested in the membership due to their size (too big for the fund’s capacity to pay o ut their
insured deposits and members’ share savings) and relative lack of influence on the fund’s governance
19
PEARLS is a financial performance monitoring system structured as a set of indicators and benchmarks, created
by World Council of Credit Unions (WOCCU).
20
This calculation with no netting might be underestimating the real figure, since the coverage is for deposits and
members’ shares savings net-of-loans they may have with the CU.
15
TRINIDAD AND TOBAGO
emergency liquidity up to five percent of the total capital of the fund). It also provides training to its
members.
D. Governmental initiatives related to the regulatory, supervisory, and institutional framework of
CUs
26. There is general agreement among stakeholders that the current CU regulation and
supervision framework has serious deficiencies and its redesign and strengthening are necessary. It
is not aligned to good practices21 in aspects such as, for example, supervisory powers (lack of clearly defined
responsibilities and objectives, operational independence, sound governance, adequate resources),
supervisory reporting, supervisory approaches, techniques and resources; and corrective and remedial
powers. Likewise, the licensing process, risk management, and prudential requirements are very weak or
non-existent. CUs are financial institutions that take deposits (or savings in the form of member shares)
and, considering the risks involved in financial intermediation, should be covered by an appropriate
regulatory, supervisory, and FSN framework.
27. For the past decade (since the failure of Hindu Credit Union), stakeholders have been
discussing different alternatives and designs to strengthen the regulation and supervision of the CU
sector, without reaching a consensus on which agency should oversee it . In 2005, Cabinet agreed that
the financial activities of all CUs will be supervised by CBTT and the supervision of all developmental and
governance issues would be retained by the CCD; Cabinet also mandated that the CSA be amended to
reflect this change and that a Credit Union Act (CUA) be drafted In 2009 the CBTT prepared and disclosed
a policy proposal for the CU sector under which the CBTT would perform the role of the prudential
regulator and supervisor while CCD would remain responsible for the registration/deregistration of CUs,
supervision of aspects related to the functioning as a cooperative institution, settlement of disputes, and
development of the CU sector. The document also described the prudential regulations that should be put
in place, including their rationale. This document was complemented by a draft of a CUA prepared in 2011
and updated in 2014. CBTT had several meetings with stakeholders to explain their proposal for the
regulation and supervision of the CU sector.
28. The proposal of establishing the regulation and supervision responsibility of CUs at CBTT
found strong resistance from the apex entities of the CU sector and most CUs (with the exception of
some of the largest ones). The opposition to have the CBTT in charge of the regulation and supervision of
CU was based on the presumption that the CBTT was going to regulate and supervise them in the same
way as banks, without considering specific aspects of CUs as cooperatives, generating a negative impact
on the sector as a result. Likewise, the CBTT would have the challenge of having to carry out the oversight
of institutions with some characteristics different from the banks (calling for a new skill set) as well as a
significant number of small and weak CUs, with a potential reputational impact on CBTT in case of CU
failures. Neither the policy for CUs nor the draft CUA prepared by CBTT have been adopted.
29. The MOF’s 2020 Budget Statement -published in October 2019- made a reference to the
creation of a new supervisory agency for the cooperative sector (including CUs) reporting to the MOF
as well as the creation of a new deposit insurance fund for the CUs to be managed by the Deposit
Insurance Corporation (DIC). The statement mentions that “after extensive discussions with the CU
movement, it is proposed to create a new independent authority to govern the cooperative sector. This new
entity will be the regulator of financial cooperatives and report to the MOF. After the new entity is
established, financial credit unions will now be able to offer banking or quasi-banking services, such as
21
See Annex 2 for a summary of the “Guiding Principles for Effective Supervision of Financial Cooperative
Institutions (ICURN), 2018.
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TRINIDAD & TOBAGO
encashment of cheques and teller services. The Deposit Insurance Corporation will be required to maintain
a fund to meet any emerging liabilities of the sector”.
30. A draft National Policy on Cooperatives (NPC) reinforces the concept of “one sector – one
regulator” and its opposition to involve the CBTT in the supervison of CUs. It proposes to have only
one independent agency in charge of regulating and supervising the cooperative sector (with no clarification
if that agency would be CCD or another one), as well as for its development, and lacks any specific
reference to the need to establish prudential regulation and supervision for the protection of the savings of
members of CUs (only make a general reference to have a robust regulatory framework for the whole
cooperative sector). The MOLSED is leading preparation of the document (which has been under
consideration for several years) as well as the consultation process with the cooperative sector and other
areas of the government. The draft makes several references to standards on cooperatives from the
International Labor Organization (ILO) but there is no mention or reference to principles related to the
supervision of CUs (considering CUs just as one of the several types of cooperatives). The document does
not mention explicitly the creation of an independent agency (cited in the MOF´s 2020 Budget Statement).
The approval of this version of the NCP might define the institutional and legal approach to be adopted,
including the regulation and supervision of the CU sector (jointly with non-financial cooperatives) as well
as of the development of the sector under the same agency.
31. Furthermore, the MOLSED has prepared, in consultation with the cooperative sector, a draft
document for the amendment of the CSA. The main areas identified for amendments are: (a) regulation
and supervision, including financial supervision; (b) governance and leadership; (c) dispute resolution
process; and (d) audit and liquidation. The document does not propose in detail any changes in the
institutional framework (i.e., apparently keeps CCD as the single agency in charge of the entire cooperative
sector, and there is only one reference to having a fully resourced, efficient, strong and independent
regulatory body with no further explanation or elaboration of the proposal). Although several aspects
considered in the draft proposal address some of the weaknesses of the legal framework with regard to
regulation and supervision of the CUs, it is not sufficiently comprehensive. For example, it does not mention
fit & proper aspects in the governance of CUs, there is no specific chapter for CUs as financial
intermediaries and therefore distinct from other types of cooperatives, and the reference to the power to
issue prudential/reporting standards is vague with no mention of the type of regulation or application to
CUs (see Annex 3 for a detailed description of the changes proposed).
32. Amidst the above-mentioned policy initiatives, an ad-hoc committee of three ministries has
recently reached an initial agreement22 with the cooperative sector for creating an independent
agency in charge of the prudential regulation, supervision, development and promotion of the entire
cooperative sector. The ministries involved are Public Utilities, Trade & Industry, and Finance. The new
independent Authority would govern and regulate both the financial and non-financial cooperative sectors,
report to the MOF, and comprise seven board members as follows: three members nominated by the co-
operative sector and four members appointed by the government. The chairman of the board is to be
appointed by the Government. Apparently, this new independent agency would replace the CCD.
22
This is an on-going process. Final agreement on the structure, mandate, powers and other features of this new
independent agency has not been reached yet.
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TRINIDAD AND TOBAGO
II. RECOMMENDATIONS
33. A new legal framework for the regulation and supervision of CUs should be developed
urgently. There was general agreement by all stakeholders on the need to strengthen the regulatory and
supervisory framework of the CU sector. It was recognized that financial intermediation by deposit-taking
CUs encompasses higher and specific risks compared to other type of cooperative activities and should
therefore subject CUs to prudential regulation and effective supervision akin to other financial
intermediaries.
34. The model of “one sector, one regulator” which currently applies to the entire cooperative
sector does not reflect the different characteristics of financial versus non-financial cooperatives.
Furthermore, the current model mixes developmental and regulatory/supervisory mandates under the same
agency leading to competing priorities and conflicts of interest. A dedicated legal framework for CUs
should be clear in defining an authority in charge of prudential regulation and supervision of CUs separately
from the non-financial cooperatives. All other aspects not related to prudential regulation and supervision
of CUs, including development policies of the sector and the settlement of disputes (the latter should be
limited only to the ones related to membership issues and cooperative behavior of the CU23), should remain
within the mandate of CCD.
35. There is a growing trend in emerging markets to strengthen the CU oversight either through
a dedicated unit within the banking sector oversight agency or through a specialized agency. There
are different models, but all of them rely on a clear mandate, independence, powers, resources, and technical
capacity of the institution that is in charge to carry it out. Some countries choose to include CU supervision
under the orbit of the central bank (Brazil, Albania, Belize, Bahamas), others under the
regulators/supervisors of banks and financial entities (Peru, Poland, Mexico), while others have created a
specialized agency for supervising CUs (Colombia). In no case the institutions in charge of the supervision
of CUs include in their mandate development, promotion and support of the sector.
36. The authority in charge of prudential regulation and supervision of CUs should be an
independent agency assigned with clear responsibilities and objectives as well as powers and tools to
fulfill them. CBTT is best placed to fulfill such a mandate, certainly in the near term, as it has the expertise
for supervising deposit-taking financial intermediaries. Replicating such expertise in a new supervisory
agency which would report to MOF would take time, duplicate resources in a resource-scarce environment,
and require additional governance safeguards to ensure independence of the supervisor. The first best
approach would be to establish a dedicated CU supervision function at CBTT. However, if the authorities
were to pursue a new supervisory agency (instead of the CBTT) it would need to have operational
independence; transparent processes; sound governance; adequate resources; legal protection for its staff;
authority and powers giving it a complete and unfettered access to CUs, their premises and records as it
considers necessary; and the legal capacity to share and receive information with/from other
regulators/supervisors while protecting the confidentiality of such information. In terms of governance, the
board of the new agency could include representatives of CBTT and MOF, as well as independent fit-and-
proper members with skills and experience in banking, CUs, commerce, finance, and/or accounting. The
board should in no case include members nominated or appointed by the CU industry in order to avoid
conflict of interest and to follow good global practice for financial oversight agencies.
37. Since all CUs would be subject to prudential regulation and supervision, a tiered (and
proportional) approach for the regulation and supervision of CUs, including the type of operations
and financial services each category of CUs could provide, would be more effective and better reflect
23
The rest of the disputes should be tackled by the new prudential supervisory agency.
18
TRINIDAD & TOBAGO
the characteristics of the sector. The CU sector is highly heterogenous in terms of the size and complexity
of the institutions and the type and volume of their operations. A segmentation of CUs into different
categories, with, for example, stricter prudential regulatory requirements applied towards those CUs that
have assets above a certain threshold (e.g. TTD500 million; there are currently 8 CUs of this size) would
seem appropriate. Permission to offer additional services currently not available to CUs (e.g. related to
access to the national payment system, such as transfer among accounts of different institutions, crediting
of checks, processing remittance from/to members’ accounts, among others) should be contingent on
meeting the stricter prudential requirements. Colombia, Peru, and Mexico are examples of countries that
have implemented such proportional approach.
38. Once the regulatory and supervisory authority is transferred to the new agency, it will have
to hire and train staff, approve a new set of prudential regulations under the new legislation, and
elaborate appropriate supervisory arrangements. The skill set of the agency’s staff will have to combine
knowledge of the CU sector with expertise in prudential regulation and supervision of financial institutions.
Definition of prudential regulations based on a tiered approach, is key for the CU sector to start internalizing
and adjusting to it. Finally, information requirements (increasing frequency of audited and unaudited data
to be provided to the supervisor) as well as risk-based supervision procedures (including off-site and on-
site supervision) will have to be established
39. A full system-wide diagnostic of the CU sector should be performed as soon as possible. The
information currently available from the sector is highly limited and suggests considerable heterogeneity in
the health of CUs. A full diagnostic of the CU sector (including the current and potential role of the apex
entities) should be performed by independent experts, even before the new legal and institutional framework
is being approved and the new supervisory agency has been setup. The diagnostic should be required as
soon as possible by the MOF and CCD. Considering its expertise and experience on regulation and
supervision of financial intermediaries, CBTT should provide technical assistance and support to CCD for
the elaboration of the Terms of Reference of the diagnostic (e.g. what type of information is being required,
in which format, etc.). The diagnostic should include an asset quality review, as well as aspects of
governance (profile of the board and committee members), risk management and internal control, detailed
information of the loan portfolio (concentration, collateral, arrears, refinancing, delinquency), investments
not related with financial intermediation, and level and composition of capital and liquidity, among others.
The diagnostic should be carried out before the new Act is issued as it would provide relevant inputs for it.
40. The diagnostic would help assess the situation of the CUs, including their gaps with the future
regulatory requirements, and would be useful for the calibration of the regulatory framework, the
definition of the transitional period, and the support to be provided to the sector. Using the results of
the diagnostic CUs could be classified depending their degree of compliance with the new regulatory
framework to be set up. Group one would include CUs with full/near compliance; group two would include
CUs that are partially non-compliant but viable and likely to be able to comply; group three would include
remaining CUs that are materially and substantially away from the standard and unlikely to able to comply.
The new supervisory agency should take actions on the CUs identified in groups two and three - requesting
time-bound action plans from group two CUs (akin to a prompt corrective action program) while CUs in
group three would have to be resolved (through mergers, restructurings, purchase and assumption (P&A)
transactions, and/or license withdrawals).
41. The diagnostic of the CU sector would also allow for a better calibration of the new
proportional regulatory framework and the determination of the transitional period of its full entry
into force, as well as the start of the new mandatory CU deposit insurance scheme. It would also assist
the authorities in designing a consolidation and technical support strategy for the sector. The diagnostics
would allow the development of technical support plans for the sector (with an involvement of CCD, as
well as CCULTT and TTCUDIF which should coordinate in order to reinforce and complement their efforts
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TRINIDAD AND TOBAGO
in supporting the sector). Importantly the diagnostic, through an asset quality review, would identify the
true size of NPLs, under-provisioning, and potential losses allowing for the supervisor to draw up resolution
action plans for the industry and individual CUs. All these reforms (higher prudential and reporting
requirements and the enhanced deposit insurance scheme, among others) can be expected to lead to a
welcome consolidation in the CU sector. In terms of the involvement of the sector, CCULTT should lead
the process for developing a strategy for the growth and strengthening of the CU sector.
42. The introduction of a mandatory deposit insurance requires an upfront strengthening of the
sector. Introducing a mandatory deposit insurance scheme before resolving problem institutions in the
sector would set the nascent scheme up for failure as it would not have the resources to manage the failures,
undermining depositors’ confidence in the scheme. A time-bound transition period during which the sector
would first need to be brought into full compliance with the new prudential regime would be need. At the
end of the transitional period all CUs would be expected to either be fully compliant or resolved.
43. The CU deposit insurance fund could be managed by the current DIC but should be separated
from the current fund for banks and other non-bank financial institutions. Although the TTCUDIFF
has been operating as a deposit insurance for part of the CU sector, some of the big CUs do not trust on this
entity and, hence, are not member of it. In that regards, the DIC as the deposit insurance agency for CUs
would be credible enough for the big CUs and has been the preferred options by both the CU sector and the
authorities. The DIC presents the advantage of providing ready-made capacity and processes developed for
the management of the CU fund, including calculation of premiums and payouts of insured deposits. The
CU fund would have its own account (as well as separate accounting), with a full separation of the two
funds (one for banks/non- banks financial institutions and another for CUs). CUs would make an initial
contribution at the time of joining the DIC and follow with regular (e.g. quarterly) payments of premiums
calculated as a percentage of their total deposits and members’ share savings. The insurance coverage
should include both deposits and members’ share savings (the latter represents around 80% of total funding
of CUs). Data exchange between the supervisor and the deposit insurance agency would also be critical.
Additionally, the deposit insurance fund would require seed capital from the authorities, to be instrumented
as either in cash or a back-up line of credit (or a combination of both).
44. An effective mechanism for the provision of emergency liquidity assistance (ELA) to CUs
should also be introduced. As part of the FSN of CUs, and once they are adequately regulated and
supervised, CUs should have access to ELA. The CBA24 establishes, under its emergency powers, that
CBTT cannot provide financial assistance to CUs. The CBA should be amended allowing the CBTT to
provide ELA to CUs in cases of a sectoral or individual CU distress that poses a systemic threat to financial
stability. Access to ELA should be at CBTT’s discretion only for CUs deemed solvent and viable on a
forward-looking basis, on CBTT’s terms and conditions including adequate collateral. Furthermore,
creation of a liquidity fund (a pool of liquidity) should be considered, where CUs would contribute as a
percentage of their total deposits and members’ share savings. Such fund would provide liquidity to solvent
CUs facing liquidity distress, subject to appropriate collateral as well as a credible liquidity recovery plan.
This liquidity fund could be managed by a second-tier financial cooperative (CFF could be an option),
under the regulation and supervision of the new CU supervisory authority. Participation in the liquidity
fund should be compulsory; if, however, it is decided that the participation is voluntary, the liquidity
prudential regulations should be stricter for those CUs that are not members of the liquidity fund.
45. The resolution and wind-up regime for CUs should be reformed under the new legislation.
There is a need to clearly specify the hierarchy of claims for CUs (where deposits and member s’ share
savings should be preferred), as well as to include the possibility of voluntary winding up. The legal
24
The Central Bank Act (article 44D) provides (under special circumstances) emergency power to the CBTT to
provide liquidity to financial institutions but explicitly excludes from it CUs.
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TRINIDAD & TOBAGO
framework should establish the subrogation of the rights of deposits and members’ shares in favor of the
DIC in a wind-up. The process of deregistering an inactive CU should be simplified and shortened. The
role of the CU supervisor and the DIC in the resolution and liquidation process of a CU should be clearly
laid out. Powers to implement a P&A transaction could be introduced in the legal framework, with the CU
deposit insurance fund able to contribute to a P&A on a least cost basis25.
46. The new regulatory framework for CUs should also include aspects related with market
conduct. Complementarily to the prudential aspects, the regulation for CUs should also contemplate aspects
such as transparency, disclosure, business behavior, data protection and dispute resolution of CUs. Many
members of CUs are from the base of the pyramid and have their first experience on financial matters
through CUs. The design and implementation of market conduct regulation and its supervision is key to
assure the financial inclusion through CUs is done in a responsible way.
25
The least cost is defined as the maximum contribution of DIC to balance assets and liabilities to be transferred
from the failed CU to the “receiver” CU. Is calculated as the amount that DIC would have had to pay for the insured
deposits net of the expected recovery via the liquidation process (some jurisdictions do not take into account in the
calculation the expected recovery).
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Annex 1. Credit Union Sector Data
Annex 1.1: Key information of CU Sector in TT
When applicable, information on mill of TTD
Number of CUs with
Financial Statement as Total CUs members of
of
Deposits +
Non- All (the
Total number Non- Institutional 2018- Before
CU Asset Size Assets Deposits Permanent 2017 TTCUDIF CFF CCULTT 3 of
of CUs Permanent Capital 2019 2017
Shares them)
Shares
Over TTD 300
11,577 1,404 8,495 9,899 1,173 12 1 0
million 13 7 8 8 1
TTD 100-300 million 20 3,829 390 2,623 3,012 412 14 5 1 11 13 12 6
TTD 10-100 million 33 1,252 111 879 990 158 20 9 4 12 7 10 2
Below TTD 10
172 14 507 521 31 15 11 29
million 55 3 1 2 -
No data 8
TOTAL 129 16,831 1,919 12,503 14,422 1,774 61 26 34 33 29 32 9
Non-Permanente Shares ("Members´ share savings"). They can be withdrawn by members are considered as liability
TTCUDIF: Trinidad and Tobago Credit Union Deposit Insurance Fund; CFF: Central for Financial Facilities; TTCUL: Trinidad and Tobado Credit Union League
Source: CCD and own elaboration
TRINIDAD & TOBAGO
Annex 1.2: The Co-operative sector and the participation of CUs in TT
Co-operatives Societes Assets
TTD Share of the
Number % of total million size cohort
Financial (CUs) 127 41% 16,313 99%
Non-Financial 80 26% 105 1%
Junior 102 33% 1 0%
Secondary Bodies 4 1% 122 1%
Total 313 100% 16,541 100%
Source: Draft National Policy on Co-operatives. Information as of August 2019
Annex 1.3: Regional Comparisons
Number of Institutions and Members Loans and Assets
140 1200 2500
120 1000
100 2000
800
80 1500
600
60
40 400 1000
20 200 500
0 0
0
No. of Credit Unions Membership (thd), rhs
Total Loans (US$ mn) Total Assets (US$ mn)
Information as of 2017
Source: CCCU and scoping note FSAP (Sept 2019)
23
TRINIDAD AND TOBAGO
Annex 2. IICURN Principles for effective supervision of financial cooperatives
The Table summarizes the 23 guidelines of the International CU Regulators Networks (ICURN) for
effective supervision of financial cooperatives (CUs)26
Registering and licensing of CU
#1 CUs should be established by reference to distinct legal characteristics, which
Registration should be applied when registering and licensing (authorizing) new CUs. At a
Licensing minimum, the registration and licensing processes, as appropriate, should consider
Authorization the following: ownership (which must be a co-operative or mutual structure);
governance; fitness and propriety, capability and competence, of Board members
and senior management; strategy; risk management and capital
#2 The structure of any proposed CU must comply fully with internationally
Ownership recognized cooperative/mutual principles, taking account of circumstances where
second-tier organizations have proportional voting for members
# 3 Permissible The permissible activities of CUs should be clearly defined, and the local
activities terminology used to describe the entities undertaking these activities, should be
restricted and controlled. Business powers and permissible activities may be
proportional to the CU´s size and ability to manage the risks inherent in such
services and compatible with its business objectives.
CU structures and organization
# 4 Risk CUs should have, and use, appropriate risk-management processes and systems. A
Management risk management system should be able to identify, evaluate, monitor, manage and
control the risks to which the CU may be exposed
# 5; # 6; # 7; # Management of operational risk; currency risk; interest rate and market risk; market
8 conduct risk
# 9 Internal CUs should have in place an appropriate level of internal controls commensurate
Controls with the size and complexity and its activities. This should include arrangements
around delegations of responsibilities, authorizations, segregation of duties,
reconciliations and accounting for assets and liabilities
# 10 Abuse of CUs should have policies and procedures in place that will prevent them from being
financial used for criminal activities, including money laundering. This should include
services having “know-your-customer” rules
# 11 CUs should maintain adequate records that have been prepared in accordance with
Accounting and the relevant accounting laws in its jurisdiction, they must be independently
Disclosure professionally audited and must be freely available to all members
Prudential requirements
# 12 Capital The supervisor should establish and enforce the rules for an appropriate capital
Adequacy framework with which all CUs must comply. The rules must balance cooperative
principles and objectives with the need to protect depositors. Supervisors will need
to consider what meets the criteria for capital and to ensure that capital instruments
are able to absorb losses in the event of failure.
# 13 Liquidity The supervisor should ensure that CUs develop reasonable and prudent liquidity
and Funding management strategies and contingency plans. Liquidity risk must be addressed
Risk both on a per-CU and on a network-wide basis. Soundly managed network-wide
liquidity and stability facilities are highly desirable
26
Link to the document ICURN document:
https://nebula.wsimg.com/4842a85152d1d2f422881170f5224252?AccessKeyId=EB21D0068BD759C2C465&dispo
sition=0&alloworigin=1
24
TRINIDAD & TOBAGO
# 13 Credit The supervisor should ensure that CUs have policies and systems that are designed
Risk to provide satisfactory management of its loan portfolio and the risks to which they
are exposed. Should also ensure that CUs engage only in types of lending that their
Boards understand and are capable of managing effectively, while avoiding areas
that requires expertise they do not possess
# 15 Problem The supervisor should ensure that CUs have adequate policies and processes for
assets, managing problem assets and make appropriate provisions for such assets, that CUs
provisions and are adequately provisioned for troubled/problem loans and other impaired assets.
reserves
# 16 Large The supervisor should set rules that define and limit the large exposures to which
Exposures CUs can be exposed and must have the power to intervene should these be
breached. CUs must policies for concentration risk.
# 17 Major The supervisor should have the power to approve or reject and to impose prudential
Acquisitions conditions on major acquisitions or investments.
Supervisory Powers
# 18 The supervisor should have: clearly-defined responsibilities and objectives;
Supervisory operational independence, transparent processes, sound governance, adequate
Powers and resources and legal protection for its staff; all financial, human and technological
Responsibilities resources necessary fully to discharge its responsibilities; complete and unfettered
access to CUs, their premises and records, (and any subsidiaries) as it considers
necessary; the power and the resources to guarantee access to CUs where this is not
provided, and the legal capacity to share information while protecting the
confidentiality of such information.
The supervisor should be publicly accountable in the discharge of its duties.
# 19 The supervisor should develop and maintain a thorough understanding of the
Supervisory operations of individual CUs, the risks to which they are exposed and the
Powers and management of such risks and must deploy an effective and ongoing combination of
Responsibilities offsite and onsite supervisory techniques.
# 20 The supervisor should have the resources and ability to collect financial and
Supervisory statistical reports from CUs in whatever form it requires. It must also have the
Reporting ability to have such reports or forms independently verified where it considers this
necessary.
# 21 Conflict of The supervisor should have the power to establish rules to control conflicts of
Interests & interest and related-party exposures and it must have powers that permit it to
Related Party intervene where such rules are breached. Rules must require that related-party
Exposures transactions be undertaken at arm’s length.
# 22 Internal The supervisor should consider the need for a CU to have an appropriately
Audit qualified, independent and adequately resourced internal audit function. The CU´s
internal audit function must focus on ensuring that the internal control function
operates effectively.
# 23 Corrective The supervisor should have an adequate range of enforcement tools to facilitate
and remedial timely corrective action, including the power and resources to issue appropriate
actions legal orders, to revoke licenses, force liquidation, removal of officer or board
members or to recommend revocation. This includes the power and resources to
impose restrictions on a CU´s activities and operations.
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TRINIDAD AND TOBAGO
Annex 3. Proposed amendments on CSA prepared by CCD
The Table below summarizes the amendments identified by CCD (in consultation with different
stakeholders) to the CSA.27
Topic Concepts to be amended / included in the CSA
Regulation • Widen the scope of the Interpretation Section
and • Change the nature of offences from criminal to administrative and outline the
supervision mechanisms for enforcement
• Update the fines / penalties commensurate with the offences
• Introduce prudential / reporting standards for all Societies
• Remove the restrictions on the amount payable to the nominated beneficiary upon
the death of a member
• Make provision for the instruments to be used for societies to hold collateral
against loans including enforcement in the event of default
• Provide for a timeframe for submission of amended byelaws
• Include other media (instead of Gazette) as part of the requirement for Notice
Governance • Provide for a Nominations Committee
and • Exclude organizations from the definition of individual as it relates to the co-
Leadership operative sector
• Specify the age limit of the voting rights of members
• Include provision to be adopted for the approval of loans to Board and Committee
members and senior management
• Members of the Board cannot be part of Credit or Supervisory Committee
• Provide term limits for Board and Committee members
Dispute • Include assistants for Commissioner and stipulate the delegated authority
Resolution • Provide for Disciplinary Tribunals (additionally to arbitrators)
Process • Make provision for filing costs for the referral and/or adjudication of all
disputes
• Provide clarification regarding the award of damages
• Align the CSA with Civil Procedure Rules
• Widen the scope of the Schedules and Forms contained in the Regulations
• Exclude Appeal of Commissioner Decision to the Minister (have to go to High
Court)
• Provide for Consent Orders (voluntary settlement agreement may be considered a
consent order)
Audit and • Provide hat societies would incur increased administrative as opposed to
Liquidation criminal fines for non-compliance with the submission of audited financial
statements and management letters
• Require compliance by cooperative societies with the relevant accounting
standards
• Amend the timeframe to conclude the liquidation / cancellation. Include
voluntary wind up
27
Extracted from the document “Draft Policy Position Paper for the Amendment of the Co -operative Societies Act”.
It has been only included the proposed change that are considered as relevant for CU.
26
TRINIDAD & TOBAGO
• Allow the Commissioner to freeze bank or other accounts, issue cease and desist
orders and employ other measures necessary for the protection of members’ funds
and the preservation of assets
• Provide the mechanisms for the Commissioner to administer the Supervisory and
Audit fund
• Provide for the protection of members’ funds through a mandatory deposit
insurance scheme
• Provide for the protection of members’ funds through a mandatory
stabilization fund
27