Consultation begins on reform of NI credit unions
A consultation document on reforming the regulation of Northern Ireland's credit unions raises the possibility that the plan could lead to mergers or closures.
The proposal is that regulation would move from Stormont's Department of Enterprise to the Financial Services Authority (FSA).
It is hoped this will increase compensation if a credit union fails.
There are 177 credit unions across Northern Ireland.
The changes are being made in the wake of the collapse of the Presbyterian Mutual Society (PMS).
The proposals would also ease access to the Financial Ombudsman complaints system for investors.
However, it will mean increased bureaucracy, as well as one-off costs for training and IT systems.
The changes will include making quarterly returns to the FSA - at the moment credit unions only have to submit an annual report.
The FSA has said "a minority of Northern Ireland credit unions may be unable or unwilling to continue in business as FSA-regulated firms", although it thinks this is unlikely.
It said there may be potential costs from difficulties in recruiting and retaining staff and volunteers, given the additional time and effort required to understand and implement the new rules.
However, it added that this impact is also likely to be minimal "given the strong volunteer culture and the importance of credit unions to local communities in Northern Ireland".
Credit unions in Northern Ireland have close to 460,000 adult members and almost 90,000 juvenile depositors. They hold £942m in deposits and have made loans of £522m.
The FSA consultation document says that as well as the training and IT costs there will be some changes to the rules in the way credit unions are allowed to invest their members money.
At the moment, credit unions are allowed to hold investments with five-year maturities - a bond that matures after five years. In future most credit unions would be restricted to investments with a one-year maturity.
More stringent rules
That would mean some higher yielding investments would be off-limits, which the FSA estimate could cost the Northern Ireland credit union as a whole between £460,000 and £6.97m.
Under the new regime most credit unions would not be allowed to make secured loans with a repayment term of more than 10 years. Currently there is no specified repayment period for secured loans.
For the first time credit unions would also have to conform to stated capital and liquidity requirements - how much ready cash they have on hand to cover unexpected losses.
However, the FSA says that credit unions already meet or exceed these requirements.
The changes, due to come in next March, will bring the regulation of Northern Ireland credit unions into line with those in Great Britain, but it will also mean credit unions in the region will have to comply with more stringent rules.
Investors with the failed PMS were not covered by the UK financial services compensation scheme.
Instead PMS investors were compensated by the Stormont Executive to the tune of £225m.