In a practical sense, the new credit union regulation will formalize many of the practices that the many credit unions already implement – like managing their financial performance by adhering to the PEARLS ratios. The proposed regulation will now formalize the requirements to have adequate liquidity and capital buffers, to limit borrowing by credit unions and to control related-party lending and investments.
The legislation will also emphasize good governance, which is critical for the protection of shareholders and for effective financial management. For example, Board members will be required to meet certain fit and proper criteria and an appropriate level of financial competence, as determined by the credit union, not by the Central Bank.