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Under the current bill, the Ministry of Finance’s planned overhaul of the regulation of savings and loan associations (SLAs) is divided into three major phases, the last of which will not come into effect until the end of 2027.
What are the main changes that current savings and loan associations will have to take into account, and when?
1) Changes applicable from 1 July 2023 (so-called “Phase I”)
Restrictions on the advertising of savings interest
Under the planned bill, from 1 July 2023, SLAs will be prohibited from using references to the savings interest rate they offer in their advertising. Although the wording of the law specifically refers to the savings interest rate, it essentially means that the advertising of savings interests will be prohibited.
2) Changes applicable from 1 January 2024 (so-called “Phase II”)
The changes applicable from the above date will be valid as described until the end of 2027. Thereafter, these requirements will apply in a different form, depending on how association banks are regulated. Namely, the legislator has foreseen this period as a so-called “transitional period” during which existing SLAs will have time to plan and prepare for their future (see more details under clause 3).
Additional requirements for the authorisation of the representatives of the SLA members
In order to increase the SLA members’ control over the activities of the association, additional restrictions on the partial or full delegation of powers of the general meeting will be introduced from 1 January 2024. In particular, such delegation of powers to the meeting of commissioners will require the SLA to have at least 500 members. The right to elect and dismiss the commissioners is now left to the general meeting. Whereas it was previously possible to lay down the procedure for convening a meeting of the commissioners in the statutes of the SLA, this right is now also reserved to the general meeting of the SLA.
Thus, it will no longer be possible for SLAs to use agreements whereby a person joining the SLA automatically assigns its voting rights to a predetermined commissioner, e.g. a member of the management board. This should, in turn, raise awareness among members of the SLA of how the SLA operates and to whom and how they are entitled to delegate their voting rights.
The commissioners elected by the general meeting must also be credible and independent (in particular, of the SLA management board and the SLA auditor).
Increased capital requirements for operating SLAs
For active SLAs, it is important to take into account the new capital requirements that will come into force on 1 January 2024. Instead of the previous EUR 32 000, the minimum capital requirement for savings and loan associations has been increased to EUR 50 000.
Additional requirements for a member of the management body
Any person wishing to become a member of the management board or the supervisory board of an SLA must provide the members with information about him/herself which proves that he/she is suitable to serve in the management body. This means that a potential member of the management body must provide the other members of the association with documents showing his or her educational background, work experience, criminal record, business experience, etc., before he or she can be elected to the management body.
Extended rights of members related to the association
Members of an SLA have the right to request certain information (and documents) from the association if they have not previously been made known to the members. Among other things, members have the right to request information about:
- members of SLA management bodies;
- the last annual report;
- the number of unlikely receivables;
- the balance sheet and profit and loss accounts of the SLA;
- the remaining members of the SLA; and
- the loans issued by the SLA.
Also, at least 10 SLA members may ask for additional items to be included in the agenda of the general meeting, provided that they are justified.
Increased entrance and contribution fees
For new members joining after the amendments of the law enter into force, there will be an increased entrance and contribution fee of EUR 50 and EUR 100, respectively.
3) Changes applicable from 1 January 2028 (so-called “Phase III”).
Compulsory authorisation for existing SLAs
To date, savings and loan associations have been able to operate relatively freely, in exceptional cases being subject to the authorisation of a creditor. The planned amendments will restrict this freedom of action by making it compulsory for currently active SLAs to apply for authorisation. In particular, all existing SLAs will have to obtain authorisation of a bank or association bank from the Financial Supervision Authority by 31 December 2027 at the latest, in essence reorganising their structure and activities accordingly.
Those SLAs that fail to obtain such authorisation are forced to continue operating as ordinary commercial associations (i.e. without involving deposits) or to cease their activities altogether. Of course, the continued operation of commercial associations may continue to provide payment services or loans to consumers, provided that they are authorised by the Financial Supervisory Authority.
It is worth noting that once the bill enters into force, it will no longer be possible to form new commercial associations as savings and loan associations nor to register them as such. In essence, this means that “new” savings and loan associations will only be able to be set up/formed through the association bank model and the institution of savings and loan associations, at least in their current form, will be largely a thing of the past.
In conclusion
It is not yet clear whether the controversial bill will actually be enforced as law in the form described and on the dates mentioned, but all active savings and loan associations should start making preparations, as it is clear that the old regulation will not survive in its current form.
If you have any questions regarding the information above, Hedman’s attorneys will be happy to advise you.
