Central Bank points to ‘concerning’ governance issues at credit unions

On-site inspection of credit unions shows governance and operational risks still key risk areas

Governance remains one of the key risk areas for credit unions, the Central Bank said on Monday, as it published the findings of on-site inspections of credit unions.

From January to October 2017 the regulator sought to analyse the issues identified in risk mitigation programmes (RMPs) issued to credit unions during the period. This exercise showed that a high percentage of issues identified related to governance.

Patrick Casey, registrar of credit unions with the regulator, said that governance remains one of the "key risk areas" for credit unions, as he noted that it was "concerning" that more than 60 per cent of individual risks identified during on-site engagements related to governance or operational risks.

“For many credit unions, attention has now turned to business model development. In considering any new business initiatives, it is important that each credit union works within its own risk appetite and tolerances and its operational capabilities. Strengthening of core foundations is critical to credit unions in considering new business initiatives,” he said.



Examples of governance risks included issues being identified by either the internal audit or risk management function but boards failing to respond appropriately. It also concerned issues in relation to the level and quality of discussion and challenge by boards.

Operational risks were another concern, such as those in relation to inadequate segregation of duties. The inspections found examples of individuals holding responsibilities for multiple functions in credit unions, increasing the risk of error and misappropriation.

The Central Bank’s supervisory approach to credit unions takes account of asset size and risk. It will differentiate on a proportionate basis between small credit unions (under €40 million of total assets), medium credit unions (€40 million to €100 million) and large credit unions (over €100 million).

For larger credit unions, this will mean “greater intensity and depth of engagement”, with a significant focus on its strategy, business model and risk appetite, along with its governance capability and capacity, the Central Bank said.

Some 10 years on from the credit crunch, issues still remain at credit unions. Late last year Charleville Credit Union was put into liquidation, while last week the regulator disclosed that in roughly 30 per cent of credit unions that operated prize draws between the end of 2014 and early 2017, staff and directors won prizes.

Fiona Reddan

Fiona Reddan

Fiona Reddan is a writer specialising in personal finance and is the Home & Design Editor of The Irish Times