‘Minimalist’ approach to compliance at some credit unions
Central Bank warns credit unions to improve compliance processes as shortcomings found
Rush Credit Union: placed into liquidation following the emergence of a €4.7 million hole in its reserves and alleged criminal activities. Photograph: North County Leader
A number of credit unions were found to have “minimalist” approaches to compliance by the Central Bank, in a review of the fitness and probity (F&P) of credit union employees.
While the regulator identified a number of examples of “well-embedded processes”, in the report on the new regime, the Central Bank also cited a number of problem areas, including a “minimalist compliance approach in an unacceptably large number of credit unions visited”.
“The Central Bank expects all credit unions to consider the issues raised in the report and to examine the implementation of their own F&P policies and procedures, developing and enhancing these where necessary, taking account of the findings and observations set out in this report,” the regulator said in a statement.
Governance of credit unions has increasingly been in the spotlight following a number of high-profile incidents. Most recently, Rush Credit Union was placed into liquidation following the emergence of a €4.7 million hole in its reserves and alleged criminal activities.
Credit unions were found to fall down in a number of areas in the Central Bank report, including not keeping due diligence records on file, which resulted in a lack of evidence to support compliance with the F&P regime for credit unions. Credit unions were also identified as having a lack of meaningful succession planning, and there was a failure to document processes and to maintain due diligence records on file, resulting in a lack of evidence to support compliance.
With regards to employees charged with a “controlled function”, the review found that credit unions had an “overreliance on personal knowledge or ‘local knowledge’” of these people, without an assessment of such person being evidenced and documented.
During the inspections it was also noted that some credit unions did not conduct checks of publicly available information, such as a search on the Central Bank website or with the Companies Registration Office, despite requests from the regulator that such checks should be conducted as a matter of course.
One example given was that a judgment mortgage that had been registered against an employee was on file, but “with no mention of an investigation into such confirmation or explanation as to how the credit union was satisfied that such person complied with the standards and/or that such person’s ability to perform the role was not materially impacted”.
The Central Bank said that where issues have been identified, the regulator will follow up directly with the credit unions concerned “to address these issues”.
Fitness and probity was first applied to credit unions on a phased basis from August 2013. Since August 1st, 2015, all credit unions are subject to additional fitness and probity requirements for the part of the business that the credit union undertakes as a retail intermediary. This means people working in credit unions – either on a voluntary or paid basis – “must be capable, competent and financially sound, with the appropriate skills, experience, knowledge and integrity to manage and govern the credit union”.