The Compliance & Risk Functions

In Credit Unions

What Supervisors need to know?

Michael MullenILCU Learning Advisor

ObjectivesBy the end of this session participants will be able to:

• Understand the rationale behind the suggested new

Compliance & Risk Functions in credit unions

• Understand the credit unions obligations in relation to

compliance & risk management

• Better evaluate the Boards oversight of its compliance

and risk management responsibilities

Supervisory Committee Responsibilities

[The] Supervisory Committee … shall have the general duty of overseeing the performance

by the directors of their functions

Which include:• Setting strategy & producing a strategic plan

• Implementing the plan, monitoring and updating it (annually)

• Operating a comprehensive decision making process

• Ensuring an effective management team is in place

• Ensuring all officers have the skill knowledge and competence

• Annual review of the manager (Ensuing a review of all staff)

• Putting in place a management team to include, risk

management & compliance officer

• Ensuing appropriate succession plans

• Exercising appropriate oversight of management

• Reviewing and approving all elements of the risk management

plan and putting in place a risk management process

Which include (Continued):

• Ensuring an effective management team is in place

• Ensuring compliance with all requirements imposed by the CU

Act and other relevant legislation

• Removing officers where there is a failure to perform duties

• Ensuring each director takes training

• Submitting accounts

• Paying a dividend

• Performing an annual comprehensive review of its performance

• Approving, reviewing and updating all plans, policies and

procedures of the credit union, to include the following

mandatory policies………..

Which include (Policies):• Lending

• Shares

• Liquidity Management

• Reserve Management

• Investment

• Remuneration

• Record Management

• IT and BCP

• Asset Liability Management

• Risk Management

• Conflict of Interest

• Standard of Conduct and Ethical Behaviour…….. and a

• Compliance Plan

Which include (Continued):• Oh! …….and such otter matters as the Bank may prescribe!

• Supervisors (BOC) role then is to ensure the Board does all of the above.

• And someone said the role was being watered down!

A dilution of responsibility?

New Risk Management Obligations

• Reviewing and approving all elements of the risk management system on a regular basis, in particular: Assessing its appropriateness Taking into account any changes to its strategic plan, resources or

external circumstances Tasking measures to address any deficiencies in the risk

management system Section 55 (1) (l)

• Putting in place a risk management policySection 51(1) (o) xv

• Implementing a risk management processSection 51 (3)

• Approving the appointment of a person to be the risk management officer with the necessary authority, resources and experience to manage the risk management function within the credit union. Section 55 (5))

Definition of Risk Management

“the governance arrangements systems and controls to allow the credit union to identify, assess, measure, monitor, report and manage the risks which it is, or

might reasonably be, exposed to”

Section 76B (2)

Risks

CreditLiquidity

Operational

Market

Interest Rate

Reputation

IT

Accounting

Legal

Compliance

Identify Risks

Measure Risks

…

Increasing Impact

Increasing Likelihood

High Likelihood

High Impact

High Likelihood

Low Impact

Low Likelihood

Low Impact

Low Likelihood

High Impact

1

5

5

Control Risks

1. Avoid the Risk

2. Reduce the Risk

3. Spread the Risk

4. Assume the Risk

5. Transfer the Risk

All about policies!

New Compliance Obligations

• Ensuring compliance with all requirements imposed on the credit union by or under the Credit Union Acts 1997 to 2012 or any other financial services legislation;

Section 55 (1) (m) Credit Union Bill

• Putting in place a compliance plan and policiesSection (51) (1) (o) ix

 • Approving the appointment of a person to be the

compliance officer with the necessary authority, resources and experience to manage the compliance function within the credit union.

• Section 55 (5))

Definition of Compliance

“the risk of legal or regulatory sanction, material financial loss, or loss to reputation

a credit union may suffer as a result of its failure to comply with laws, regulations, rules, related self

regulatory standards and codes of conduct applicable to its activities”*

* Adapted from Basel Committee on Banking Supervision

Scope of Compliance

1. Credit Union Act

2. Credit Union Own Policies

3. Regulatory Requirements

4. Governance Structures

5. StatutoryRequirements

Credit UnionCredit Union

Compliance Plan

•Roles & Responsibilities

•Identify all Statutory & Regulatory Obligations

•Adherence to Risk Management Plan

•Oversee & Monitor Compliance Controls

•Setting up a Compliance Culture

•Training & Communication of Compliance issues

•New Product/Service Approval

•Investigations & Complaints Handling

•Communications with Board / Supervisors / Regulators

Annual Compliance Statement

• Signed by all directors

• Within two months of annual report

Practical Implementation• Size matters:

Type 1: Outsourced (several credit unions sharing the one officer)

Practical Implementation• Size matters:

Type 2: Job share

Practical Implementation• Size matters:

• Type 3: Dedicated Officers

Why Comply?

Good compliance is good business…

• Damage to Reputation

• Potential Prosecution

• Regulatory Sanction

• Internal Strife

• Lost Members

Regulatory ComplianceSanctions:

•A caution or reprimand

•A direction to refund any sum charged by the credit union

•A fine up to €5 million, (but not such an amount that would

cause the credit union to cease business)

•A direction disqualifying a person from being concerned in

the management of a regulated financial provider

•A detection to cease committing the contravention

•An order to pay the Central Banks costs

Could it happen here?

Former Enron CEO Jeff Skilling is escorted into the Houston federal courthouse after

surrendering to the FBI yesterday.

He is the highest-ranking executive ofthe collapsed energy conglomerate to be

arrested.

Skilling was sentenced to 24 years in prison and ordered to pay $45 million dollars in compensation

Thank you