Compliance for Credit Union

Staff & Volunteers

Republic of Ireland

Michael Mullen

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

• Place compliance in the context of fiduciary, ethical,

regulatory and statutory responsibility

• Know the major laws and regulations applicable to credit

unions

• Understand the nature of compliance risk

• Appreciate the steps required to ensure compliance

within the credit union

Challenges for credit unions

• Increasing CU business complexity

• Greater Regulatory scrutiny

• New positive obligation on the Financial Regulator to report

any contravention or breeches of Legislation uncovered by it

• Increasing Accounting standards

• Additional reporting requirements on the auditors of regulated

financial entities

• Increased Compliance focus

• Increased personal exposure

• Greater Public concerns about Governance & Ethics

Introduction

• Ensuring the financial stability and solvency of financial providers

• Ensuring financial providers treat their consumers fairly

• Providing consumers with a right of redress

• Ensuring competition between financial providers.

Why Regulate?

IntroductionRole of Regulator

• Authorisation

• Conduct of Business & Consumer Protection

• Supervision & Inspection

• Sanctions

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, April 2005

Why Comply?

Good compliance is good business…

• Damage to Reputation

• Potential Prosecution

• Regulatory Sanction

• Internal Strife

• Lost Members

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

Role of Compliance

• Identify all Regulatory Obligations

• Set-up Compliance Manual

• Oversee & Monitor Compliance Controls

• Training & Communication of Compliance issues

• New Product/Service Approval

• Investigations & Complaints Handling

• Communications with Board / Supervisors / Regulators

Scope of Compliance

1. ILCU Rules & CU Act

2. Credit Union Policies

3. Regulatory Requirements

4. Governance Structures

5. StatutoryRequirements

Credit UnionCredit Union

1. Compliance with the Credit Union Rules

•The Credit Union Act

•The ILCU and Self-Regulation

•The Rule Book

•How well do you know the Rule Book?

1. Credit Union Rules Checklist

•Do you have copies of the standard rules

•Are they given to all new directors?

•....and staff?

•Are they being complied with?

1. Compliance with Credit Union Policies

•What policies do you need?

•Format of a policy:

Reason, Responsibility, Restrictions, Review

•Are you complying with policies?

2. Compliance with Credit Union Policies

•Do policies exist for all key risk areas?

•Do they adequately cover the risk?

•Have they been communicated?

•Are they being complied with?

3. Regulatory Compliance

• A Consumer Director

• Consumer Protection General Principles

• Prudential Regulation

• The Power to investigate, and if found guilty, sanction regulated

entities for “subscribed contraventions”, that is breeches of laws,

regulations, codes or guidelines issued by the Regulator.

• A Financial Services Ombudsman

• Additional reporting requirements on auditors

Compliance RatiosRatio Calculation Compliance

Requirement

Capital (Statutory Res + Gen Res + Surplus brought forward + other reserves) / (Total assets – liquid assets)

Ratio to be determined

Liquidity Liquid Assets / Total Liabilities Ratio to be determined

Asset Quality From Loans arrears: Provision (53+Wks) / net loans (53+ Wks)

100% or greater

Lending over 5 yrs (Loans (5-10 yrs) + Loans over 10 yrs) / All Loans Less then 20%

Lending over 10 yrs Loans over 10 yrs / All Loans Less then 10%

Large Exposures For each of top five borrowers: Gross Amt before provision / Total assets

Greater of €39k or 1.5% of assets

Large Accounts For each of top five savers: Amount / Total Assets

Greater of €200K or 1% of total assets

Statutory Reserve (Stat Res this yr end – stat Res last yr end) / YTD surplus deficit

10% or more

Financial Ombudsman

• Investigation, mediation & adjudication of

complaints

• Free independent service to consumers

• Covers complaints less than 6 years old & not

subject to ongoing legal proceedings

• Requires formal complaints handling procedures

• Can award compensation up to €250,000

Regulatory Checklist

Policies in all key areas

Prudential Returns, with particular emphasis on compliance ratios

Compliance with Registrar issued Guidance Notes

Compliance with Ombudsman Scheme

Compliance with CBFSAI

Regulatory Compliance - Minimum Requirements

4. Governance Compliance

• Fitness & Probity

• Fiduciary Responsibility

• Volunteer Code / Code of Ethics

• Compliance of Culture

• Compliance Reporting

Compliance Structure

Report to BoardLevel of Compliance

Board of Directors

Identify Areas & Agree Policy

Ensure Procedures & Training

Investigation & Compliant Handling

Monitoring & Controls

Compliance Committee

Audit Liaison with Regulators

Compliance Manual

Written Policy

Compliance ResponsibilitiesDirectors responsible for:

• Overseeing compliance risk

• Effective management of compliance risk

• Establishing & communicating compliance policy

Compliance function:

• Must be independent

• Must have adequate recourses

• Assist board in managing compliance risks

• Subject to internal audit

• If outsourced, must be subject to adequate oversight

Compliance Reporting

• Role of Supervisory Committee

• Need for Compliance Committee

• Guidance on Voluntary Disclosure (July 2006)

• Internal Reporting

• Role of League

Governance Checklist

Governance Compliance - Minimum Requirements

• Independent Risk/Compliance Committee

• Active Nominating Committee

• Competent Directors & Staff

• Conflict of Interests Register

• Volunteer Code of Practice and Code of Ethics

• Credit Union Board who insist on Compliance reports

• Active Supervisory Committee

5. Other Legislation

• Anti Money Laundering requirements• Insurance Compliance• Investments Compliance• Data Protection Law• Competition Law• Health & Safety Law• Employment Law • Equal Status Legislation• Taxation Law

• Each has its own codes and each is another days training!

Money Laundering Checklist

Appoint MLRO

Written Money Laundering Policy

Member Identification Procedures

Record Retention

Clear Reporting Structures

Compulsory Training (Annually)

Money Laundering Compliance - Minimum Requirements

Insurance Checklist

Appoint Designated Person

Follow Consumer Protection Code; e.g.

General Principles

Terms of Business & Reason Why letters

Section 30 Receipts

Written Complaints Procedure

Premium Handling

Maintenance of Books & Compliance file

Follow Minimum Competency Requirements

Insurance Compliance - Minimum Requirements

Investments Checklist

Investments are within Authorized Orders

Written Investments Policy

Investment Committee

Investments Compliance - Minimum Requirements

Data Protection Checklist

Register with DP Commissioner

Written Data Protection Policy

Comply with 8 Data Protection Principles

Ensure rights of access to members

Training

Data Protection Compliance - Minimum Requirements

Health & Safety Checklist

Perform Risk & Hazard Assessment

Prepare Safety Statement

Safety Management Structure

Training

Safety Representative

Health & Safety Compliance - Minimum Requirements

HR Checklist

Contracts of Employment

Recruitment & Selection Procedures

Discipline & Grievance Procedures

Leave & Absence Procedures

Bullying & Harassment Policy

Equal Status Policy

Training

Employment Law Compliance - Minimum Requirements

Tax Checklist

DIRT Procedures

Recording of Tax Identification Numbers

Taxation Law Compliance - Minimum Requirements

SummaryYou should now be able to:

• Place compliance in the context of fiduciary, ethical,

regulatory and statutory responsibility

• Know the major laws and regulations applicable to credit

unions

• Understand the nature of compliance risk

• Appreciate the steps required to ensure compliance

within the credit union

Any Questions ?

Risks

CreditLiquidity

Operational

Market

Interest Rate

Reputation

IT

Accounting

Legal

Compliance

Risk Management

Risk Management

…

High

Increasing Impact

Increasing Likelihood

Low Low

High

A

High Likelihood

High Impact

C

High Likelihood

Low Impact

D

Low Likelihood

Low Impact

B

Low Likelihood

High Impact

Risk Management

…

• Money Laundering

• Credit Union Act

• Insurance

• Investments

• Employment Law

High

• Data Protection

• Competition Law

• Taxation Law

• Health & Safety

Severity

Chance of Occurring

Low Low

High

A

BD

C

Increasing Likelihood

Increasing Impact