Introduction
The Credit Union and Co-operation with Overseas Regulators Act
20121 (the "Act") was
enacted in December 2012. The Act will be introduced on a phased
basis with certain sections and schedules commenced by the Minister
for Finance on 19 December 2012. The Act has major implications on
how credit unions operate with a very significant increase in the
level of regulatory requirements.
Prior to the introduction of these requirements, the Central Bank
of Ireland ("CBI") is expected to
undertake a regulatory impact analysis having regard to
international best practice and enter into a consultation process
in accordance with its Consultation Protocol2 for
Credit Unions.
The CBI has announced that the new governance and prudential
requirements contained in the Act will apply to Credit Unions from
1 October 2013.
Onerous obligations
The Act requires credit unions to establish and maintain a
range of new measures including:
- a Strategic Plan;
- regulatory policies and procedures (for example: a business continuity plan; an outsourcing policy; a conflicts of interest policy; governance arrangements; remuneration policies; and a code of conduct);
- investment related policies and procedures (for example: a lending policy; liquidity and management policies; reserve management policies; and investment policies);
- a compliance monitoring programme; and
- risk management processes (for example: a risk management framework; an internal audit function; and a risk management system).
Initially it is not envisaged that the CBI will review the
documented regime put into effect, but will require each credit
union to provide an annual compliance statement. This annual
compliance confirmation needs to be made by the board of each
credit union, whereby they will be required to certify to the CBI,
in writing, that the credit union is in "compliance with
the requirements of this Part and any other regulations prescribed
under it by the Bank including regulations setting out the form and
content of that statement."
It is not sufficient that credit unions just have these
policies and procedures documented. They must be aligned to the
credit union's business model and be embedded into their
systems and controls environment.
The Act also requires credit unions to enhance their organisational
framework to include a board oversight committee; nomination
committee; credit union manager; compliance officer; risk manager;
internal audit function; credit officer; and company
secretary.
Fitness and probity
The F&P regime will come into force from 1 August 2013
and is being introduced on a phased basis to be fully implemented
by 1 August 2016.
The first phase will commence on 1 August 2013 and will implement
the F&P requirements for credit unions whose total assets are
greater than €10 million.
The second phase will begin on 1 August 2015 when all remaining
credit unions will come within the remit of the regime. Credit
unions that are also authorised as retail intermediaries will fall
under the scope of the F&P regime that applies to other retail
intermediaries.
The regime is aimed at individuals holding senior positions and
significant influence roles within a credit union i.e. chairman;
management; board members, management; compliance; risk; money
laundering reporting officer; and supervisory positions. Similar to
the F&P regime for other regulated sectors, these individuals
will need to evidence they are competent and capable with
appropriate skills, experience, knowledge and integrity to carry
out their respective roles. A comprehensive due diligence project
will need to be undertaken by the credit union or an appointed
third party service provider.
Central Bank of Ireland
The CBI is responsible for regulating and supervising the credit
union sector. The CBI has commenced issuing guidance on regulatory
requirements following discussions with the Irish League of Credit
Unions and the Department of Finance. We are recommending to our
credit union clients that they engage at an early stage of the
consultation process in order to highlight any issues they have
with the draft guidelines/regulatory codes.
The CBI has also published the Credit Union handbook which serves
as a compilation of a number of legal and regulatory requirements
for credit unions.
Sanctions
Following a thematic inspection of a credit union's compliance
with its obligations under the Criminal Justice (Money Laundering
and Terrorist Financing) Act 2010, the CBI issued a fine of
€21,000. The fine related to failures
surrounding the Credit Union's anti-money laundering/counter
terrorist financing framework. This fine was quite lenient in
comparison to other fines issued by the CBI but should be viewed by
the credit union sector as a mark of intention from the CBI.
Sanctions of this kind should be considered in the context of their
extremely negative publicity as well as the direct financial
implications.
Against the new requirements shortly coming on-stream under the
Act, the CBI has greater powers under the Central Bank (Supervision
and Enforcement) Act 2013 which provides for an increase in the
CBI's powers of enforcement to €10,000,000 for a corporate
body or 10% of turnover (whichever is highest) and €1,000,000
for a natural person.
Action to be taken
We are advising our credit union clients to carry out an assessment
to identify new policies and procedures and other measures required
and then consider the steps necessary to put relevant measures in
place. As a guide we have highlighted some of the documentation
required and what operational measures need to be implemented to
comply with this new regime at Appendix I of this memorandum.
How Maples can help
As a leading international law firm, Maples and Calder has
vast experience in dealing with regulatory matters, drafting and
review of regulatory policies, processes and procedures and
advising clients on interpreting legislation, regulatory codes and
how to prepare for regulatory inspections.
We can assist in carrying out this assessment; advising what
documentation is required; developing tailored solutions; and
assisting credit unions during the implementation phase of the
Act.
This Update is further to our previous News Article Credit Union - A New Regulatory Regime
1Aspects of the Central Bank (Supervision and
Enforcement) Bill were inserted into the Act and passed on 19
December 2012 to facilitate the memorandum of understanding with
IOSCO.
2The Consultation Protocol for Credit Unions was
published by the Central Bank in November 2012 and is located on
its website
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.