The Compliance & Risk
Functions
In Credit Unions
What Supervisors need to know?
Michael Mullen
ILCU Learning Advisor
Objectives
By 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!
A dilution of responsibility?
• Supervisors (BOC) role then is to ensure the Board does all
of the above.
• And someone said the role was being watered down!
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 policy
Section 51(1) (o) xv
• Implementing a risk management process
Section 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)
Identify Risks
Compliance
Credit
Liquidity
Legal
Operational
Risks
Accounting
Market
Interest
Rate
IT
Reputation
Measure Risks
5
High
Likelihood
High
Likelihood
Low Impact
High Impact
…
Increasing
Likelihood
1
Low
Likelihood
Low
Likelihood
Low Impact
High Impact
Increasing
Impact
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 policies
Section (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
5. Statutory
Requirements
Credit Union
4. Governance
Structures
3. Regulatory
Requirements
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)
Credit
Union
3
Credit
Union
1
Credit
Union
1
Credit
Union
Compliance
Specialist
Credit Union
Risk
Management
Specialist
Credit
Union
2
Credit
Union
3
Credit
Union
2
Practical Implementation
• Size matters:
Type 2:
Job share
Compliance
function
Risk
Management
function
Practical Implementation
• Size matters:
• Type 3:
Dedicated Officers
Manager
Risk
Management
Officer
Compliance
Officer
Why Comply?
Good compliance is good business…
• Damage to Reputation
• Potential Prosecution
• Regulatory Sanction
• Internal Strife
• Lost Members
Regulatory Compliance
Sanctions:
• 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 of
the 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