Review finds weaknesses in credit union risk management

Weaknesses in board oversight, reporting, and engagement with training and culture have been identified as areas of concern in a Central Bank review of risk management maturity in credit unions.

While the regulator acknowledged the “significant progress” in the area since the introduction of legislative requirements in 2013, it said the review found a number of key risk management weaknesses.

“Some credit unions continue to view the implementation of risk management frameworks as an exercise to ensure compliance with legislative requirements,” it said. “Instead those credit unions should view it as a key business support and enabler to underpin their operations and decision-making.”

Key findings include “little evidence” in many instances of robust discussion taking place at board meetings on risk-related issues, and of communication from the board to the risk management officer on decisions taken to mitigate risks.

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It also highlighted “a disconnect” between the three lines of defence in credit union governance, with risk-related work occurring in silos.

Furthermore, there is a need to enhance the quality of risk reporting to enable boards to fully understand the extent of the risks facing the credit union, the review said.

Finally, credit unions need to improve their risk management processes, including developing training and increasing engagement and interaction across staff, management and the board, on risk-related issues.

Enablers

Central Bank registrar of credit unions Patrick Casey said robust governance and risk management were “critical business enablers for credit unions”.

“They are necessary to address current challenges and to leverage available opportunities. While it is encouraging to see examples of good practice identified in a number of areas, weaknesses were identified during our review.

“The recurring nature of governance and risk management issues in credit unions during our supervisory engagements remains a key concern. We expect all credit unions to consider the findings and recommendations set out in the report.

“Credit unions should proactively consider how they can support the embedding of a strong risk management culture in their credit union – to support the identification, consideration and mitigation of risks.

“This is key to ensuring that risk management underpins and supports financial and operational resilience, and that credit unions can continue to serve their members’ financial needs and protect their savings.

“Furthermore, as the sector continues to focus on framework change and a desire for credit unions to engage in more complex activities, it needs to be mindful of the recurring risk management weaknesses identified, and how they must be continually addressed.”