Guidance Paper for Credit Unions on Business Model Strategy published

• Credit unions today are seeking to adapt their business models in order to meet the evolving needs of their members while addressing ever increasing competition.
• Central Bank guidance promotes a structured risked-based approach to business model change, grounded on credit union ownership of their own business model development.
• Guidance highlights risk considerations including those related to credit union collaboration and shared services.

The Central Bank of Ireland has today published a paper “Business Model Strategy: Guidance for Credit Unions”. The paper highlights the challenges facing credit unions today as they seek to adapt their business models in order to meet the evolving needs of their members, while addressing ever increasing competition. The purpose of the guidance is to support credit unions in adopting a structured, risk-focused approach to business model strategy, while setting out the Central Bank’s key risk considerations and related supervisory expectations.

The guidance highlights that credit unions are legally obliged to develop strategic plans. Strategic plans need to be tailored to the credit union’s individual financial circumstances and capabilities, as well as common bond dynamics, while addressing operational and commercial challenges.  The guidance notes that it is incumbent on credit unions to demonstrate sound and prudent risk-focused strategy formulation, business planning and implementation, aimed at the delivery of member products and service needs sustainably.

Ownership of strategy and implementation by credit union boards is emphasised. The guidance advocates that when credit unions decide to offer a broader range of products and services to members, they should consider the full range of risks involved. Credit unions are expected to have the necessary resources and the competence and capability to deliver any new strategy and to manage the associated risks involved, in order to protect members.

The guidance notes an increased reliance by credit unions on outsourced shared service provision, including collaborative efforts between credit unions to support scale and cost efficiencies, and sets out related-risk considerations for boards to consider.  

Commenting on the guidance, Patrick Casey, Registrar of Credit Unions said:

“When developing business model strategies to address underlying member demand on a sustainable basis, it is essential that credit unions adopt a structured risk-based approach appropriate to their individual financial circumstances and capabilities, as well as common bond dynamics.

This guidance forms part of a range of prudential supports provided by the Central Bank to credit unions. These supports are provided at a time when credit unions are seeking to adapt their business models in order to meet the evolving needs of their members while addressing increasing competition.

Ultimately, it is a matter for each credit union board to determine the appropriate business model for their credit union. The structured risk-based approach set out in the guidance paper, should be a useful input for boards seeking to undertake the business model change process.”