Central Bank publishes Review of the Maturity of Risk Management in the Credit Union sector

• Robust governance and risk management are critical business enablers for credit unions.
• Review finds weaknesses in the embedding of risk management in credit unions.
• Boards should consider the review and its recommendations to ensure that robust risk management supports their credit union’s financial and operational resilience.

The Central Bank today (19 November 2021) published a thematic review of risk management maturity in credit unions which includes a series of findings, expectations and recommendations.

There has been significant progress since the 2013 commencement of legislative requirements on risk management, introduced by the Oireachtas. The basic elements of a risk management framework are now in place in the majority of sampled credit unions. Nonetheless, 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. Instead those credit unions should view it as a key business support and enabler to underpin their operations and decision making.

The review found weaknesses in Board oversight, stewardship and ownership, the structure and framework around the risk management function, risk reporting, engagement with risk management, training and culture.

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.
• A disconnect between the three lines of defence in credit union governance, with risk-related work occurring ‘in silos’.
• A need to enhance the quality of risk reporting to enable Boards to fully understand the extent of the risks facing the credit union.
• 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.

Registrar of Credit Unions, Patrick Casey, said: "Robust governance and risk management are 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 in every credit union."