# Fitness and Probity of Directors of Credit Unions



## Tadhgin (3 Jan 2008)

Governance is, as Mozart points out, a major issue. The Financial Regulator has imposed a Fitness and Probity requirement for directors and senior management of all financial institutions, excluding credit unions and moneylenders. (What Company to Keep!!!) It is time that the Financial Regulator addressed this anomaly through the Registrar of Credit Unions. Fitness and Probity requirements apply in the highly successful Australian Credit Union movement, in the UK, in Canada, in all areas where credit unions have developed successfully. It is hard to see why the Regulator continues to ignore this critical area in Ireland - after all, it is members' savings, and members' assets that are at risk, and there no longer is any excuse for ignoring the calibre of persons that serve on credit union boards and in senior management positions. 

In fact, it could be argued that the imposition of rigorous Fitness and Probity regimes has been the catalyst for raising the bar that has led the credit unions in the aforementioned countries becoming hugely successful, having moved to the next level. Over to you, Mr. Regulator.


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## Brendan Burgess (4 Jan 2008)

*Re: An investment strategy for credit unions?*

I think that the Fitness and Probity regime for Irish financial institutions is primarily a paper pushing exercize for the Financial Regulator.  If a financial institution wants to appoint a director or senior manager, they have to fill in loads of paperwork. If the t's are crossed and the i's are dotted, the Financial Regulator is happy. 

But there is little evidence of active intervention when existing employees show themselves to be unfit or improper. The FR does work behind the scenes to remove people - I suspect that they have told boards to get rid of people who have been publicly identified as major tax evaders. However, there are a few people still employed in financial institutions who manifestly are unfit and improper, and the FR seems to be scared to take them on. 

There would be no benefit to imposing this type of regime, or even a slimmed down version of it, on Credit Unions. It would dissuade new people from getting involved. 

And that is a big problem for Credit Unions. Their membership is aging. Young people are not interested in volunteering. 

They will never pay the salaries of the big financial institutions, so they have difficulty in attracting the top talent. 

I don't know what the solution is, but imposing another paperwork requirement is not the solution. 

Brendan


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## mozart (4 Jan 2008)

I agree that paper work may not be the answer but all staff and directors should be required to display a level of skills in the area of governance that supports their position in the credit union. Long serving directors and staff not to realise that the market place and regulatory requirements are changing. Few seem anxious to up-skill to meet the new demands and would rather reminisce about the "old days" than look forward to the new. Directors deal with issues that they are comfortable with such as approving loans, sitting on committees, getting involved in day to day activities. They cannot see that their role is now to govern rather than "do". The ILCU are no real help in this process as their directors (who are also credit union directors in the main) are doing the same thing in the ILCU rather than allowing the executive get on with their jobs. How can we advance??


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## Tadhgin (4 Jan 2008)

Credit Unions are multi-million euro industries, looking after very substantial amounts of money that is owned by the members. It is not good enough anymore to have credit unions governed by a small number of individuals that focus on how things were done forty years ago. There is a different reality now, and unless and until credit unions realise that, they are condemned to go the same way as the rural banks of the 1920s - into history. The Financial Regulator has the power, under the Credit Union Act, to effectively fire directors - he has never done so. Not once. The only casulties over the last five years have been professional managers, sometimes in the most spurious and dubious of circumstances. 

Very few Credit Union directors are professionally competent to undertake the responsibilities that accrue to them under the Credit Union Act. They are not trained in underwriting the oftimes very large loans their boards deliberate on (it is nearly always the Board that decided on the large loans). Few, if any have formal training in managing investment portfolios of tens of millions of euros - hence the exposure to advice from every carpetbagger "advisor" trawling their wares. Nor do very many of them have expertise in handling HR issues that they delight in getting stuck into, resulting in Credit Unions having abysmal Labour Court records. And as for issues such as regulation, minimum competency requirements and other such issues presenting currently.....

If fitness and probity requirements were to be enforced, a number of existing directors would depart - that would make it necessary for the Nominating Committees to do some real work. People will come forward or will be recruited if there are vacancies, but they have to have proper supports, proper training regimes in place, realistic qualifications, appropriate terms of reference, etc. 

The role of the Board must be based on the reality that professional staffs and managements are there to handle the delivery of service to members, and that the Board is there to concentrate on strategic management. 

There is more time and energy spent on long running disputes between boards and supervisory committees and managements than there is on dealing with the ever present and increasing challenges that credit unions face.

If the customers of Banks are entitled to expect a minimum of fitness and probity from the directors of a bank, surely a credit union member is entitled to the same in terms of the directors of their credit union?

The Regulator has run away from the Issue of Fitness and Probity - he is afraid to take on the ILCU, and the Boards that want to see no change at all. The Regulator must force this issue if he wants safer, better, more secure credit unions.


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## Basildog (4 Jan 2008)

I have been following this debate with interest.
I agree with you, Brendan, that the fitness and probity initiative is simply a pen pushing exercise, and a sop to the Financial Regulator.
Two recent Credit Union reports (one by IBEC) are of Interest. The first report, detailing Credit Union Salary Costs across the movement, shows that 10 Credit Union Managers earned in excess of €90,000, plus Defined Benefit Non Contributory Pension, plus VHI and generous mileage expenses. The second report shows that there are in the region of 3,000 paid employees in the movement, and 6,000 voluntary directors and supervisors. This ratio of 2 to 1 is interesting as it used to be 3 to 1 in 2000 - not so long ago.

 What these reports confirm is the growing professionalism in the movement. While the 90k plus salary is reasonable, I accept it would not be sufficient to attract high expectation earners. However, Do Credit Unions at local level need very high earners? Would high expectation earners want to work in a Credit Union?

 In my opinion the Credit Union Movement is split into the traditional wing and a professional wing. The Traditionalists, including the League, remains stuck in the past. It is unwilling to embrace change and feels it has done ok by itself up to know, thank you very much. It believes in self regulation and is anti Regulator interference. Many directors in the traditional Credit Unions still get involved in operational issues, and have the weight of the Credit Union Act 1997 behind them to back up their actions. The professional wing is willing, and has embraced change. Directors let their manager manage all operational issues, and the board gets involved in policy issues. These Credit Unions welcome regulation and best practice procedures. They are well run and successful, for the most part

 It amazes me how some commentators constantly knock Credit Unions. There seems to be a view that Credit Unions are Mickey-mouse operations, run by Mickey-mouse people. I would hazard a guess that many of these commentators never signed up a loan in their lives, let alone underwrite a loan!. Successful multi, multi million Credit Union operations did not happen by accident. Like many successful businesses, many credit unions have carefully planned their growth. Regular Strategic planning is undertaken. Managers of Credit Unions are General Managers in the truest sense - They have also to be the Financial Controller, Marketing/Sales Manager, IT Manager, HR Manager, Customer Service Manager, Credit Control Managers, Investment Manager, etc, as well as having to deal with voluntary boards - not the easiest thing to do! Surveys reveal, however, that as compared to Bank Managers, Credit Union managers are, in general, very content, and happy in their jobs. They like the variety. It is no wonder that many bank managers leave to become Credit Union managers.
Credit Unions operate within a risk environment. 

There will always be bad debts when money is lent. Levels in Credit Unions sometimes appear higher than normal, circa 5%.  However, many Credit unions do not write off bad debts until judgment is obtained! Some Investment risks are taken, but, in general, the vast majority of Investments entered into are risk neutral. Costs are well controlled and Income is maximized, where possible. I accept that more could be done to generate fee income, but this would cause a serious debate within the Movement!

In general, my argument is that the Credit Union Movement is a serious financial co-operative, in existence for over 40 years, with no Credit Union failures to date. About half of the 500 odd Credit Unions are progressive and have embraced change. They are well run and well managed. The other half are moving at a slower pace but this does not necessarily mean that they are in trouble. Many of these Credit Unions are also well managed. Like Fianna Fail, the Credit Union Movement is bigger than the sum of its parts. Where it goes from here, only time will tell.


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## ontour (4 Jan 2008)

It is like most things at the mercy of the equilibrium in supply and demand. Due to the large number of credit unions there is a significant demand for directors, in the scale of 5-6,000 as referred to above.

The supply of willing applicants to be directors of credit unions is very small even before you could consider vetting candidates to only utilise appropriately skilled candidates. The result is that many directors are not only unskilled, they are only doing the role as a replacement can not be found for them. The age profile at national meetings was quite frightening. This is a statement of the reality rather than making an excuse for poor governance.

The second significant issue is the move towards 'professionalism'. Anecdotally this entails a lot of cases where roles are filled based on the unavoidable local politics of the credit union rather than obtaining the best skilled person.

As credit unions become more 'professional', costs are rising significantly at a time when their return on lending and investments is dropping. This will make credit unions more difficult to manage.

The key could be to focus on the key to credit unions, their community focus. Get them more involved in assisting people for education funding, back to work schemes, enterprise creation etc. where the community is creatively investing in it's own development in unison with other state agencies.

Back on point, fewer credit unions would require fewer directors and that would be one step towards improving governance.


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## Basildog (5 Jan 2008)

I agree totally with your last point, ONTOUR. Personally, I would advocate the scrapping of the voluntary Supervisory Committee and its replacement with a suitably qualified, paid Internal Audit function. I would reduce Board sizes to a maximum of seven board members, with proper fitness ans probity controls in palce. This would lead to the end of the Credit Union movement as we know it and would turn the movement into a mutual banknig group, similar to the EBS. It would be seriously resisted by the League and many existing volunteers. Turkeys dont vote for Christmas!
Not only are the League and vested volunteers unwillinig to embrace professionalism in the movement - They cant. It is not in their nature. This is why they look upon Credit Union managers as a threat. This is why they are fighting the Regulator at every turn. This is why the play the 'political' card every once in a while. To be fair, they are not stupid - far from it. They know that currently they have the power and the legal backing of the Credit Union Act. Why do you think they are so reluctant to carry out a serious review on this antiquated piece of legislation? Indeed, they have rejected every serious submission made to date on the review of the Credit Union Act. We have reason to be concerned.


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## Tadhgin (5 Jan 2008)

That credit unions have survived for 40 years does not mean they will survive for another 40. They are living organisations, and must change to survive. There are a number of credit unions in trouble. If we look at the area of Investments alone (now accounting for 50% of Credit Union assets),  at least twenty sustained heavy losses due to the Perpetual Bond mis-investments in the year gone by.  A significant number have got caught up in the ISTC fiasco. The Savings Protection Scheme of the ILCU has intervened in the cases of a significant number of credit unions in the last decade. The number of credit unions in the Republic has declined from 435 to 425 in the last five years. Hardly a flood, but an indication that some are seeing the writing on the wall. 


The well run credit unions are not immune to the sins of the poorly run ones - all of us suffer brand image damage, and damage to member and potential member confidence every time the Sunday newspapers report on another loss sustained through inappropriate investments or investment in some inappropriate scheme.

Fitness and Probity did not become a paper pushing issue when it was implemented in Australia, because the Regulator in that jurisdiction took responsibility and took on the vested interests there. Our Regulator can do it here too if he has the will.


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## CUJimmy (7 Jan 2008)

I have been following this discussion with interest and would like to make the point that 

1. Losses suffered under the perpetual bonds will be recovered if the bonds are held. The fact that these products were sold to the movement by an "advisor" is totally inexcusable. 

However in the case of the sale of these products, the purchase of the ISTC bond and indeed the credit unions who have sought assistance from the savings protection scheme, in no case that I am awqare has the registrar of Credit Unions taken any action against any director of any of the cedit unions. The power already exists and is never used, bringing Credit Unions under the fitness and probity requirements would therefore serve no real purpose.


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## Centaur (9 Jan 2008)

A number of points:

The financial regulator has shown a poor understanding of the credit union movement from the outset.  I agree many of its actions are 'to show things are being done' and are bent to self justify the Regulators existence - form over substance.

On the other many credit union directors just don't have a clue what they are about.  I know directors with over thirty years service who don't know how to read the cu's own accounts not to mind the financial pages. The are often nominated because they will not cause waves.

Some credit union are getting quite large, are professionally run and are essentially very different institutions from the much more numerous tiny volunteer led organisations.  Perhaps its time to accept that no longer can 'one cap fit all'.


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## Tadhgin (9 Jan 2008)

There certainly is a case for a differentiated approach to regulation and governance. The "Paint by Numbers" approach to governance is long past it's sell-by date. Much of what passes for credit union operation is meaningless repitition of how things were done yesteryear. There are excellent credit unions out there, striving hard to deliver service is excellent and member-driven services. And trying to communicate meaningfully with their members. A good example of this is Naas Credit Union - their most recent annual report bears examination. We see in this report a genuine, professional approach to accountability, communication and reporting, presented in a fresh, readable manner. Well done.

There is a need for a differentiated approach to how credit unions are run and regulated. This is within the scope of the Financial Regulator right now, without any change in legislation.


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## mozart (10 Jan 2008)

All threads in the credit union debate lead back to governance issues. These issues can only addressed in my opinion when the is a uniform acceptance, that has been mentioned above, that the idea that one size fits all is no longer appropriate. Their is an acceptance by all parties; ILCU, CUDA, CUMA and the Regulator that new legislation is needed. What we need is some kind of a "forum" where the issues around the various opinions of what is needed in this new legislation can be discussed openly. It is true that there are vested interests in all groups who will obviously try and push their own case....but isn't that what discussion/negotiation/debate are all about. 
If Condelsa Rice is passing through Shannon any time soon maybe she'd agree to chair it. Seriously though it needs a new thinking. as Taighin said above because credit unions have survived for forty years does not mean that they can survive another forty or even twenty without radical change.


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## Basildog (10 Jan 2008)

Two key points, here, Mozart.  First, The idea of a forum is noble, but would ultimately end up as a talking shop, with any report issued left on a shelf to gather dust. As it currently stands, the power in the Credit Union Movements rests with the League (and to a lesser degree, CUDA). Decisions , which are binding,  can only be approved at the Movement’s annual Conference.(AGM)  For those of you who have had the pleasure of attending  such conferences, you will know that it is the silent ‘voluntary’ majority that vote, in the main, for recommended rule changes put forward by the League ( again with a Voluntary ethos).  Some Credit Unions bring excellent and worthwhile rule ammendments and changes to the floor of these conventions. However, time and time again, despite speaker after speaker supporting these motions for change, the  silent majority, at the Leagues sugestion, will vote down many necessary changes. Many of the speakers are Credit Union Managers who know what is required. However, the voluntary directors hold the majority and the ‘power, and will not give it up!. It is very depressing to see this silent majority ignore reality and vote for the status quo.
My second point is that I believe Credit Unions wil survive because managers have a direct personal stake in the Movement and their  voice is growing. Credit Union is the manager’s career. The job pays their bills. Many have invested too much time and effort to let it fail. Directors come and go. If a problem arises or increased governance comes into play, directors can walk away, and go back to thier own careers. Granted, there are many active volunteers who treat Credit Unions and the movement as a personal quest and and are fundamentally committed to the ‘cause’. They are activists in the truest senses of the word and will fight tooth and nail to keep ‘their’ movement in tact and avoid change. However, change is inevitable.Managers recognise the ‘clear and present dangers’ confronting the movement. They know what is needed and are suceeding, slowly, I admit, in implementing the necessary changes to keep this movement vibrant. Headline ‘scares’ will come and go. Credit Unions will have problems, as do Banks. Some will suffer Investment losses. However, in the main, Credit Union finances are strong. Professionalism is growing. To be fair to the regulator, he has introduced a platform for change, albeit, sometimes ill thought out. Many Credit Unions, with Managers and Boards working in tandum, have taken up the challenge, and are suceeding. There will be some who do not believe this and would love to see the movement fail. However, it wont.  Granted, what the movement looks like in 20 years is anyones quess. However, all one has to do is look at the experiences of the US, Canadian, Australian and NZ movements to see how they coped with change. They are all highly successful movements.  The Irish movement is at the same stages these movements were at 10 years ago. I rest my case


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## kaplan (11 Jan 2008)

A fitness and probity test is well past its due date and should as a matter of urgency be introduced it at least to force the pace of change.

The inescapable conclusion of any objective analysis of the state of the credit union movement in Ireland is that it is a shambolic mess whose people (boards and managers) are collectively incapable of co-operating with one another and learning how to modernise the businesses they are responsible for governing and managing.

In a recent speech the industry regulator highlighted in quite stark regulatory language a litany of problems none of which is being adequately addressed in any meaningful or purposeful way. The regulator has consistently highlighted operational and IT risks, poor governance, management, lending, investments and systemic non-compliance as core issues remaining to be tackled. (of course leading credit unionists say the regulator doesn’t quite understand credit unions ! and would be better off bashing the banks !)

Credit unionists both traditionalists and modernists use a language thick with social “do good” rhetoric but short on credit union business sense, thus absolving themselves of responsibility and accountability for ensuring the safety and soundness of their credit unions business operations and savers funds. They all too conveniently blame some one else for their failure to get to grips with reality. 

For example the complete absence of a savings guarantee for savers funds. Another is decades of one failure after another to modernise operations and IT capabilities where once they try to collaborate they find a reason not to. 

Yet another; the non-transparent core consumer products they sell. Where else would a saver be told “you have to wait until we figure out what our profit is before we can decide what interest to pay you” ? Or “we will charge a higher rate now for your loan but will refund you some interest once we figure out how much profit we have made”  

Insider arguments of a growing professionalism, is posh when one considers the quality of board, managerial and staff capabilities elsewhere. Most credit union managers are not financial service career professionals but are drawn from many sectors with little or no experience other than the one credit union they work for. Some are good (in comparison to others) but the benchmark is too low as many are at best barely adequate to the role. All of the more recent headline problem cases (bar one) reported on in the media resulted from a combination of maverick managers and board oversight incompetence. 

There is no such thing as a credit union management or staff development programme nor recognisable qualifications or standards. The same is true for board directors. Only recently the ILCU has arranged for a programme via the University of Ulster decades after similar programmes were established in Canada, USA, Australia and New Zealand. 

As far as boards are concerned they are populated by “enthusiastic amateurs” many of whom can’t figure one end of a balance sheet from another. 

The simple unnerving fact is almost all credit unions are controlled (governed and managed) by a very small group of about three/four people, one of whom may be the manager. Nearly all do not have a proper internal audit system and rely on “volunteer” supervisors who have neither the qualifications nor experience in internal auditing a financial service firm. 

Yet there remains a genuine and passionate belief in what they are doing is right. It isn’t and they must learn how to do it better. Learning how is the starting point. The problem is it may be too late.


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## Tadhgin (11 Jan 2008)

A Fitness and Probity Test would help force the hitherto snail-like pace of change. 

Legislative reform is urgently needed to address the structural and other inadequacies in credit union to-day, and to enable credit unions to sustain in the future. It must address the governance issue.

The Financial Regulator has indeed highlighted many of the areas of weakness. However, he has never fired a Board of Directors for behaving recklessly. He, and the ILCU, have ignored the lack of a deposit guarantee scheme for credit union savers since the inception of the 1997 Act, and both have circled one another in a sterile dance, going nowhere. 

ILCU is not a medium for change - it's focus is firmly in the past, and it keeps a stranglehold on all credit unions through the Savings Protection Scheme, and it's ability to expel credit unions from the Scheme if they fail to take insurance from their in-house company.


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## Basildog (12 Jan 2008)

kaplan said:


> _Yet there remains a genuine and passionate belief in what they are doing is right. It isn’t and they must learn how to do it better. Learning how is the starting point. The problem is it may be too late. _


 
I would pose the question- Doing it right in whose eyes? . Credit Unions are small, independent, companies, albeit, Financial Services Companies. Many are in existence over 45 years and have evolved very stable internal controls and financial management systems. They are audited, similar to other companies, by professional auditors on an annual basis, in accordance with recognized accountancy practices, and get, for the most part, clean and favorable audit reports. They are also regulated by the Financial Regulator, and before him, the Register of Friendly Societies. They are monitored by the Audit section of the League of Credit Unions. Credit Unions are no different to thousands of other small companies, who in the absence of layers and layers of costly line managers and departments, operate in a satisfactory manner. What seems to irritate many people, especially bankers and MBA professional types, is that credit unions can be so successful without their input!. How can you run a successful business without at least 10 qualified accountants on board?.. Granted, there is much structurally wrong with the Credit Union movement and the rapid rise in Balance Sheet sizes in the past 10 years has posed serious challenges for credit unions. However 'understanding the business' goes far beyond knowing how to read a balance sheet or knowing what an interest rate 'swap' is. Knowing Credit Union business is not only about adopting best accounting, reporting and governance standards. It is about dealing with local people on a day to day basis and understanding their needs. It is about offering people products and services they understand and want. It is also about understanding what Credit Unions stand for; what their role is; what they were set up to do, and how they interrelate with their local communities. The tired old credit union term of 'Not for Profit' has actually some truth to it. Credit Unions, as compared to banks, do not go out to maximize profits. They are not in the business of maximizing investment returns for shareholders. They are not in the business of operating like main street banks. Financial service business is very simple. It is lending and recovering money and encouraging people to save. Credit Unions have kept it simple. It is banks who have complicated issues, in my opinion, by introducing layers and layers of complexity into what, is, in essence, a straight forward process. Large financial institutions have the luxury of hiring armies of staff to monitor and control all aspects of their business. They consequently cannot seem to understand how the lowly credit union can operate in a fashion that doesn’t fit in with their model!. It baffles them how a Credit Union can be successful. Ask any local branch bank manager what he thinks of the local credit union. He will inevitably say that they are killing him! . With all of their expertise, AIB and others have lost billions over the years in fraud cases, mal practice and a gross failure to follow 'established' internal controls!. Should this be the model credit unions should follow?


 Credit Unions do need to modernize, and as I have argued before, need to follow the examples of Credit Union movements in other jurisdictions. Minimum competency standards, fitness and probity, will become the norm. The voluntary input at director and supervisory committee level will decline over time. What we are seeing at the moment is a Credit Union movement in transition. However, this should not be confused with a Credit Union Movement in financial trouble. Perhaps the doomsday merchants of credit unions in fact "do not understand the business" at all.


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## kaplan (6 Feb 2008)

This quote sums up the current situation admirably:

“_The board selection process in Ireland, Canada, and, indeed, most other credit union movements has changed little over the years. It has not accommodated or significantly responded to the changes in management theory or developments in corporate governance; nor has it paralleled the evolution of the private sector statutory or fiduciary environment. Rather, it continues to reflect a credit union structure that is a small, geographically or associationally localised cooperative with tight common bonds, characterised by small membership and all members knowing each other. In such an environment, the primary consideration for the selection of the credit union director is the candidate’s belief in cooperative principles, their knowledge of the membership, and their desire to provide the membership and their community with access to basic financial services (savings & loans). But with the transition of credit unions into the mainstream of the financial service sector, the process is now arguably antiquated and ineffective as a component of corporate governance. For a significant number of credit unions it resembles little more than a regulatory compliance technicality, and not a fundamental instrument for improving board quality and, in turn, credit union governance._” (Credit Unions: Selecting the Right Directors- McKillop, Goth, Hyndman ; Accountancy Ireland Feb 2007) 

The article also reported on the results of a credit union survey in which 73% of respondents said that the required skills set of the board and credit union little or no relevance in their director selection process. 60% had no training or orientation programme. Findings in relation to the expertise on boards were: 81% had no consumer lending skills, 84% had no commercial lending skills, 55% no financial services management skills, 36% no accounting skills and 60% no marketing skills

In an ILCU report 52% of credit unions polled had no succession plans and board turnover was very low. Additionally only 28% had a strategic plan in place. 

Kaplan


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## Tadhgin (6 Feb 2008)

McKillop, Goth and Hyndman rightly draw attention to the fundamental lack of relevant skills among Credit Union Directors. I believe, however,  that the 55% admitting to having no financial services management skills and the 36% admitting to no accounting skills might be somewhat of an understatement - I cannot think of a Board where 45% of the Board has Financial Management Skills (outside of the Credit Union) and where 64% of Directors have accounting skills.!!!!

The absence of Training and Induction Plans, of succession planning, of key-person planning, of business continuity planning, points all in the same direction - there is a failure of directors and managers to take responsibility to secure the future of the industry locally and nationally. 

Directors and Managers should be subjected to Fitness and Probity requirements. Fitness and Probity has worked well, generally, in the wider financial services community. IF we were to have a smaller number of more highly qualified directors, and managers, the sector would be better served. It should not be viewed as a cover-your-back operation - it would initially be resisted, but eventually worthwhile.


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## kaplan (6 Feb 2008)

Yes but a fitness and probity test for credit unions will probably have a quite generous grandfathering provision ! 

Given the very low director turnover this would allow many off the fitness and probity hook and may not solve for governance. 

Kaplan


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## Quarehawk (14 Feb 2008)

This is an interesting debate. The bottom line is that Jim McMahon, then President of the Irish league of Credit Unions, summed it all up a few years ago when he said that (Directors) are all only volunteers. And he was right. What chance has the ordinary Joe Soap director, doing his daily work, to know the difference between a step-up clause and a hedge fund, or to know what subordinated means? Directors of credit unions were expert when all that was under review was personal lending for household purposes. There were not millions to manage in investments. Counter-Party Risk was probably a runner in the 3.30 at Kempton, and a Prudential Return probably was a library book that was late. Now, the picture is on a different channel, and all that many directors  do is appear knowledgable, and focus in, with a dieing man's grip, on the few little things that seem capable of being understood anymore (like the local poster competition or the chapter social or the golf outing).

The Regulator is afraid of his life to mention the topic. He well knows that if he does, he will draw the wrath of the Irish League of Credit Unions and of many of the senior citizens of the boards scattered around the country. 


But just because it won't be popular doesn't mean it shouldn't be done. I am sure that F&P wasn't popular with other financial services firms either.

Finally, it is interesting to note that in a number of senior Credit Union positions advertised for recently, (including two positions in to-day's Independent) the QFA qualification has been sought - this is an indication that in some credit unions at least, professional qualifications and Minimum Competency Requirements are being taken seriously.


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## kaplan (15 Feb 2008)

Quarehawk
Credit Unions now advertise for QFA’s , not through choice but necessity as their non-core business falls within the CPC obligating them to have qualified staff. But the skills aren’t just required at the selling end of the business. What’s missing is competence and skills at board and management level. 

The Regulator both the RCU and its CEO have consistently hammered home on credit union governance. At one time the RCU referred to credit union directors as enthusiastic amateurs – of course he was roundly condemned by the ILCU.

The CEO, Pat Neary addressed the World Council in Dublin 2006, highlighting the challenges faced by Irish credit unions – he was attacked from the podium by the ILCU. International leaders were appalled and privately voiced their dismay at ILCU behaviour. The RCU has recently addressed governance once again and was attacked for not attacking the banks! 

The Regulator is stuck, hamstrung by a legacy of self-regulation and political appeasement, bad laws and frustrated a lack of credit union reform and development. To many observers its approach amounts to “regulatory minimalism” as it doesn’t want to be caught holding the baby when a crisis hits – as it will. One recent media report spoke of a secret war behind the scenes between regulator and regulated. What we hear is subtle regulatory language versus credit unionist rhetoric of co-operative ethos and spirit. 

The ILCU defence is that credit unions are “run by volunteers”. With close onto €14bn in household savings, 80% of which is held in the top 100 credit unions, the sector proposes a concentration of consumer savings far greater than any of the big banks. The largest Credit Unions have between €200-€300m in household savings of a local population living within a 10 mile radius. Equivalent concentrations are true of many other provincial towns. There are also cluster density within geographic areas. 

Were these top 100 credit unions a branch banking network, the bank would be bigger than National Irish Bank in its market share of consumer savings and personal loans. 

Most people don’t realise the size of operations and moreover the scale of risks requiring governance and management by capable people. If they did, the would rightly demand fitness and probity tests, greater transparency and far more robust regulations and prudential supervision – and of course proper deposit insurance. 

But such is the oveall level governance and managerial competence that the future is one where it is highly likely a catastrophic regulatory event will trigger reforms as it has elsewhere most notably Australia in 1992.


Kaplan

[broken link removed]


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## Quarehawk (15 Feb 2008)

Kaplan,
Could you please expand on what happened in Australia in 1992?
Where would one find Pat Neary's speech to the WOCCU Conference in 2006?


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## kaplan (16 Feb 2008)

Quarehawk

His speech is available on the IFSRA site under “News” section “Archive 2002-2007” - (28th July 2006). You have to scroll back as it’s not possible to directly link to the page. It should be read along with *"Address by Brendan Logue to National Supervisors Forum" (3rd Nov 2007) & "Statement by Brendan Logue RCU to Joint Oireachtas Committee" (13th Sept 2006). *


The Australian reforms came about principally from a catastrophic regulatory event, the failure of the Pyramid Building Society. This triggered government reforms of the mutual & co-operative sectors after which a stricter regulatory and supervisory regime was put in place but also one that provided the potential & flexibility for credit unions to expand and grow their operations. Regulation & Supervision became more "bank like" with a major emphasis on building reserves, risk weighted capital and providing for differing lower risk loan assets (mortgages) along with audit, disclosure, fitness & probity and relaxing the common bond type resrictions to competition.

Kaplan
[broken link removed]


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