Money Laundering

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Credit Union Governance The Supervisors Role
November 2008
Michael Mullen
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Objectives

• To present a framework of governance for credit
  unions
• Highlight your role in exercising good governance
  
• To place governance within the context of
• The internal credit union structure
• The individual framework
• The external regulatory statutory environment

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Challenges for Supervisors

• Increasing CU business complexity
• Greater Regulatory scrutiny
• Positive obligation on the Financial Regulator to
  report any contravention or breeches of
  Legislation uncovered by it
• Increasing Accounting standards
• Additional reporting requirements on the auditors
  of regulated financial entities
• Increased Governance and Compliance focus
• Increased personal exposure

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Necessity for Good Governance

• Improved performance
• Effectiveness and efficiency
• Risk Management
• Reputational Risk
• Regulatory Compliance
• - Transparency Accountability
• Individual Director Liability
• Credit Union tradition culture

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Supervisory Committee Responsibilities

• The Supervisory Committee shall have the
  general duty of overseeing the performance by the
  directors of their functions

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Functions of the Supervisory Committee

• The functions of the supervisory committee
• Meet once a month - Keep minutes of its
  meetings
• Meet with directors (4 times a year) - written
  report to directors
• Examine the books and documents at least twice
  a year
• (securities, cash accounts and loans)
• Examine at least 10 of pass books
• Ensure that all actions and decisions of
  officers are in
• accordance with laws and the rules
• Written report to AGM
• Complete such returns or reports as required
• Supervisors have access at all times to books and
  documents of the credit union

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Scope of the Internal Audit Function

• Review accuracy of accounting records financial
  reports
• Review means of safeguarding assets
• Test transactions functioning of specific
  internal control procedures

Internal Audit, Basel Committee on Banking
Supervision, 2001
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Scope of the Internal Audit Function

• Exam and evaluate internal control systems
• Review risk management procedures
• Review management financial information systems
• Review system of assessing capital in relation to
  estimate of risk loans and bad debt
  provisioning
• Review systems established to ensure compliance
  with laws, regulations, standards policies
• Testing of the reliability timeliness of
  Regulatory reporting

Internal Audit, Basel Committee on Banking
Supervision, 2001
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Manage Risks - CUSO Internal Control Cube
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What is Governance?

• A definition

Governance is the system by which credit unions
are directed and controlled Rule 75
(R.o.I)/89 (N.I.) the board of directors shall
have responsibility for the general control,
direction and management of the affairs, funds
and records of the credit union (Standard
Rules for Credit Unions) from Credit Union
Governance An Introduction ILCU June 2004
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A Framework for the Governance Model
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Internal Governance Responsibility for
Direction

• Vision mission statement
• Strategic or Business Planning
• Annual Budget
• Written Policies and Objectives

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Internal Governance Responsibility for Control

• Risk Analysis
• Financial Control
• Monthly accounts
• PEARLS
• Monitoring operations
• Reports
• Setting Roles Responsibilities
• Role of manager committees

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Risk Management
Identify Risks
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Internal Factors - Manage

• Organising the Board
• Electing directors to fill principal posts
• Establishing committees to carry out operational
  work
• Evaluating board performance (and of individual
  directors and of principal posts)
• Maintaining board discipline
• Orienting new directors establishing director
  training plans

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Individual Governance

• Put the same care attention into the credit
  union as you would your own affairs

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Effective Director/Supervisor Core Principles

• Keep well-informed
• Be prepared for all meetings
• Think Independently
• Ask for Clarification insist information makes
  sense
• Take personal responsibility
• Disclose Conflicts of Interest
• Be Honest/Have Integrity
• Have Commitment
• Be Knowledgeable
• Be a personal representative of the members

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External Factors-Compliance

• ILCU Rules
• CU Act

Credit Union
2. Credit Union Policies
5. Statutory Requirements
3. Regulatory Requirements
4. Governance Structures
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1. Compliance with the Credit Union Act

• The Credit Union Act
• The ILCU and Self-Regulation
• The Rule Book
• How well do you know the Rule Book?

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2. Compliance with Credit Union Policies

• Do policies exist for all key risk areas?
• Do they adequately cover the risk?
• Have they been communicated?
• Are they being complied with?

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3. Regulatory Checklist
Regulatory Compliance - Minimum Requirements

• Compliance with Regulator issued Codes/Rules
• Timely Prudential Returns, with particular
  emphasis on compliance ratios
• Compliance with Registrar issued Guidance Notes
• Compliance with Ombudsman Scheme
• Compliance with additional regulatory
  requirements Central bank/Money Laundering

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4. Governance Checklist

• Governance Compliance - Minimum Requirements
• Independent Risk/Compliance Committee
• Active Nominating Committee
• Competent Directors Staff
• Conflict of Interests Register
• Volunteer Code of Practice and Code of Ethics
• Credit Union Board who insist on Compliance
  reports
• Active Supervisory Committee

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5. Statutory Compliance

• Anti Money Laundering requirements (Criminal
  Justice Act)
• Insurance Compliance (Insurance Intermediaries
  Act)
• Investments Compliance (Authorised Trustee
  Orders, IIA)
• Data Protection Law
• Competition Law
• Health Safety Law
• Employment Law
• Equal Status Legislation
• Taxation Law
• Each has its own codes and each is another days
  training!

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Money Laundering Compliance Checklist

• Active MLRO, reports regularly to board
• All staff aware of Money Laundering Policy
• Member Identification - Sample
• Annual Money Laundering Training record

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Insurance ComplianceChecklist

• Identified Designated Person
• Have we followed Consumer Protection Code e.g.
• General Principles are followed
• Terms of Business Reason Why letters issued
• Section 30 Receipts issued
• Written Complaints Procedure in place
• Premium Handling rules followed
• Maintenance of Books a Compliance file
• Paid into Compensation Fund
• Followed Minimum Competency Requirements

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Investment ComplianceChecklist

• Investments are within Authorized Orders
• Regulator Guidance Note followed
• Written Investments Policy Are risks identified
• Investment Committee make up

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Data Protection Compliance Checklist

• Registered with DP Commissioner check DP
  website
• Written Data Protection Policy
• Comply with 8 Data Protection Principles
• Ensure rights of access to members
• Training

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Health Safety Checklist
Health Safety Compliance - Minimum Requirements

• Have we performed a Risk Hazard Assessment?
• Is there a Safety Statement How old is it?
• Is there a Safety Management Structure?
• Designated person
• Accident records
• Communication Training
• Safety Representative

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HR Checklist
Employment Law Compliance - Minimum Requirements

• Contracts of Employment
• Recruitment Selection Procedures
• Discipline Grievance Procedures
• Leave Absence Procedures
• Bullying Harassment Policy
• Equal Status Policy

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Tax Checklist
Taxation Law Compliance - Minimum Requirements

• DIRT Procedures followed?
• Recording of Tax Identification Numbers

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Necessity of Good Governance

• Good governance wont guarantee that you wont
  have problems
• poor governance almost certainly will

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Thank you !
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and poor governance
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What is Compliance
A definition

• 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, April 2005

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Role of Compliance

• Identify all Regulatory Obligations
• Set-up Compliance Manual
• Oversee Monitor Compliance Controls
• Training Communication of Compliance issues
• New Product/Service Approval
• Investigations Complaints Handling
• Communications with Board / Supervisors /
  Regulators

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Compliance Function Supervisors
Similarities

• Both
• Protect the integrity of the organization
• Integral part of the governance and
• oversight structure
• Need to understand the business
• Be objective and independent
• Perform independent assessments

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Compliance Function Supervisors
Differences

• Compliance Responsibilities
• Advice and oversight of compliance program
• Involved in regulatory
• relationship management
• Analyzing regulatory
• requirements
• Developing Compliance Culture
• Reports to
• Reports to Board

Supervisor Responsibilities Carries out
internal audits in order to provide assurance
as to the effectiveness of all internal controls
across the organization (third line of
defence) Carries out audits of the Compliance
function Reports to Reports to Members
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Compliance Function Supervisors
Differences
Supervisors Expertise - Audit and control
subject matter experts - Providing advice as to
effective business process solutions, which meet
audit and control requirements - General
knowledge of regulatory and related risk of
non-compliance Activity - Periodic in context
and the audit schedule/cycle

• Compliance
• Expertise
• Regulatory subject matter
• experts
• Compliance risk assessment
• Providing advice as to
• effective business process
• solutions, which meet
• compliance requirements
• Activity
• Ongoing

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Compliance Culture Checklist
Compliance Culture - Suggested Requirements

• Compliance Function (Committee/Officer)
• Compliance Manual Policy
• Active Supervisory Committee
• Board insists on Compliance Reports
• Whistle Blowers Charter
• Compliance Statement