The Central Bank of Ireland has fined E-Services & Communications Credit Union (ESSCU) €155,000 and reprimanded it for a contravention of regulatory requirements contained in Section 21 of Central Bank Reform Act 2010. The contravention was admitted by E-Services and the enforcement action has been concluded by way of settlement agreement between the parties.

A Fitness and Probity (“F&P”) regime for credit unions came into effect on 1 August 2013 and was implemented on a phased basis. The regime imposes regulatory standards on individuals performing influential and customer-facing roles, designated ‘controlled functions’ (“CFs”). The Fitness and Probity Standards for Credit Unions (the “Standards”) have applied to all CF holders in E-Services since 1 August 2014. The regime further imposes obligations on credit unions themselves to not allow individuals to perform CFs unless they are “satisfied on reasonable grounds” that the individuals meet the Standards and have agreed that they will abide by the Standards.

The Central Bank’s investigation identified three separate breaches in relation to E-Services’ F&P requirements. Two breaches occurred over a period of three years and three months. One breach occurred over a period of three years and five months.

During these periods, E-Services failed to:

  • Introduce adequate systems or controls to ensure full compliance with its F&P obligations;
  • Take all reasonable steps to carry out adequate F&P due diligence on individuals performing CFs; and
  • Ensure that certain employees and an outsourced internal audit service provider complied with and agreed to abide by the F&P Standards.

The breaches came to light as a result of a Themed Inspection carried out by the Central Bank. Following the inspection, the Central Bank issued a Risk Mitigation Programme (“RMP”) to E-Services detailing the deficiencies identified, as well as the remedial actions required. An aggravating feature in the case was a representation made by E-Services in response to the RMP that all F&P deficiencies had been rectified when it subsequently transpired that this was not the case.

The Central Bank’s Director of Enforcement and Anti-Money Laundering, Seána Cunningham, said “Under the fitness and probity regime, financial service providers, including credit unions, are responsible for ensuring that individuals in senior positions are fit and proper, both at the time of their appointment and on an ongoing basis. The risks where credit unions fail to do so are significant, and misconduct by senior management in the wider credit union sector and other sectors has previously been identified and sanctioned by the Central Bank.”

“This is the first case against a credit union for a breach of its section 21 obligations. E-Services not only failed to meet its obligations under the fitness and probity regime but it represented to the Central Bank in response to an RMP that these obligations had been met when it subsequently transpired that this was not the case.  RMPs are a key supervisory tool and the Bank must be able to rely on firms responding to them accurately. E-Services failure to do so was, therefore, an aggravating factor. The fine reflects both the significance of the underlying regulatory failings, and the seriousness of misrepresenting compliance to the regulator”.