Irish credit union, Savvi has been fined €185,500 by the Central Bank of Ireland for failure to comply with the requirements for long-term lending and the restriction on paying remuneration to directors

The Central Bank determined that the appropriate fine was €265,000, which was reduced by 30% in accordance with the settlement discount scheme provided for in the Central Bank’s Administrative Sanctions Procedure.

The breaches occurred between 2013 and 2017 and related to the following:

  • Failure to comply with the Central Bank’s limit for long-term loans.
  • Failure to put in place appropriate systems, controls and governance arrangements to manage long-term lending.
  • Paying remuneration to a director, which is prohibited under credit union legislation.

Long-term lending (or long-term loans) in this context refers to lending exceeding 10 years.  The Central Bank sets lending limits to mitigate risks specific to long-term lending including credit, liquidity and concentration risk.

In July 2017, Savvi notified the Central Bank that it had breached the long-term lending limit at the end of June 2017.  Despite this, Savvi issued a further nine long-term loans between July 2017 and December 2017.  Each of the nine loans represented a breach of the relevant long-term lending limit set by the Central Bank.  The investigation found that Savvi’s systems, controls and governance arrangements were deficient in a number of respects.

Payment of remuneration to a director is expressly prohibited under credit union legislation.  Savvi reimbursed travelling expenses, totalling €28,341, over a period of four years in excess of the applicable Civil Service Rates.  This constituted the payment of remuneration.

Seána Cunningham, the Central Bank’s Director of Enforcement and Anti-Money Laundering, said “The Central Bank is responsible for regulating and supervising credit unions to ensure that they comply with their regulatory obligations and take appropriate measures in the best interests of their members.

“We welcome that credit unions seek to grow and develop their businesses, however regulations and safeguards still apply and, must be adhered to at all times.  Lending limits act as a safeguard to mitigate the specific risks associated with different types of lending.  As such, Savvi’s breach of the long-term lending limit is a serious matter for the Central Bank.”

“There should be no conflict between business activity such as providing loans and compliant behaviour and actions. This will be particularly important as credits unions seek to increase the provision of long-term lending such as mortgages to their members.”

“Changes to the lending profiles of credit unions must be supported by critical enablers such as the necessary skills, competence, expertise and risk management and operational frameworks to ensure that lending is appropriately managed and regulatory limits complied with.”

“Credit union lending will continue to be an area of focus for the Central Bank and this enforcement action should send a clear message to the sector that credit unions must take a responsible and prudent approach to ensure compliance with their regulatory requirements.”