Irish credit union fined €210,000 by Central Bank

Ireland’s Central Bank has fined St Canice’s Kilkenny Credit Union €210,000 and reprimanded it for eight breaches of the Credit Union Act following an investigation.   The breaches have been admitted by the firm and the enforcement action has been concluded by way of settlement agreement between the parties.

The Central Bank’s investigation found governance and risk management failures in relation to the outsourcing and implementation of the Credit Union’s migration to a new IT system in August 2014.   The main consequence of these failures was the Credit Union’s inability to reconcile its main transactional bank account over 15 months, which exposed members’ savings to a risk of loss, although no loss was actually sustained. Upon becoming aware of the bank reconciliation issue, St. Canice’s failed to report it to the Central Bank and during that time knowingly submitted 5 inaccurate quarterly prudential returns to the Central Bank.  The Central Bank is satisfied that St Canice’s has addressed all issues of concern identified in the investigation.

Central Bank of Ireland’s Director of Enforcement and Anti-Money Laundering, Seána Cunningham, said “A key function of the Central Bank is to administer the system of regulation and supervision of credit unions in order to protect members’ savings and to ensure credit unions are properly operated and managed.  Credit union members have an expectation that their funds will be safeguarded to the highest standards.  Effective safeguarding of funds is built upon robust governance and systems and controls within a credit union.  The board of a credit union retains primary responsibility for these matters and therefore must adequately oversee and manage all activities of a credit union, including those outsourced to a third party.

St Canice’s failed to properly manage the integration of a new IT system which resulted in the Credit Union being unable to reconcile its main transactional bank account correctly.   As a result, St Canice’s was unable to ensure the protection of members’ savings, although no loss was actually sustained.  A further consequence of the failings was that St Canice’s knowingly submitted incorrect prudential returns to the Central Bank for 15 months. This is unacceptable as the Central Bank relies on these returns to assess the financial position and stability of credit unions.  By submitting inaccurate returns, the Credit Union compromised the Central Bank’s ability to effectively and appropriately supervise it.

St Canice’s also failed to report the bank reconciliation issue to the Central Bank.  The Central Bank expects the board and officers of all regulated firms to report issues without delay and to engage with the Central Bank in a proactive and meaningful manner.

The level of the fine reflects the potential serious impact on members, the failure to ensure effective oversight and governance; and the lack of engagement with the Central Bank.  Regulatory failures of this nature will result in rigorous investigation and appropriate enforcement action.”