The Report of the Commission on Credit Unions 2012 identified the issue of governance as at the core of strengthening the regulatory framework for Credit Unions.
The Credit Union Act 1997 sets out comprehensive governance standards that include a clear organisation structure, with well defined, consistent reporting lines that reflect the nature, scale and risk profile of the CU.
The new standards emphasise the importance of the separation of authority and responsibility between the Board of Directors (governance and oversight functions) and the management team (implementation of policy and ‘day to day’ operations).
Governance is the system by which the CU directs and controls it’s affairs to meet strategic objectives; protect member’s funds; and ensure compliance with the legal and regulatory framework.
The organisation structure – the allocation of people and resources – is a matter for individual CU but should reflect the scale, complexity and risk profile.
The Board is responsible to the membership for the performance of the CU, but authority for day to day activities is delegated to the management team.
The CEO / Manager should act as the link between the Board and the executive management team. The separation of functions ensures that there is clarity about individual authority and responsibilities and avoids the possibility of failure of governance or conflicts of interest.
The Board of Directors must consider the management structure and ensure that individuals appointed to management positions have the necessary authority and resources to fulfil their roles.
The legislation sets out a number of control functions that must be put in place – CEO / Manager, Risk Management Officer, Compliance Officer, Internal Audit function.
The Board of Directors should approve comprehensive JD’s that include statement of role and responsibilities, reporting lines and identify the form and content of reporting arrangements.
Appointments to Control Functions
The Central Bank Reform Act 2010 introduced regulations for individual appointed to control functions; such as Chairperson, CEO, and Risk Management Officer.
The Act provides the Central Bank with the power to set out regulations and standards of ‘fitness and probity’.
The standard requires that a person will:
(a) Be competent and capable
(b) Act honestly, ethically and with integrity
(c) Be financially sound
The CU must satisfy itself that an applicant complies with the Fitness & Probity standards by carrying out a ‘due diligence’ exercise – thorough examination of the employee records, qualifications and experience.