Compliance

CUDA attended the AML Private Sector Consultative Forum (PSCF) last month and provided an update to your CUs.  The Department of Finance (DOF) and Central Bank were in attendance.  CUDA wish to give you an update in relation to the Beneficial Ownership Register, requirements under the 4th EU Money Laundering Directive and European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016.

CUDA previously communicated with your Credit Union, in February 2017 and provided guidance in relation to the setting up the Beneficial Ownership Register (BOR) at your CU.  There have been significant delays at government level in the setting up of the Beneficial Ownership Register due to delays in implementing legislative provisions etc.  Ireland has been under significant pressure to finalise this element of the 4^th AMLD and EU infringements are imminent if Ireland cannot comply ASAP.   Draft regulations on Beneficial Ownership of Corporate Entities) Regulations 2019 have already been circulated to your CU.

While CUs are unlikely to be as significantly impacted as other financial institutions, a number of requirements were set out in the 2017 guidance.  The following is a summary of requirements for CUs.

1. Establish the beneficial owners of the credit union

Establish the beneficial owners of the credit union.  For the purposes of the Regulations, a “beneficial owner” is a person who ultimately owns or controls the relevant entity, in this case the credit union…..   The credit union must, at a minimum, record the information in respect of each director and the chief executive officer/manager of the credit union in the Register as its beneficial owners.   

2. Obtain the required information and enter it on the Beneficial Ownership Register

 When the credit union has established its beneficial ownership, the requisite information and supporting documentation for the purposes of the Regulations must be obtained from them and entered on to the Register.  As this is most likely to apply to the senior managing officials of the credit union, the following sets out the matters that should be included in respect of them

• Name
• Date of Birth
• Nationality;
• Residential Address;
• Statement of the nature and extent of interest held by that beneficial owner (We would suggest that the position held by the person in the credit union could be included here).
• Date on which that person was entered in the Register as a beneficial owner; and
• Date on which that person ceases to be a beneficial owner (whenever applicable).
• PPSN — It is noted in the new draft regulations that a further requirement for PPSN is now also included and hence will need to be captured on the beneficial ownership register.

In 2017, CUDA sought and obtained a practical interpretation to the restrictive and prescriptive reserve requirements contained in the 2016 Regulations. Despite the Regulations requiring that reserves must be “perpetual in nature”, we obtained CBI confirmation that transfers can be made by a credit union into and out of reserves held in excess of the 10% RR requirement. Please find below June 2017 Info Briefing post on this, and we attach the RCU/CUDA correspondence as circulated following our progress on this topic. Where required, please circulate the attached letter to your auditors.

June 2017 Info Briefing

We have now circulated correspondence between the RCU and CUDA to your credit unions following concerns relating to the perpetual and non-distributive nature of all reserves.           

The concerns centred on the apparent restrictive nature of the 2016 Regulations with respect to reserves (namely, Reg 3(1) (a-c)). Setion 45(1), 1997 Act, as amended, requires a credit union to ensure that the regulatory reserve is unrestricted and non-distributable. Section 45(2) requires that a credit union ensure all reserves remain adequate. However, Regulation 3(1) went a step further by requiring that all reserves are perpetual in nature, unrestricted and non-distributable. The difficulty is that this presents the possibility that credit unions are unable to utilise funds in their reserve accounts for distribution as dividend or otherwise intended.

Whilst it is acceptable that the regulatory reserve is defined as realised financial reserve (i.e. unrestricted and non-distributable), ensuring all reserves (as required under the Regulations) are perpetual and non-distributable was hampering credit unions effectively utilising the funds and ensuring that the accounts are maintained adequately taking into account the nature, scale and complexity of the credit union. 

We sought and obtained direction from the RCU in relation to Regulation 5, which requires a credit union to ensure compliance with Part 2 of the Regulations and Section 45, i.e. how can a credit union maintain the adequateness of the reserve if additional reserves (i.e. the reserve minus the regulatory reserve) cannot be decreased as well as increased in line with credit union requirements? 

The correspondence, now circulated, confirms that:

• it is for the board of directors of each credit union to decide on the amount of reserves to hold in excess of this minimum requirement having taken prudent account of the scale and complexity of the credit union’s business, its risk profile and prevailing market conditions.

• transfers can be made by a credit union into and out of reserves held in excess of the 10% minimum RR requirement so long as the credit union has satisfied itself that the total level of reserves held are appropriate taking prudent account of the scale and complexity of the credit union’s business, its risk profile and prevailing market conditions.

Credit Unions should refer to the correspondence for further analysis and if you have any queries, please contact us at the CUDA Offices (elaine.larke@cuda.ie or kevin.johnson@cuda.ie).

As you know we have been working on a revised Credit Agreement. Recently, we concentrated on PPI and considered options in relation to the removal of reference to PPI from the credit agreement.  The preferred option is that separate correspondence will issue in relation to PPI alongside the Credit Agreement. We have also been working closely with NALA with the intent of obtaining the Plain English Mark for the credit agreement going forward.  The revised credit agreement is with the CBI. They are carrying out their internal assessment of the proposed amendments and once they revert to us, our next step will be to talk to the IT Providers. Further updates on the revised Credit Agreement can be found on CUDA connect.

These Regulations provides for the continuation of the levy payable by each credit union in respect of its liability for the year ending 31^st December 2019. The levy is calculated on the basis of 0.001076% of total assets as at 30^th September 2018. A minimum levy of €50 is payable by each credit union.