Implementing Fitness and Probity

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Implementing Fitness & Probity CU Learning & Development September 2013 1

The Purpose of this Seminar is to::

2 The Purpose of this Seminar is to: Provide an overview of the Fitness and Probity regime for credit unions Highlight the roles involved Provide an F&P implementation plan for credit unions

Overview:

3 Overview Overview of F&P Regime What is F&P? Who does it apply to? Due diligence Pre-approval How to comply Key officers Key documents Key deadlines ILCU supports F&P webpage Training HR & Legal support

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4 1. Overview of Fitness & Probity Phase 1: 1 st August 2013 > 10m assets

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5 Central Bank Reform Act Banking Crisis Minimum Competency Code 2010 2011 2012 2013 Commission Report Credit Union Acts 1997 to 2012 CP62 F&P Regime: 1 st Aug 2013 Part 3 of CB Reform Act Background

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6 What is F&P? “be capable and competent with the appropriate skills, experience, knowledge and integrity to manage and govern the credit union prudently” For key credit union officers to….

What is F&P?:

7 What is F&P?

F&P Standards - Assess key officers under three categories: :

8 F&P Standards - Assess key officers under three categories: Financial Soundness - Unsatisfied judgement debt - Undischarged bankruptcy - Director of insolvent entity Honesty, integrity & ethics - Disqualified director - Subject to FSO /CBI complaint - Director of struck-off company Competence & Capability - Relevant experience - Relevant training & qualification - Conflicts of interest

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9 CF regardless of whether full-time, part-time, contract, voluntary or consultancy CF lists above not exhaustive

Controlled Functions:

10 Controlled Functions DD on all CFs (in-situ CFs completed by 1 August 2014 ) CF must provide CU with required information CF must comply with the Standards CF must agree in writing to abide by the Standards

Due Diligence:

11 Due Diligence Internal process carried out by the credit union Can include: Completion of IQ form Supporting documentation Independent checks by CU (e.g. judgments search) Interview Largely based on self-declaration Obtain agreement in writing from each CF that they comply with the Regulations and Standards and that they will notify the CU of any material changes to initial due diligence or if they no longer comply with F&P Standards –annual basis

Pre-Approved Controlled Functions:

12 Pre-Approved Controlled Functions PCF’s are sub-sets of CFs CU must carry out due diligence on all PCFs New PCF’s (after 1 August 2013) must be pre-approved by CBI Approval should be sought and received in advance of AGM Individual questionnaire (IQ) must be completed Pre-approval will take approx. 15 working days Must be pre-approved in writing in advance of being appointed

Individual Questionnaire Form :

13 Individual Questionnaire Form Tailored for Credit Unions An online form Individual accounts created by CU CV section Attach additional info Declaration by PCF and by CU officer Sections 1-11 by applicant Section 12 by credit union and submits PCF applicant responsible for all info given

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14 2. How to Comply

Key Documents:

15 Key Documents To achieve compliance we recommend: Strategy (objective on recruitment of key officers) Succession Plan* Training & Standards Policy Board Rotation Policy Nominations procedure Role Descriptions (all CFs and PCFs) Terms of reference for the Nom Comm* Contracts of employment*

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16 Board of Directors Ensure Policy & Succession Plan Oversee Nomination Committee Due Diligence for – directors, manager, BOC members, (internal audit, RM officer, compliance officer?) Facilitate pre-approval for applicants to Chair & Manager role Maintains necessary documentation Manager Due Diligence for staff CF roles Maintains necessary documentation Implement controls Internal Audit Independently audits controls associated w/ F&P Compliance Officer Ensures CU acting in compliance w/ Regs. TLO Key Officers

Role of the Nomination Committee:

17 Role of the Nomination Committee A very influential committee All candidates for board must be proposed by nomination comm. Ensure a balance of collective skills & experience when nominating Conduct due diligence on candidates (manage F&P) Now must be active 12 months of the year Section 56B of Acts

What Can CU’s Do?:

18 What Can CU’s Do? Refer to – “Management of Training in the Credit Union” Training & Standards Policy – best way for board to ensure that all are undertaking adequate training Active Nomination Committee / Training Liaison Officer Training Needs Analysis – identify officers that need qualifications and training Ensure all staff and volunteers are provided with relevant training

What Can CU’s Do?:

19 Prepare for introduction of F&P Commence Due Diligence plans for PCF’s and CF’s – complete in-depth due diligence Only propose a suitable person for a position Monitor persons (on-going) Succession planning Volunteer Recruitment Strategy – develop a long-term approach to attracting suitable volunteers What Can CU’s Do?

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20 Date Development 1 Aug 13 CU >10m assets Standards of F&P apply to all in-situ PCFs All new PCFs will require due diligence carried out and pre-approval from CBI 1 Nov 13 Standards will apply to all newly appointed CFs 1 Dec 13 Due diligence to be carried out on in-situ PCFs List of in-situ PCFs (as of 1 Aug 13) to CBI, confirming they complaint with standards (DD has been carried out) and agree to abide by standards Next AGM Ensure that all candidates for role of Chair have been through DD and Pre-approval 1 Aug 14 Standards apply to all CF roles. Due diligence will have to be conducted by this date Timeline – Phase 1

Breaches:

21 Breaches Failure by a person to comply, or satisfy the CBI as to an ability to comply, with F&P Standards may lead to: Refusal to appoint a PCF by CBI Where a person is performing a CF, lead to an investigation being conducted in relation to the F&P of that person to perform the relevant functions Suspension or prohibition of a person from carrying out a CF or PCF Apply administrative sanctions procedure to credit unions

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22 3. ILCU Support

ILCU Support on www.creditunion.ie :

23 ILCU Support on www.creditunion.ie

Overview of Pathways :

24 Overview of Pathways Feb/Sept ‘14 ROI NQF L6 July ROI NQF L7 Mid ‘14 NQF L8 Cert in CU Gov Cert in CU Ops Diploma in CU Gov Diploma in CU Ops Degree in CU Business Masters NQF L9

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25 Standards Guaranteed 15 hours relevant training Records of Compliance Maintains F&P and MCC requirements

Further Information:

26 Further Information +353 1 614 6754/6932 learning@creditunion.ie Suzanne Ryan, Head of CU L&D Kevin Loughnane, L&D Advisor Michael Mullen, L&D Advisor www.centralbank.ie www.culearn.ie

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27 Frequently Asked Questions?

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28 Question 1 Who should complete due diligence for Controlled Functions (CF’s) within the credit union?

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29 Answer to Q1 This can be carried out by the Board of Directors or the Nomination Committee. In the case of staff the Manager can carry out due diligence. In the case of the Board Oversight Committee members, a member of the Nomination Committee and a member of the Board Oversight Committee should carry out due diligence on the Board Oversight Committee members. It is a matter for the credit union to decide based on these guidelines. Please refer to Section 8 of the Fitness & Probity Guidance for further information.

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30 Question 2 Is there a template for carrying out due diligence?

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31 Answer to Q2 The credit union can develop its own template based on the requirements under the Fitness & Probity Standards. However, it is recommended that the IQ form be used as a reference to how due diligence should be carried out and sections on the form not relevant to the CF can be omitted. By using the IQ form it will ensure a consistency in how due diligence is approached across the credit union and ensure it meets Central Bank requirements. Please note: If the CF is not a PCF requiring Central Bank pre-approval the IQ form does not need to be sent to the Central Bank or completed online. A sample IQ form is available on the Central Bank’s website.

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32 Question 3 Does due diligence and pre-approval have to be carried out on an in-situ Chair who is going for re-election at AGM 2013?

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33 Answer to Q3 Yes. Due diligence must be completed on all PCF’s according to the timeframe outlined for phase 1 of fitness & probity. In-Situ Chairs are only exempt from pre-approval until the next AGM when they are up for re-election (November this year). At that stage they must complete due diligence and the online IQ form and wait to receive written confirmation from the Central Bank that they have been approved (or not) After an in-situ Chair is re-elected this year they can then hold onto that approval (unless something changes to a material degree) until the end of their term (4 years max) as long as the credit union confirms to the Central Bank that nothing has changed since pre-approval i.e. that they still abide by the F&P Standards

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34 Question 4 What qualifications do the controlled functions need?

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35 Answer to Q4 The Central Bank does not prescribe any particular qualifications that are required. However, in order for the controlled function to be fit and proper they must have the qualifications, experience, competence and capacity appropriate to the relevant function. This will differ for each function and what is important is that any qualifications completed are relevant to the role the CF is in. As described in the presentation there are a number of supports in this area available from CU Learning & Development.

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36 Question 5 How do we notify members about the changes around F&P and how to put themselves forward as volunteers?

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37 Answer to Q5 This can be done by updating your credit union website to reflect the new process for volunteering. Letting potential volunteers know how to apply to volunteer in the credit union. An active nomination committee will also be necessary which should be active 12 months in the year. Having an up to date Volunteer Recruitment Policy/Guide in place will also help in this area. Ensuring all current staff and volunteers are aware of the changes will also be helpful in case they receive queries from potential volunteers. If possible place new volunteers in non-controlled function roles when they first volunteer, they can then get qualified and/or gain experience and as part of your succession plan can be developed to move into a certain controlled function role when they are fit and proper.

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38 Question 6 How does a credit union know when someone is a CF, how do you define a CF?

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39 Answer to Q6 On slide 9 we listed the most common CF roles in a credit union, however, this will differ from credit union to credit union. Also, this was not an exhaustive list. The Central Bank say that the credit union must refer to the competencies for the role, the nature of the role and what decisions this role is involved in making and refer to the legislation to define who is a CF. A CUCF-1 is a function in relation to the provision of a financial service which is likely to enable the person responsible for its performance to exercise a significant influence on the conduct of the affairs of a credit union A CUCF-2 is a function relating to ensuring, controlling or monitoring compliance by a credit union with its relevant obligations.

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40 Question 7 Should a Director who is due for re-election serve on the Nomination Committee?

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41 Answer to Q7 It would be preferable if this person did not serve on the Nomination Committee the year they are due to be re-elected

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42 Question 8 Where can we check if we are putting in the correct information into the IQ Form on the Central Bank’s ONR system?

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43 Answer to Q8 The Central Bank provides detailed guidelines and video clips on how the ONR system operates and how to complete the IQ form on the central banks website

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44 Question 9 If we are hiring a new Manager do we get them approved before or after offering them the job?

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45 Answer to Q9 A new CUPCF-2 (Manager) who commences after Fitness & Probity has been introduced for that credit union, must be pre-approved in writing by the Central Bank before they can be offered the job. Due diligence must be completed on them, this can be integrated into the interview process. When the credit union has chosen their preferred candidate they must then let the person know this is subject to Central Bank pre-approval. As part of their contract they must agree in writing to abide by the Fitness & Probity Standards. All of this information could be mentioned as part of the introduction section of the interview with each candidate to ensure they are aware of the process involved. Please refer to Section 6.4 of the Fitness & probity Guidelines for further information.

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46 Question 10 If the role of the Manager has to change due to the new legislation do they have to go through due diligence and pre-approval?

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47 Answer to Q10 If the nature of the role inherently changes then they may have to complete pre-approval. Due diligence must be completed on all PCF’s according to the timeframe outlined for phase 1 of fitness & probity. If there are only minor changes to bring the role in line with changes in the legislation, pre-approval will not be necessary. Please refer to Section 6 of the Fitness & Probity Guidance for further information.

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