Regulatory & Supervisory Outlook Report – 5 Key Risk Topics for Credit Unions

The Central Bank of Ireland has published its Regulatory & Supervisory Outlook Report 2024 which includes the Central Bank’s outlook on what it considers to be the 5 key risk topics for credit unions:

1. Financial risks and resilience – the report highlights viability concerns for individual credit unions pointing to continued low loans to assets ratios together with low investment returns (while acknowledging there have been some recent increases) and the continuing increase in member savings as the underlying threats to overall viability being driven by macro-economic conditions.
2. Culture, governance and risk management – the Central Bank has identified “gaps in board oversight, lack of consideration of risk-related issues and ineffective risk management frameworks and practices”. The report states that “risk management is being viewed by some as a regulatory compliance matter rather than a key business enabler” and that the three lines of defence model is not being effectively embedded in some credit unions.  Subscribers to CalQRisk’s Risk Advisory Service will find this interesting given the focus of much of the documentary supports and training availed of by our subscribers in recent months has been on encouraging proactive engagement with both governance and operations with the aim being to embed a more responsive, joined-up and comprehensive approach to credit union risk management.
3. Strategic risks and adapting to structural change – Citing the rapid and transformative nature of technology-driven change in the financial sector, the report highlights a concern that “the credit union sector is at risk of not keeping pace with digitalisation and the resultant impact on members’ needs and expectations”. The role of risk management in the strategic planning process has been a key area of focus for CalQRisk’s Risk Advisory Service with the contribution that risk management can and should be making to strategic planning being the subject of our October 2023 quarterly subscribers e-zine, Risk Today.
4. Operational risks and resilience – attention was brought to the credit union sector’s reliance on a limited number of business-critical third party outsourced service providers particularly in respect of technology and payment services. The report also stresses the importance of operational resilience and disruption preparedness.  Key elements underpinning the development of a strong risk management framework are identifying and managing the risks associated with outsourcing and monitoring third party performance on an ongoing basis.  These are vital components of an effective operational resilience framework.
5. Climate change and other environmental-related risks – the report states that “credit unions are at an early stage of understanding climate related physical and transition risks” and the general and credit union-specific impacts as well as the risk mitigation required. CalQRisk has incorporated relevant risks into its software and delivered a number of climate and environmental risk related events to support its credit union customers. The Risk Advisory Service subscribers have also received a detailed guide to Climate & Environmental Risk Assessment which will assist them in taking the next steps on their individual climate-related and environmental risk management path, including the development of what the report terms “credible and achievable plans” to address these risks.

Also according to this report, credit unions have decreased in number by 34% since 2016 and over the same period, their assets have grown by 29%.  With our fully integrated end-to end governance, risk & compliance management information system, ongoing customer support, training events and risk advisory function, CalQRisk actively supports credit unions in continuing to develop and embed effective risk management frameworks in their organisations as they evolve in size and complexity in a risk-aware manner.