Enfield to take on Mountstreet – cutting the apron strings ?
http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=MARKETS-qqqm=nav-qqqid=31799-qqqx=1.asp
The Enfield motion launches an exocet missile into the heartland of Irish credit unionism setting the scene for a major family squabble.The enfolding saga comes from an extraordinary public exposition of credit union investment competence and its historic reliance on an organisational system, through which many credit unions have abdicated fiduciary responsibility to an unregulated parental guidance system.
http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=MARKETS-qqqm=nav-qqqid=31799-qqqx=1.asp
The Enfield motion launches an exocet missile into the heartland of Irish credit unionism setting the scene for a major family squabble.The enfolding saga comes from an extraordinary public exposition of credit union investment competence and its historic reliance on an organisational system, through which many credit unions have abdicated fiduciary responsibility to an unregulated parental guidance system.
Many consider the Ombudsman has highlighted a fundamental problem in holding that Enfield has no more than layman status. The Ombudsman opinion appears to be based on experience of “credit union people” who it seems cannot be deemed to have a professional competence. What’s more, it appears everyone should know this.
Is this to say that "credit union people" have no more an ability to assess investment risks than the average person in the street? This may well be the case – they may not be competent professionals – but public expectation is that a credit union, as a regulated financial firm, should be a competent firm.
It is an expectation enshrined in legislation. Credit union law clearly implies that credit unions must have investment competence by empowering Boards to make investment decisions. In the same way the law empowers a Board to make lending decisions and other decisions relating to credit union business operations.
What of the Regulators position? It has strongly advised that credit unions pronounce themselves to be retail investors - a self declaratory layman status. Thus the implied official position of the Regulator is that credit unions are no more competent than the average unsophisticated consumer. Additionally the dominant trade body, the ILCU, has also urged credit unions to pronounce layman status.
Its recognition of the reality that credit unions have not achieved levels of organisational competence required of other regulated financial firms. It is a recognition that cuts to the heart of credit union sector safety and soundness.
What of ILCU status as an investor? Is it not itself but a co-operative of credit unions, governed by laypeople who make decisions on the investment of millions in its Savings Protection Fund and its insurance subsidiary? Should the ILCU seek to recover, any investment losses it has incurred through its investments on the same basis as Enfield?
Enfield is probably right to demand an independent review and report but for the wrong reasons and of the wrong body.
It could demand the Regulator do its job and review the totality of regulated and unregulated relationships and systemic risk inherent within the ILCU system.
Credit unions are public interest bodies. The public interest can only be served through an independent review and public report by the statutory body charged with the regulation and supervision of credit unions, the Financial Regulator.
4 comments:
It is about time that the Financial Regulator got the finger out - credit union members moneys are being lost in massive investment losses, through the Perpetual Bonds directly, through the Central Treasury Fund and through the so called Savings Protection Scheme Fund. The Regulator stands off, waving an accusing finger, and ultimately doing nothing.
The ILCU has no investment management skills. The Regulator allows credit unions to plough members money into an un-regulated so-called "protection fund". I blame the Financial Regulator for playing the political game of turning the blind eye towards the ILCU fund. The so-called "accounts" of this significant fund are far from transparent.
Regulator - get off the fence.
The Regulator has no role in the oversight or regulation of the ILCU SPS. The finger points to the Department of Finance whose officials are intent on a solution within the context of curent legislation - codespeak for negotiate the approval and regulate the ILCU SPS. To be fair to the Regulator it did produce a draft heads of a bill for a scheme not unlike the O'Toole Bill in early 2006 following ILCU proscratination and obfuscation. The ILCU countered by appealing directly to the Minister -
So far members money has not been lost - what has happened is credit unions (regulated financial firms) have engaged in highly imprudent income maximisation investment strategy, with the backing of the ILCU - leading to losses in highly innappropriate products- none of which yet has resulted in substantial danage to solvency. Nonetheless savers funds have been exposed to undue risks - The Regulator has been rather quite of late - one wonders what the true scale of undue risks are.
"So far members money has not been lost", Mount Street says. Rubbish! Some €46 million has already been lost on perpetual bands. Nearly as much more has been lost in ill-fated ISTC bonds. Credit Unions are losing an average of €35,000 principal, not to mention interest foregone, in every million they have invested in the ILCU's Central Treasury Fund. Credit Union members' money is being lost daily by a combination of sheer incompetence and ignorance.
Credit Union investment losses are currently being financed from either operating income or reserves but not from member’s savings/money. In the same way loans losses are financed through provisions and write offs. Thus to say that member’s money is being lost may be somewhat incorrect.
Of course member’s value is being impaired as investment losses tend to reduce a dividend/interest rebate, reduce investment in better products/services including lowering loan rates and impair reserve creation.
The dearth of investment competence exposed recent events should cause all credit union boards to take stock of their duty of care to ensure safety and soundness. This includes ensuring the credit union is a competent financial co-operative with the skills and abilities to undertake the business of a credit union which includes prudential investments that do not expose members savings to undue risks.
Post a Comment