What is behind recent spate of fraud in credit unions?

A number of cases of fraud in the credit union sector recently can partially be explained by the beefing-up of oversight and regulatory framework, but they still bring an unwanted headache for a sector that has had its fair share of controversy.

It emerged on Wednesday that gardaí are investigating, and a staff member has been dismissed, after a case of fraud was discovered at Gurranabraher Credit Union in Co Cork.

Separately, a series of investigations were carried out into missing funds at the Rush Credit Union in north Co Dublin last year. Meanwhile, gardaí last week investigated a number of "unauthorised transactions" at Synergy Credit Union in Fermoy, Co Cork.

Firstly, it’s important to note that most customers will not be out of pocket due to the Deposit Guarantee Scheme, which is a Central Bank mechanism that guarantees deposits up to €100,000 per person per institution.

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Current accounts, deposit accounts, share accounts in banks, building societies and credit unions are covered by the State scheme.

Indeed, compensation payments were made to about 9,700 members of Rush Credit Union under the system. The total amount of compensation paid out to date amounts to €22.3 million.

Regulatory framework

Despite recent events, it is understood the authorities are not overly concerned, and put the revelations down to the improved regulatory framework that has come in over recent years.

We look at these cases very closely to see if we can learn anything and make things more robust

Credit unions in the Republic operate under specific legislation. The principal legislation covering the sector is the Credit Union Act 1997, but the rules were beefed up with the Credit Union and Co-operation with Overseas Regulators Act 2012. Together, they provide “an appropriate regulatory framework for the credit union sector”, according to the Central Bank.

Nonetheless, the regulator is understood to be closely monitoring recent cases to see if new lessons can be learned. “We need to be on the front foot as well,” said a source. “We look at these cases very closely to see if we can learn anything and make things more robust.”

Despite all that, the Central Bank's registrar of credit unions Anne Marie McKiernan, who regulates the sector, expressed heavy criticism of its compliance in March.

“Regrettably, standards of regulatory compliance are still well below those required to credibly safeguard members’ funds and position credit unions to tackle business-model development,” she told the Oireachtas finance committee.

“We are still seeing an unacceptable number of credit unions failing to display strategic understanding and good governance.”

In relation to recent cases, the Irish League of Credit Unions has said that such incidents “remain isolated”.

“While any instance of this nature is extremely regrettable, such incidents remain very isolated,” said a spokesman.

“With almost 400 credit unions in Ireland and 3.5 million members, these incidents should be seen in that context.

“As credit unions are democratic and fully accountable to their members, where such incidents occur, it often comes to public attention. This is distinctly different to other financial institutions where such incidents may be dealt with via a closed internal process.

“In recent times, credit unions have been strengthening their systems of internal control and this will continue. Indeed, additional compulsory functions such as risk, compliance and internal audit have been added to the pre-existing controls within credit unions.

“Credit unions will continue on this process to ensure these controls are as effective as possible.”