Outcome of themed inspections on Outsourcing in credit unions released

• Assesses level of outsourcing across credit union sector.
• A number of good practices identified, though some areas require improvement.
• All credit unions should consider the issues raised in the report.

The Central Bank has today, 28 April 2017, published a report on a thematic review of outsourcing within credit unions. The review assessed the level of outsourcing within the sector and the level of compliance with relevant legislative and regulatory requirements.

The Central Bank recognises that the outsourcing of certain business activities is increasingly important for credit unions as they seek to develop their business models.  Ideally, it should enable those credit unions to avail of potential efficiencies and access necessary technical and operational expertise in a cost efficient manner. It can further enable credit unions to release internal resources for other areas of credit union operations.

However, the core principle of the outsourcing regime is that while activities may be executed by parties outside of the credit union, responsibility for these activities remains with the credit union board. Accordingly, the focus of the Report is on the robustness of selection, reporting, oversight and performance review.

It is clear that some credit unions have a robust framework in place and a number of examples of sound practice by individual credit unions were identified. It was notable that this was not confined to the larger credit unions in the sample. Examples of sound practice identified are outlined in the report.

However, the inspections also highlighted a number of issues, including:

• A number of instances where credit union board involvement in the outsourcing process was inconsistent, and in some cases, non-existent.
• Informal and undocumented selection of providers which exposed credit unions to the risk of not securing the best service available.
• Failure to properly negotiate service level agreements that resulted in the credit union having reduced input in the finalised arrangement.
• Instances where reporting to credit union boards tended to be on an ad hoc basis and normally only done when an issue arose.

Where issues have been identified the Central Bank followed up directly with the credit unions concerned to address these issues.

The Central Bank expects all credit unions to consider the issues raised in the report and to examine the implementation of their own outsourcing agreements, policies and procedures, developing and enhancing these where necessary by taking account of the findings and observations as set out in this report.

Read the full report here: 2017 Report on Thematic Outsourcing Inspections in Credit Unions (PDF 648.03KB).

Notes

Section 76J of the Credit Union Act, 1997 (“as amended”) is the primary piece of legislation governing outsourcing within credit unions. This section came into effect on 11 October 2013.